Friday, October 10, 2014

Are You Open to All Possibilities?

The possibilities are numerous once we decide to act and not react.        George Bernard Shaw

Winning traders are flexible. They look at a trade from different angles and they are not afraid to explore alternatives. Good traders know and understand they may be wrong, but being wrong doesn't bother them. It is crucial to be flexible when examining all the possibilities. If you rigidly adhere to one course of action, you may pay the price for it in terms of losses. Try to be as flexible as possible, and you'll see more profits. 

The greatest obstacle to being flexible and open to different possibilities is fear. When we think we are about to experience harm, it is so very important for our survival, that we mobilize our resources and focus our energy, on the source of harm. It is the same with trading when we experience fear and potential harm. When we unconsciously perceive something may be wrong, we instinctively focus our attention on the harmful agent. Rather than scanning and considering a variety of options, we restrict our attention. 

Fear can sometimes play a role as we devise a trading plan. Some traders secretly fear that their plan is unlikely to succeed. Rather than carefully consider all possible adverse conditions, this trader focuses on only one possibility and develops no alternative plan of attack should an unwanted event thwart the trading plan. For example, one may anticipate a stock rising, yet secretly doubt whether the move will pan out. Out of fear, this trader may be afraid to consider and account for possible adverse events, such as earnings reports, a possible interest rate hike, or a sudden change in general market sentiment. The flexible trader, in contrast, has no fear of looking at all these possibilities, and determining which are likely. Openness to all possibilities allows the flexible trader to change his or her plans if required, and recover from a potential setback. 

People are the most inflexible when they are afraid, so the best antidote is to reduce fear. Fear can be reduced by managing risk. If you know that you can survive the worst-case scenario, then you'll feel calm and relaxed. Similarly, if you trade with money you can afford to lose, you'll have little to fear and you can more easily examine all possible alternative factors that may impact your trading plan. By cultivating a relaxed mindset, you will be less fearful and more open to looking at all the possibilities. And the more flexible you are, the more profitably you'll trade.

Reprint from Prudent Trader Archives

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