What Makes Trading So Difficult When it Should be Easy?

I am often asked this question. Markets go up and they go down. Why not just buy something, and when it goes up a little, sell it then?

It sounds so simple, but executing that logic is not so. Let me explain several reasons for this dichotomy.

While it is true that we like to buy an asset and sell it when it moves up, our greed soon kicks in, pushing for just a little more. We remain oblivious to the obvious: it will reverse at some point. When it does, we feel the market taketh what it giveth, and then our aim is to recover our unrealized loss. We grieve when it drops, often taking a loss in fear as the asset continues its landslide. If we are fortunate enough to see the value recover, our opinion changes again, and greed often takes over once more. This fear-greed oscillation continues until one of the emotions gives way and we sell, all too often for a loss.

Another characteristic that’s rarely addressed dates back to our youth. As children, we were indoctrinated to be loyal. Be faithful and true-hearted to your family, friends and country. Be loyal to your company, and you will always have a job. Be devoted to your job and dutiful to your military. “Keep the faith!”, they said. Always stay loyal to your beliefs.

This lifelong ideology is conveyed into our trading in that we marry our stocks. When we believe in a trade and make a purchase, we invest our hard-earned money, expect a decent return and become emotionally attached. Marriage is supposed to last forever, so we inherently believe our stocks should perform well in the long run. It seems defiant to dump them soon after acquisition. Sometimes, we may even feel guilty for being disloyal.

When I first started trading, the stocks that interested me were companies I knew and loved. Krispy Kreme Donuts, Hilton Hotels and Colgate-Palmolive were high on my list, not because I thought they had profit potential but because I used their products. Unbeknownst to me at the time, that was the absolute worst reason to buy their stock.

We were also taught early on to work hard and that long hours would be rewarded. Corporate America liked our commitment to staying late and working overtime. “Hard work pays off,” we were told. Once this carried over into our trading world, we often continue to trade well past our prime morning hours, simply because the market is open. After all, there is money to be made right until the close, right?

We now know that is not necessarily true; in fact, overstaying our welcome usually ends up in a loss. This concept, too, can be hard to overcome, especially for those coming from a lifetime of working under the old system. Fear of Missing Out (FOMO) is a very strong force, leaving us feeling empty in what “could have been.”

“You Only Live Once” (YOLO) is another concept destined to separate us from our money. A spate of successful trades leads to overconfidence, so much so that the trader throws his entire capital into a single trade. This often happens with new traders and meme stocks, such as we saw with GameStop several years ago. How many college kids got on board and cast their student loan funds into this gamble, only to lose it all?

I’m curious as to how many are still paying off that ill-fated bet.

One client of mine, years ago, had the brilliant idea that, knowing he was weak in controlling his emotions, handed off his trading account to his friend to trade. “Just follow the rules”, he instructed his friend. Need I tell you how that worked out when his friend experienced the same emotions, and blew up the entire account?

There is only one way that I know how to handle this volatile situation. Plan your trade and trade your plan. Create a spreadsheet plan, using reasonable expectations. At all costs, you must follow the plan. Never deviate. Do not be tempted. Apply your loyalty to your plan instead. Stay true to your strategy, remaining consistent and patient. Use our strategies to achieve your gains and continue to be steadfast in your journey.

For additional guidance, join our Trading Room. Ahren and I address these and other issues, every morning, 9:20 to 10:30 a.m., ET. Great traders are not born; they are made. We make them.