How I'm Navigating This Tough Market

2019-09-17 | John Carter

The markets have been tough the last few weeks. It’s like being in a nightclub where they keep switching up the playlist. As soon as you get used to country music, the DJ drops the bass and everyone has to adapt to a new rhythm. And once that settles in, bam, they roll out the show tunes. It’s discombobulating.

And yet, that’s part of the appeal of this industry – learning to move forward while staying confident in the face of uncertainty.

When clients ask me how I’m navigating the last 2 weeks, I tell them the truth. “I’m getting stopped out, just like you.” Trading is smooth about 75% of the time, which is why win ratios are also about 75%. Here’s the setup, take the setup. Wait, the yield curve inverted and the carry trades are all being taken off? Great. All my setups just got run over. What to do? Quit yer crying and take the next setup. This is trading.

It’s also why risk-free returns are about 1.5% a year. This is why position sizing is critical. Assume the trade isn’t going to work, so position size accordingly. Betting the farm over and over is not a sustainable line of work, and it creates a lot of emotional responses.

In trading, and in life, one of the biggest challenges humans have to deal with is their relationship to attachment. We wander around and formulate expectations in our heads that things will happen in a certain way. We imagine how it will go – then attach to that outcome. And we attach harder and harder to that outcome the closer we get to the expected experience.

This causes a cluster of problems.

We get attached to a trade working out, yes. But we also get attached to a family member or friend’s behavior (they have to behave in a certain way or I will get angry or hurt), or a favorite book (then 20 years later you realize that Ayn Rand is actually semantic garbage), a childhood memory (that we can’t let go of and it controls our interactions and behavior for the rest of our lives). The list goes on and on.

We attach because we think we are entitled to that outcome. Or that we deserve it. We become ruled by these strongly held “opinions” of how the drive will go, our kid will behave, our co-worker will act, or how the trade will work out.

I’ll catch myself when I’m commuting. The guy in front of me is driving slow. What an idiot! Oh, wait . . . was I attached to a smooth commute and now that it’s not happening, I’m getting pissed? Damn. When we aren’t aware of this, it happens automatically. It’s just how our brains are wired.

Assuming, expecting, attaching . . . all distract from reality. From what is. We become consumed by the nonsense that only exists in our heads. Strongly held opinions = nonsense. We surrender authenticity to defend our mental garbage.

Why? Because of our need for safety. Our need to know what is going to happen next. Yet if we need safety, we are being needy. And being needy REPELS everything that is best in life.

Accept uncertainty. Accept whatever may come. Stop attaching and never look back.

Rosalynn Carter Quote