I’ve seen this play out time and time again at seminars, conferences, lectures, and courses. Remarkably, the conversation always begins with the exact same seemingly harmless five-word question: “But what if you just…”
Those five words prompt me to step up on the soapbox and launch into the “tinkering talk”. A recurring discussion at the various investing presentations I give, this topic has become almost a comfort at this point, as if an old friend has returned for yet another rousing debate.
“But what if you just change this? Modify that? Try it this way? Or maybe you could test it with something else?”
The tinkering talk isn’t just for the novices in the room. It runs the gamut from beginner to advanced investors, plaguing all kinds regardless of how many years of experience they have trading stocks or managing money.
What I’m talking about here is, of course, Analysis Paralysis – the crippling, all-too-common investor tendency to endlessly research, indefinitely analyze and obsessively fiddle to no end. It’s a safety net. A convenient way to rationalize your inaction without addressing the fact that you’re simply paralyzed, unable or unwilling to move. Instead of making a decision and taking action, you continue to search for one more piece of information, one more sign or shred of evidence. With no move made, opportunity passes by, and that tendency to tinker becomes a very costly comfort.
It's Okay, You're Just Human
You see, you’re not just an investor. You’re human first, investor second. You think, judge, process and react not in the robotic and predictable fashion of a computer or a piece of software, but rather as an emotional being, one with faults, inconsistencies, errors, and bias. Whether conscious or subconscious, aware or unaware, your emotions are at play in every investment decision you make. Without the understanding and respect they deserve, these hidden tendencies will surely surface and bite you where it hurts – the wallet.
Now, I’m not here to make you feel bad about yourself. I’m glad that you’re a human. Turns out computers aren’t really interested in reading what I have to say, so let me briefly extend a warm ‘thank you’ to all our human readers out there.
What I am here to do is get you thinking. Get you talking to yourself. Get you out of your head for a moment and push you to reflect on your investing practices with some cold, hard, brutal honesty. Trust me, you need it. We all do, even the most experienced traders out there with decades under their belts and thousands of trades behind them.
The Trap Of Perfection
As investors, we are too often tempted by the trap of perfection. We want certainty. We want to be sure. Most importantly we want to be right. And not just be right sometimes, but be right all the time, every time, 100% of the time. On the flip side and equally worth noting, we don’t want to be wrong. Being wrong hurts. It hurts your ego, it hurts your confidence, it hurts your sense of your own intelligence. Plus, as an investor, being wrong hurts your bank account. And let’s face it, folks, that just don’t feel good.
The trap of perfection leads us astray, and as chartists in particular, it often leads us to tweak and tinker until we’re blue in the face. Now, the beautiful thing about technical analysis is that it offers an abundance of options, allowing you to pick and choose the tools and indicators that really are right for you. In other words, technical analysis allows you to craft a trading system that is not only testable and replicable but also intentional and appropriate. You can tailor your trading system to truly fit your own needs, objectives, strengths, weaknesses, and preferences.
The downside, however, is that this abundance of options can provide more choice than the human brain can handle. Despite what you may think, you’re not wired to process an infinite set of choices. Just ask renowned psychologist (and my former Swarthmore psych professor!), Barry Schwartz. Quick side note, do yourself a favor, take 20 minutes tonight and watch his famous TED Talk, The Paradox of Choice.
Okay, Listen Up Now...
But listen up because I need you to take this to heart. There is no perfect system. There’s no perfect indicator. No perfect overlay. No perfect signal, statistic, ratio or event. No matter how hard you search, nothing is ever going to produce a 100% foolproof, completely accurate signal every single time, day in and day out. The world of finance and investing has no guarantees. For a computer or an automated trading system, that fact becomes part of the expected probabilities. For a human, however, that fact is tough to swallow. It violates our desire for certainty and leaves us wanting to continue the futile search for that one sure thing.
Paying Tuition To The Market Is A Good Thing
So here’s the hard part: you need to take comfort in the reality that you will not be right 100% of the time. Not every signal will turn out the way it should. Not every trade will go your way. Accepting and embracing that reality, however, will position you on the right side of the market. It will allow you to face your inevitable losses with the appropriate mindset and move forward towards a profitable future, keeping your mind clear and ready for the next opportunity.
Every loss you book or bad trade you make provides an opportunity to learn, grow and improve. Extract from that loss the lesson that is waiting to be learned, and all you’ve done is pay tuition to the market to teach you something important. Let that lesson go unlearned, however, and the bad trade becomes a true loss.
You have all the tools you need – the charts, indicators, data, resources, stats and more. Stop tinkering. Start acting. Get trading. Go learn.
Trade with purpose, trade with poise.
- Grayson Roze
Business Manager, StockCharts.com
Author, Trading for Dummies (Wiley, 2017)
Author, Tensile Trading (Wiley, 2016)
StockMarketMastery.com
