Are you the kind of person who sneaks a look at the last chapter of the page turner you’re reading? I am. Unfortunately, you can’t do it when you trade. Nor can you do it with your life. The wildness lies in wait as does the tedium.
Successful traders realize that the future is not knowable. They understand that all they have are simple probabilities. And they trust that probabilities utilized over time are sufficient. They are able to be friendly and comfortable with uncertainty even as they prepare for the improbable to occur. Just because you’ve never seen a black swan or a purple swan does not mean there are none.
Successful traders take precautions before a trade goes against them. This means they will always manage the risk by using actual or mental stop loss orders. They limit the size of their trades because they know they don’t know.
Acceptance of inevitable uncertainty creates an important difference in the way you trade. When the outcome of any trade is uncertain, and you fully accept that uncertainty; you will not be blinded by stories or opinions. You understand that so called gurus and experts don’t know the future either. You will not over-trade or under-trade. You will protect yourself against undue risk. You will be willing to act in a timely fashion because you understand that you will never have certainty until it’s history, and even then it’s sometimes murky.
The random event or set of circumstances waits to happen. You don’t dwell on it, but you do buy your insurance through proper risk management and flexibility of mind.
It is not your job as a trader to know whether any given trade will be a winner or loser. Realizing this, you relieve yourself of a huge burden. It is your job to recognize your entry and exit signals and act upon them. You feel no need to second guess yourself because you’ve created methods that put the probabilities in your favor, and those probabilities will work for you over time, just not every time.
Some people have an inordinate need to be right. Deep inside they feel that something terrible will happen if they’re wrong about something. This can have two effects on their trading. First, such a trader cannot act quickly. She will hesitate before entering a trade and once in may hesitate to get out.She’s always looking for confirmation because she needs to be right. By the time confirmation comes, however, it’s usually too late. Second, such a trader may be so endowed with the need to be right that she cannot receive information contrary to her position.
I have seen people for whom it is more important to be right than to curtail a loss. I’m thinking of one particular man who let a short position on a stock go 60 points against him. He had most of his money and a lot of his clients money in the trade. He’d written document after document on the company that had no earnings and would not for some time. But there was a story that excited people about the future of the company. They were betting on future earnings. This man was powerless to cover the short position. His self esteem was dependent on being right. He put stops above the highs and cancelled them as the stock rose. He lost another 40 points for a total of 100. Only when the pain of losing any more money was greater than the need to be right was he able to take off the position.
Since the successful trader has no particular need to be right, he can keep an open mind to the information that the market gives him. He won’t pit himself against the market. He can want what the market wants and go with the flow. He can accept the inherent rightness of the market.
The future, alas, is not knowable. All we have are probabilities. A profitable trader accepts uncertainty and even enjoys the unknowable quality of the process. It is here that the fun, excitement, and interest lie. As well as the game. After all, if we could know for certain, the game would be over.