Trading Is a Mental Game
My father, now gone for 18 years, rest his soul, was an expert chess player. I never knew anyone who could beat him.
He taught me at an early age and we would play regularly. Sometimes, I realized later in life, he would let me win just to keep me interested in playing. But he was always superior in this game. He even played without his queen, just to give me the edge. Yet I could never win.
Later in life, I realized his strategy. He would take several long minutes to execute a move. No exaggeration. Can you imagine how long it would take if your opponent spent five minutes or more thinking about every single move? Our games went on for hours. It drove me nuts. He would move his piece, and I would quickly follow up with mine. Then, another five minutes or so as he assessed every single potential scenario on the board. How could the setup change so much from one move to the next? But he did it, patiently waited until I lost my s*&t.
Checkmate! He won. Again. Was he really that good, or did he just drive me to the brink of my patience, whereby I would quickly counter-move without due consideration, causing me to lose?
Much later in life, I recognized the importance of patience. If you can outwait your opponent, you stand a much better chance of winning the game. It worked for my dad every time, with everyone he ever played. To make matters worse, he liked to whistle during these long waits. The torture!
In hindsight, he would have made an exceptional trader. He excelled at math but fared even better at controlling his emotions. Successful trading requires total control of your fear, greed, ego, FOMO, YOLO and any other emotions that may govern your trades. The slightest slip and you lose.
One glance at the volume of same-day (0DTE) traded options suggests that most traders are impatient gamblers. Despite 10 times as many contracts exchanged at any one time, most will fail, either by being on the wrong side of the trade, losing patience and exiting too early or by expiring worthless. Yet the lure of incredible profits on cheap 0DTE is too much to resist. I know so many who no longer trade because they could not bring themselves to purchase time. The two excuses used were, a) why buy time if you’re looking to sell the same day, and b) longer-out options are too costly.
Let me dispel both notions.
Just because your goal is to sell immediately, the reality does not always pan out that way. Price floats. In a heartbeat, it can drop on you like a rock. The fall can be so fast and furious that not even a stop loss can be effective. The irony is that, if you have time, most often after a significant fall, the stock will revert to its previous level. Get caught in the downdraft and you get slammed, both financially and emotionally.
The idea that further out expirations are too costly is also absurd. Consider it insurance. Ideally, you would like to be out of your trade quickly, but it does not always work out that way. You never expect your house to burn down, but wouldn’t it be nice to know you are insured if it does happen? The irony of that argument is that you get back that expensive premium when you sell anyway. If your initial investment is a concern, buy fewer contracts.
Buying time reduces my need to rely on my patience. I can be the smartest market technician but easily lose it all if I fail to exercise the patience of a saint — or my dad in a chess game.
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As for chess, I now use my dad’s technique… outwait my opponent and win the game. Trouble is, no one wants to play with me anymore.
Create great trades!
Hugh
