Hope you finally acclimated yourself to the high altitude and poor air quality way down south. The only environmental issues we have around here are the tornadoes every ten years or so. Thankfully I was unaffected in terms of my physical well being. As you know, I’ve got other issues in terms of mental health…. To say the biological evolutionary process has a harsh method of enforcing efficiency is to say that the stock market has a harsh method of exploiting greed and fear. Individuals as well as whole species can and will die out if they do not adapt to their new environment. Whereas literal death is not a consequence of a wiped out trading account, the trading plan is certainly extinct without any funds.

My latest paradox to ponder is in the evolutionary response to anxiety and stress. To ensure our maximum chances for survival, our brains have been programmed to forgo higher thinking functions during times of high stress and instead devote all energy to primal instinct functions. When a large predator or other threat suddenly appears, the time required to develop an intricate plan to ensure safety is a detriment rather than an asset. Now is not the time to debate nature vs. nurture. Now is the time to act without thinking.

Most of the pronounced market moves are based on primal emotion. However these moves are traded most effectively through careful planning and foresight. Up until a few years ago, I was of the mindset that the key to becoming the best trader was to develop a systematic plan of different actions to be taken based on whatever way the market moves in comparison to recent movements.

I have found this approach to be lacking for two main reasons. First and foremost are the effects of my own emotional energy carried into enacting the initial stages of my trading plan. I suffer from an over abundance of enthusiasm combined with stubbornness. These are not emotional flaws per se, but combine to reduce my supposed dynamic trading plan to inflexibility. I stand still while the market runs against me or goes on without me. Either way I lose.

Here’s a common example. Let’s say the weekly picture of the market shows a bullish bias as the weekly charts are in an uptrend. The daily price action of the last few days has been bullish as well. Armed with a watch list derived from scans the night before, I form a plan of which positions to buy should the market open in a manner indicating the bullish scenario will continue. The next day’s open shows various confirming bullish indictors and positions are taken from the equities on the watch list that have surpassed their trigger price. Initial stops are placed and all is well in the world.

However this bullish bias does not continue throughout the entire day as technical evidence begins to show that the markets may have turned and are heading lower. What I should be doing is to raise stops or get out of existing positions outright should any bearish indicator be confirmed. However, I have already invested all this time and energy into the supposed bullish scenario so what I am doing instead is to spend energy rationalizing why the market will turn back up. I cannot effectively reduce my previous exuberance and overcome my stubbornness in order to obtain the objectivity required to see the new market picture as to how it really is and not now I want it to be. I am standing still and the market is turning around.

Obviously the notion of the market turning against me equates to the majority of trades and traders in disagreement with my positions. This brings me to the second big reason a systematic approach is lacking no matter how cleverly it is constructed to take full advantage of all market conditions. I am discounting the full abilities of those also in the market.

Here I introduce the third (and last?) mention of the Howard Beale metaphor pertaining to my overall philosophy and key to personal trading success. During the full frenzy of a societal movement, participants can be categorized (most likely unfairly so) from the extreme of fervent fanatic to raging cynic and all points in between including uncommitted followers. To accept the lesson of the story of Howard Beale is to accept that speaking truth to power in the greatest forum imaginable will only bring about tangible results if those observing have the capacity or desire for change. Egad, this is the psychologist light bulb joke! How many psychologists does it take to change a light bulb? Well, it depends on whether the light bulb wants to change.

Have any of the notable and insightful market wizards ever attempted to overlay the Mamis sentiment cycle with the psychological phases most prominent during a societal movement? That might not even be a fair case study in that the Mamis sentiment cycle could be considered a limited societal movement all in itself but of course limited to active investors at the time. Regardless, both the Mamis sentiment cycle as well as societal movements are driven by changes in emotion. It just happens that the driving emotions during market cycles are fear and greed.

Although all those active in the markets are participating for the singular reason of making money, their methodology stems from their unique perspective. I don’t know whether to classify my methodology as hubris or naivety, but I do know humility is a much more profitable characteristic than schadenfreude. Dismissing the millions who initially were shouting out their windows along with Howard Beale is just as short-sighted as the other extreme of still shouting the same tired catchphrase long after the movement has ended. Maintaining proper context (in the markets and all other aspects of life) is every bit as important as maintaining a personal trading methodology.

Take the previous example noting bullish conditions going into the market day. The market opens strong but then turns sometime before the close. I could site one respected credible source after another stating exactly why prices will jump right back up again all the while the markets continue to fall. In the time it would take for me to log onto some message board and type in The trend is your friend! I could lose all previous profits and have my stop losses hit.

The markets could care less about my supposed superior trading methodology. How am I going to argue with those still in the wrong phase of the societal movement/market cycle if they have happened to realize huge profits? Such is the curse of the evils of pragmatism in America today. I have seen no empirical evidence of success in reaching anyone who firmly believes in a mantra such as whatever method works must be the correct method. Why don’t we all just turn to the guy who won the Powerball for financial advice? He won, didn’t he? He must know something!

I will attempt to wrap this up without citing the brilliance of Fooled by Randomness by again revisiting one of my favorite topics ­ the paradoxes rampant in trading. I have done my best to create a trading plan that not only provides me the best chances of maximizing profit each day while effectively minimizing risk. I have done my best to acknowledge and deal with my personality traits that inhibit making the best decisions at all times. I have done my best to accept that others can and will be far more successful than I ever will out of sheer random luck or skills I simply cannot comprehend. Given all of this, how can I hope to fight the paralyzing effects of anxiety and attempt to think when my brain will literally not allow me?

You my friend have provided your own personal answer to this conundrum through stating something to the effect of train yourself to remain calm during times of high anxiety. Of course this is easier said than done and the means by which you train may not work for me as I have my own set of mental barriers to face. Whether this anxiety is reduced through visualization, meditation, or some other method, the pragmatic approach in this case is the best method. Whatever means I can find to personally reduce anxiety during my trading should be employed. All I want to do is to remain calm enough to be able to optimize my trading opportunities. Is that so much to ask?