Monday, December 14, 2009

A Thought Or Two On Discipline

Discipline means more than just following your rules. First and foremost it means not being swayed by one's everchanging emotions to deviate from the chosen course of action. If there is a valid reason to change course, then there is certainly nothing wrong with that, and often it becomes clear that one should change course. However, when the impetus to change is due to a feeling of regret, disappointment or greed, then the change is likely destructive.

The market is a great barometer of the public mood, and it is not likely that we can avoid the emotions that it is communicating to us. Time and again I have found myself imagining the incredible profits that might be realized if a position achieves some extraordinary target. When that happens I know that I have fallen under the spell of the market, and if I, a usually disciplined trader, have fallen under its spell, then perhaps the majority has, and it's probably time to exit the position. It is rare that this emotional cue, when recognized, has failed to save me from a sudden swoon.

Yesterday and today, I have been battling a different demon. All of my reasoning aside, it feels like the market wants to blast off. The temptation is to just dump my short positions and reverse and go long. I can easily calculate potential targets that would make such a move justifiable. However, I also know that the market is communicating something, that the desire for higher prices has become so palpable that it is beckoning me with its siren call to buy, buy, buy. As much as I might want to do that, it makes no sense to do so. Even if it was profitable this time, next time it might not be. I must be willing to lose, unless there is truly a justifiable reason to change course. If I am feeling this emotion, I am sure there are many others. I have felt this before, and usually it means there is a top at hand.

Maybe the market's siren call to buy will be right and I will feel regret, but better regret than to be a puppet.

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