Outcomes Come Second

Good Decisions VS Decision Erosion

One of the hardest truths in trading is that good decisions do not guarantee good outcomes.

Mark Minervini often talks about unequal outcomes; variance, randomness, distribution etc… and for good reason. Though I do think that where traders get into real trouble isn’t variance itself (or alone). It’s how emotionally attached they are to outcomes.

A prime example is a few days back (Jan 19th) when many people woke up to markets gapping down on news. Before that the structure was bullish. Nice weekly consolidation. Sentiment was optimistic. The outlook felt “reliable”.

And yet markets were getting hammered. And so all these thoughts begin;

Why did I invest?… Why didn’t I wait?.. I knew I should’ve chosen a further expiry….. Why does the market do this to me?

Now here’s the interesting part.

Think back to a time when you woke up to good news on your stock. For example, something like we saw recently on GEV. Were your emotions also at play…?

“I knew this would go up”… “Of course it gapped, it’s an AI leader.”…
“All you have to do is be in position because time in the market beats timing” yada yada.

Both of these emotions are real.

But if you were one of the people who felt upset, frustrated, or let down by markets this week. Stop.

And try to do the same thing when you see gap ups too.

Your job as a professional “operator” in stocks is not to enlist emotion. Frustration does not help you. Neither does supreme confidence. Both are toxic.

Because in both scenarios, anger or joy, you did not do anything “right” or “wrong” to make the stock move.

The market decided what it decided. Whether you were a shareholder or not.

Emotional Investment

When you emotionally credit yourself for good outcomes, or emotionally punish yourself for bad ones, you guarantee one thing. That you become emotionally invested in a game of mathematical uncertainty. That’s a dangerous place to be, wouldn’t you say?

Good trades win. Bad trades win. Both also lose.

You’ve heard this analogy before; yeah?

Two people cross the road. One is blindfolded. One can see clearly.

The blindfolded person runs and makes it across. The person who can see runs and gets hit.

Ok. Heres i a logical question - Who would you rather be in this scenario, BEFORE knowing the outcome?

….Exactly. Seems familiar. Because that’s what trading with an edge looks like. It will work over time. Not every time. Hopefully you don’t have to get hit by a car first to understand that.

Reinforcements

What would be most concerning is if you changed your rules. And won or lost. Even if it was ever so slightly. Say, you moved a stop. Averaged in. Etc. Because in trading, the goal is to consistently make the right decision, regardless of how it turns out. It sounds simple. But it isn’t. Though this is where habits come into play

Make no mistake about it. Reinforced habits are real. You need to avoid reinforcing negative habits at all cost. Small seeds turn into tall weeds very quickly. And as a wise mentor once said to me, your objective each day is to never let small negative habits take root.

Breaking your rules by small amounts leaves you more powerless than you think. Even worse, they compound once you allow the first breakdown in judgement.

If you broke a rule or two before the gap down, you likely moved your stop. You likely tried to catch a bottom. You likely spiralled.

And if you averaged in and things reversed. Don’t get too excited if you cashed out. You only reinforced a very negative behaviour. Let me tell you, I would rather lose following my rules, than win following feelings.

So what does this all mean?

No matter how it feels right now, if you followed your rules and your plan, you made the right decision. In a market full of uncertainty, with millions of participants with different views and objectives, the last thing you need is to be fighting both the market and yourself. So stay the course. Stay centred. Stop focusing on your P/L.

Win or lose. The market did what it wanted to do this week. It will do the same tomorrow. Your job was only to control what you could.

And if you did that. You did your job.

Gm, and Love