The Traders Journal

Mind Games That Can Kill Investors


More often than not, most successful investors will admit that while investing may seem relatively simple, it’s not easy at all.  Handling the emotional challenges requires ongoing diligence and effort long after the mechanics of actual trading become intuitive.  From my experience teaching for over two decades, the biggest obstacle I see standing in the way of most new stock market enthusiasts is this immense reluctance to personally accept the fact that their own mind games can kill them as investors.  

Our brains are always trying to trick us, so we need to make a conscious effort to distract the brain and force it to engage in rational analysis instead of impulsive emotional  behavior.  Possibly the five most important words in investing are “deconstruct and control your urges.”  Find them, define them, write them down and control them.  You just may become the next Warren Buffett, if you do!  

Think of investing like flying a plane.  You’d seldom use VFR (Visual Flight Rules) in lieu of IFR (Instrument Flight Rules) because zillions of hours of experience have proven that IFR is the safest approach to flying.   Only after many years of investing experience can you let yourself use some trading intuition.  Prior to that, you should be all about Instrument Flight Rules in your methodology.  The fact is that this requires serious effort.  The brain’s natural default mechanism is to run with its intuition — that is precisely why you must understand this tendency, lasso that trading brain of yours, and pull it back to the rational-analysis corral.  This is also exactly why I devise my actual bullish and bearish trading strategies when the market is closed.  It’s all about emotional control.  

The other human predilection to be on the lookout for is the tendency of investors to say one thing and then do another.  This is because the human brain is always asking  “have I seen this same situation before?”  Investors tend to project past performances into the future because they need to anchor their expectations to something in their past.  They require these reference points.  Investors’ brains are wired to want to chase past performance which can cloud reality.  This explains why economists, traders, investors, and most human beings with a brain project into the future something that isn’t too different than what just happened.  As an investor, you must get your arms around this notion and not let yourself walk down this path.  

In its most elemental form, the mere act of investing is a personal statement about your expectations for a positive future, and historically, that perspective has paid off handsomely.  If you’re an investor who’s committed to your personal growth, I’d like to suggest three homework assignments.  First, read Daniel Kahneman’s book, Thinking Fast and Slow.   Secondly, check out Jay Mooreland’s website, “The Emotional Investor”.  Finally,  I give you my personal challenge — for one week, don’t focus on what you know, but instead keep a written journal and try to admit what you don’t know about investing and yourself.

Trade well; trade with discipline!
-- Gatis Roze


Gatis Roze
About the authors: , CMT, holds an MBA from the Stanford Graduate School of Business and is a past president of the Technical Securities Analysts Association (TSAA). He is also the co-author of Tensile Trading: The 10 Essential Stages of Stock Market Mastery (Wiley, 2016). A full-time investor for over 25 years, Gatis has taught sold-out investment courses throughout the Pacific Northwest and beyond since 2000. Learn More

Grayson Roze
is the author of Trading for Dummies (Wiley, 2017) and Tensile Trading: The 10 Essential Stages of Stock Market Mastery (Wiley, 2016). He has worked in the financial services industry for since 2012, and now serves as the Business Manager for the company. He holds a Bachelor's degree from Swarthmore College. Learn More
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Thanks for the challenge. Great piece.
This article is like a brief synopsis of "Trading in the Zone", which is a brilliant book by the way. Mastering the psychological aspect of trading is what makes the difference in the long run.
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