Trading is NOT Real Life
In our Anglo-Saxon, Cartesian driven advanced industrialized world, facts rule. Whether you are a Google engineer, a designer for Apple or just a regular joe schmoe -- your life is governed by the physical reality of the world around you. As Nate Silver proved with his 2012 election call knowledge of facts is what separates winners from losers in modern society. (Are you listening Dick Morris?)
Not so in trading. In trading facts don’t matter at all. There is nothing more amusing than watching an earnest well reasoned analyst provide a thorough factual argument for his position only watch that position lose money day after day after day. This is such a common occurrence across all asset classes that almost every investor makes the same mistake.
The reason is simple. In financial markets we don’t trade facts, we trade feelings. And feelings as every parent of a teenager knows, can change on a dime. That’s why when you approach financial markets you must never allow facts to get in the way of making you money. As the great Richard Pryor once said, “Who you gonna believe? Me or your lying eyes?”
It is incredibly easy to get married to your thesis when you trade. After all in real life we are taught to stick to our guns, to hold our convictions, especially when we have the facts on our side. But trading is not real life. In fact it is often the opposite. In real life we are taught to be industrious, faithful and reflective. In trading it helps to be mercenary, promiscuous and instinctive.
In trading nobody cares if you were right about US NFP figures. Nobody cares if your US growth thesis was correct. The only thing that matters in the end is whether your analysis led to a profitable trade. If it did, good job. If it didn’t change your analysis -- don’t try to change the market. As I have said a million times when price disagrees with the news -trust price.
Remember in the financial market you can be 100% intellectually correct and still lose all of your money. That’s because in trading you only make money when the market -- not the facts -- agree with you. To win in trading never let facts stand in the way of feelings. And remember, this ain’t real life, its just trading.
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