Written by Robert Sinn, Editor of MedicalGold
View the original article here.
Anyone can trade in a bull market. Just look at the recent crop of crypto millionaires that made their fortune during the largest speculative bubble in human history. The false confidence gained by these "traders" is admirable, but when the pandemonium abates and harsh reality sets in, fortune favors the adept risk manager. So what does it take to succeed when the tide turns red, long-term investments that were considered "safe" are decimated, and investors (both large and small) begin to panic sell? The answer is simple: mindset is everything.
MedicalGold's primary mission is to provide non-institutional investors with biotech sector knowledge and visibility to high-growth, under-the-radar biopharma companies that are well-positioned to be both long-term investment strategies (based on company fundamentals) and interesting trading ideas (based on overall market trends and company-specific, value-add catalysts). We believe so strongly in our investment/trading strategy and portfolio companies that we have invested in most of our sponsors, and often take long positions contingent on significant upward price movement. This article is designed to give our readers some insight into the mindset required to maintain sanity during this incredible bearish turn and shed some light on how to stoically make better investing/trading decisions. We also feel that it is important to stress that the following is not explicit investment advice, but rather a general discussion of how to manage emotion like a professional market speculator.
"...be fearful when others are greedy and to be greedy only when others are fearful."
New traders tend to obsessively focus on which stocks to buy and at what price to buy them (i.e., "setups"). Almost no thought is given to the more abstract psychology behind trading. Picking bullish stocks is obviously important, as is timing the purchase ahead of upward movement. The reality is that there is always a bull market out there, in some sector and in some instrument. The setups are endless. So why isn't everyone successful at profiting from market speculation? The truth is that the majority of traders do not dedicate enough time to establishing the right mentality to systematically identify and enter all of these great trading setups. It is so easy to get caught up in theoretical gains and spread yourself thin across asset classes and investment instruments without establishing the "meta" first principle of trading success: mindset.
Self-reflection and introspection are difficult and daunting tasks, and trading psychology isn't nearly as exciting as hitting social media with the latest 10-bagger or pic-cap crypto token that is headed "to the moon." When processing a potential idea, our inclination as human beings is to focus on the external factors that may lead to the success or failure of the exciting endeavor. Also, we naturally focus on the biggest wins and everything favor of future success and do not give adequate thought to potential losses, conveniently skipping our worst trading losses and investments. And when we do consider the choices that led to our failures, we tend to attribute the causal factors to external forces. If you give sincere consideration to the content of this article, then there's a good chance that you will tweak your trading strategy and gain a modicum of sanity in this brave new world. These nuggets of advice are bestowed by our most senior trader, who has three decades' experience in trading volatile markets over many macro-economic cycles, and has experienced many 1,000%+ winners, and many -80%+ losers.
When I am in an optimal mindset I am able to see things clearly, evaluate information objectively, and act decisively/effectively. I am in the flow, not in resistance. I am at peace, and if a trade reaches my stop loss level I experience it with equanimity.
When the market gives me what is typically perceived as "negative" information, I view it neutrally, it is not painful. It just is. It's more information for me to process.
When the market gives me what is generally viewed as "positive" information, I view it neutrally, the flowers don't smell sweeter and the sun doesn't shine brighter. It just is. It's more information for me to process.
Mark Douglas, author of the trading tome "Trading In The Zone" coined the term "Now Moment Opportunity Flow" - The now moment opportunity flow is what a trader experiences when they are completely present in the moment and processing new information objectively and free from fear/greed. They are not seeking anything from the market, and the information the market is sending is not interpreted through a bullish or bearish filter. Everything is neutral, it is my interpretation of the information I am processing that creates the "charge" (the emotional response).
Being in the now moment opportunity flow also means having a flexible and open mindset, anything can happen and I am only reducing the potential possibilities by holding a rigid view. Ultimately the market is always right, the market price is the right price, in that moment. The market price will change in the future, but in this moment the market price is the only correct price. If I engage the market with the view that the market is wrong, and I am right, then the only person that will suffer is me.
The market price is the only thing that all market participants can agree on at a given point in time, it's the price now - will it change? Yes, of course. How will it change? When and in what direction? If we ask those questions, then we will get a million different views from different market participants. However, we can all agree that the S&P 500 closed at 4173.85 on Friday. The price is the only truth we can all agree on, and it is the starting and ending point for any market analysis.
Emotions of fear and greed are also hindrances to experiencing the now moment opportunity flow - if I am fearful of what information the market will send next, then I will be unable to objectively process market information. If I am fearful, I am also more likely to take action in the market based on these fears instead of objectively assessing the market.
The simplest answer to this question is that when we are approaching markets with an ineffective mindset based on a desire to "get something" then it is very easy to fall into a cycle of making choices rooted in fear & greed.
As humans, it is completely natural to experience emotions of fear and greed. Fear taps into our deeply rooted survival instincts, fear helps keep us safe. However, it also cuts us off from unlimited possibilities. Greed also comes from deeply rooted base instincts. As small children when our friend was eating a tasty cookie, we wanted one too, and if we didn't get it we threw an hysterical fit until our parents gave in and got us a cookie. Now as adults we see our friends and neighbors buying a new lambo or posting screenshots of how much they're up on their Dogecoin position, and we want our cookie too!
It's just that now the 'cookie' is in the form of a speculative financial asset such as a stock or a cryptocurrency, and this time there is also a significant chance that we will end up with fewer 'cookies' than we started with. However, that's not how greed thinks. Greed is only focused on the fear of missing out and the possibility of 'gaining something' that we perceive someone else has. Greed doesn't manage risk, it is solely focused on gain. This focus on potential gain comes about even when we already have more than enough, and especially when we are not accurately assessing the potential downside risk.
Checklist For Staying Stuck In A Fear/Greed Mindset And Being A Maximally Ineffective Market Speculator:
If you really want to be sure to be maximally ineffective as a market participant then here is a really good list of ways to remain stuck in a fear/greed mindset:
You can do all of the above and stay stuck in a fight or flight mindset in markets, OR you can choose something much different and create practices/habits that support a healthy mindset for optimal trading performance. A mindset that will help you not only achieve superior performance in markets, but also better health, peace, and joy in your life.
Mindset is a rich topic and one which I will blog about more in the future, but here are some good places to start:
To summarize my thoughts on the optimal market mindset it really comes down to balance. When we are 'tilted' and seeking something from the market, we are not going to be in a position to make good decisions. The best trading is not gambling, far from it. The worst trading is 100% gambling. The best market participants are in control and keenly aware of when they begin losing control.
When I am practicing yoga 4-5 times a week and meditating twice a day, I am usually at my best as a market participant and feeling my best as a human being. When I am eating poorly and not getting enough sleep, my trading results tend to suffer. This probably isn't an accident. The way we do one thing is the way we do everything, one choice feeds into all the others. The optimal mindset is not just a trading mindset, it's a LIFE MINDSET. Trading markets simply shows us everything about ourselves in a highly amplified manner.
If nothing else, if this post gets you to stop trading on margin and start practicing yoga more often, then it will have been a success.
The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource and biotechnology companies can easily lose 100% of their value so read company profiles on www.SEDARplus.ca for important risk disclosures. It’s your money and your responsibility.