BarroMetrics Views: Do You Have What It Takes?
Angela Duckworth calls it GRIT. She argues that grit is more important than talent. Sure, talent gives us a leg up, but in the end, we succeed or fail by learning to do the right thing at the right time.
While I don’t disagree with her, I believe there is a pre-cursor to grit. And what is this precursor: motivation! This is especially true for traders.
Let’s examine this idea a little deeper in the next couple of blogs. I’ll be assuming that our trading plan has a positive expectancy if only we execute with some consistency,
In Pleasure and Pain, I introduced Gracia’s Pleasure-Pain Scale: the idea that we act only when an action’s (Pleasure of Action + Pain of Inaction) > (Pleasure of Inaction + Pain of Action).
The question I was asked is how to increase Pleasure of Action etc., and decrease the Pleasure of Inaction, etc.
There are a couple of ways.
The first is to make our ‘why’ (why we undertake an action) as strong as possible. I cover this subject in some detail in Live the Life of Your Dreams. The second is to make the Pleasure of Action immediate and thrust the Pain of Action further into the future.
As humans, we are wired to opt for the immediate rewards ahead of future ones. Thus, when our flight, fight or freeze is triggered, we gravitate to taking any action to ease the discomfort. It is painful and uncomfortable to sit with a trade that is going against us. At that time, it is also painful to analyse the incoming market information and ask: ‘Early exit? Or should we wait for our stop to be hit?’ So, we act to ease the pain and discomfort rather than make a decision on our best guess based on the developing market the information.
I call these ‘impulse decisions’ and more often than not they result in our deepest fears. You know, don’t you, that behind our decision-making process is the fear that whatever we do will lead to a loss (pain):
- If we don’t exit early, the market stops us out for a full loss.
- If we exit early, the market does not hit our stop and reverses to a profitable conclusion – except we longer have a position!
So, what can we do to keep our commitment and motivation going? I’ll consider this question tomorrow.