The Contradictory Demands of Investing and Trading

Posted on Nov 20 2014 - 1:55pm by Sharpe Trade

It’s a great life. Freedom. Money.

But the emotional and psychological demands it can place on you can be very extreme. As I suppose it is for many who run their own business, whatever field  with which they are engaged.  Working for oneself and procuring one’s own way requires a lot of discipline and hard work.

But I am an investor and trader, so I have to speak to that industry.  And this industry contains a lot of ‘seeming contradictions’.  And these contradictions and demands I believe become too extreme almost, for some folks to handle.  I honestly believe it’s why you see so many people crash and burn, or become walking wrecks in this industry.

Like any industry, finance is filled with ‘words of wisdom’ as old as the hills.  Wise little proverbs repeated over and over again, ad nauseum.  Newcomers hear these oft-used phrased repeatedly.  Something like … if long, “Buy low, sell high” or if short a market, “Sell high, buy low”.  However, in this industry, a newcomer quickly discovers that many of these little ‘proverbs’ seem to be in conflict with one another.

Their first introduction to this seeming contradiction is: Well, if it’s a loss, cut it, and cut it quick.

Ok.  Sounds reasonable.  So the at-home retail trader will buy a stock, and it moves a little against him.  Remembering this sage advice, he gets out of the trade and takes a small loss.  Only to see it then surge wildly in the direction he would have thought it to go.  He was ‘whipsawed’ out of the market.  He or she will then look for more sage advice from ‘old war horses’, and he is told …

Naturally, you have to be willing to sit through some amount of drawdown.

They are left confused.  

Which is it?  Do I cut my loss?  Or do I sit through some discomfort and periodsContradiction of drawdown?  How do we resolve this contradiction?

Time passes, and more ‘contradictions’ seem to become apparent.

They will hear …

Well, if it’s a winner, let it ride. But you can also take profits.

What?  I believe the popular internet colloquialism would be ….   LOLWUT?

So what do they do?  Do they let the trade run in their favor?  Or do they take profits?

But it does not stop.  It quickly devolves to …

Be humble and willing to learn … but believe that you can do what other people literally commit suicide trying to learn and do. Believe that you are literally better than everyone else attempting this

Wait a minute.  Am I supposed to be confident or humble right now?

And it continues on …

Be consistent to the point of boredom and don’t style-drift … but always be adaptable and seeking to improve

Hold on … hold on.  I’m still trying to figure out if I should I should sit through some discomfiture or cut the trade?  Now I am supposed to stick to a style, but I’m supposed to know when to change?  But I’m not supposed to drift?  What?

At a certain point, and I see this all the time, a new person sometimes sits back and thinks:


It’s fascinating that so many of species is even capable of doing this really.

At the end of it all though, how do we resolve these contradictions?

As a new trader applies discipline to a set methodology, there is almost a ‘battle rhythm’ that one learns.  When the drawdown becomes too much, and for the sake of the overall account, the trade needs to be cut.  Or conversely, when that point has not been reached.  How does one learn this ‘battle rhythm’?

It just takes time.  There are no real short-cuts.


Discipline to stick with it, and learn the cadence and the nuances of particular markets, and particular methodologies.

Over time, and with experience, one begins to note how principles can be successfully applied and contradictions resolve themselves.  In the end, and only at this point … a profitable capital graph begins to emerge.

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