Wang’s Happy Trading

Since the recent market has been very volatile, many investors/traders have become very emotional. I’m starting a new series of articles that delve into the emotions that people might go through while trading. To me, trading is as much about understanding the market as it is about understanding people, especially one’s own self. If you watch yourself with a clear, internal awareness while trading, you’ll likely learn many, many different things about yourself in many, many different aspects of your life.

Most people probably don’t want to talk about emotions when it comes to the financial markets. Why? Probably because talking about them gets people “emotional”! Trading while being emotional is like driving under the influence - it is very dangerous! But, talking about them can help us look deeper into the emotions and understand why we experience them. Then, perhaps, we can learn to keep them under better control. My blog is called “Wang’s Happy Trading“. So, naturally I recognize the effect that emotions can have on one’s trading/investing.

To me, emotions are the “fudge” factors in the equation that governs how successful one can be in the financial markets. You can do all the research you want, understand (or think you do) all the fundamentals, gather all the pertinent information, and analyze all the charts; these “fudge” factors can sometimes still outweigh all of the above if you don’t keep them under control.

In this first article of the series, I’m going to talk about “anger“. Anger is a very strong human emotion and can have a huge effect on us. People can get angry when they make money, don’t make money, or lose money. It’s actually very funny when you really think about it. Sometimes, whether people perceive it or not, getting angry has very little to do with the market itself, it has to do with the people! But, when people have anger, it can greatly affect their decision making capability, which could have an adverse effect on their portfolio.

So, let’s take a deeper look and try to “peel the onion”. Why do people get angry? Most of the time, it is probably because we expect a certain outcome, and the outcome doesn’t match our expectations. Other times, we may be unknowingly trying to shun responsibility by blaming others for our own mistakes. Then, there are times when we are just angry, and, every little thing can set us off.

Outcome Does Not Match Expectations
This is the funny one. I sometimes see people make some money, but exit a position too early and the stock just keeps on going. They get so angry, a lot of times at themselves, and it throws off their whole game for a day or two. To me, any profit is a blessing, and, I thank the Universe for it and welcome more with open arms. A good friend of mine, Phil Davis (who has a blog on www.philstockworld.com), has a method that he calls the “microwave theory”. The essence of this theory is that sometimes you “cook” something in the microwave and you set it for a certain time. If you take it out too early and it’s not done, you can always put it back in. But, if you cook it for too long, you might completely toast it. (I hate it when I microwave pizza for too long, and the cheese gets hard and shrinks!)

Shunning Responsibility by Blaming Others
This is somewhat connected to the first case. Obviously, here, the outcome does not match our expectation. But, instead of getting angry at ourselves, we direct the blame at others. Maybe some analyst changes the price target on a stock, or we read an opinion about a stock somewhere, or some company has something to say about an industry. Whatever it is, we are the ones who ultimately make the decision on our trades. Some part of us must have agreed with whatever information that we choose to look at in the first place.

Just Plainly Angry
This is a scary one. Some people are more prone to anger than others. Every little thing can set them off. They can be angry at themselves, angry at others, angry at the market, and, even angry at their pets! This is definitely not a good place to be. The anger may not have anything to do with the market. Or, maybe it has everything to do with the market, but, those who are angry might find it hard to pull themselves away to rethink things over and allow the anger to subside.

The point to all of this is, no matter what “angry case” one might have, it most likely doesn’t help the trading/investing, and, it probably does hurt it. Not only that, anger can also hurt our health. My philosophy in life is that whatever it is that we choose to do, if it makes us “happy” and we’re having fun doing it, we have a better chance of doing it well. This is why my blog is called “Wang’s Happy Trading“.

So, it is prudent to take a close look at ourselves if we get angry while trading. Understanding what causes the anger can be helpful in finding ways to let the anger go. Trading/investing is not simple, and does not have many set rules. If it is/does, then, everyone can probably just read some books, learn the rules, and make lots of money. In any kind of market environment, there are people making money and people losing money. Most people probably have access to similar resources (research materials, fundamentals, online information, charts…etc.), but, some people tend to always do better than others.

To me, this is partly because of the “emotional fudge factors” that I’m talking about. Therefore, staying “emotionally” healthy and balanced, can be tremendously beneficial. Since anger is one of the stronger human emotions, keeping it in check is a “happy” thing to do!

HappyTrading! ™