Ever get that feeling? You know the one. This trade or investment must be a "sure thing".
Our heart rate increases a bit as excitement builds. We think to ourselves, "my goodness this is such a great idea how could I possibly wait to fully allocate?"
The impulse feeds into a decision. An irresponsibly large allocation is made into the supposedly "sure thing".
But then it doesn't turn out as planned. The certainty turns into uncertainty. Confidence gives way to anxiety, and even fear as the capital invested shrinks, and the vision of massive returns turns into nightmares of massive losses.
What happened?
I'm sure it's a scenario that every trader and investor has faced at least once, if not many times. Making financial decisions on the basis of a feeling, and often that feeling being a fear of missing something massive, rather than focusing on a well researched approach that
involves qualifying the thesis and then, if it is actionable, slowly allocating into a reasonably sized position over time.
But why?
Let's talk about how our brains are wired. When we let emotions run the show it creates a situation where we're more willing to make impulsive decisions, and in that moment of making an impulsive decision we're likely to let go of our better judgement. Because, for that brief moment in all the excitement about future rewards, it feels good.
That rush of dopamine fills our brain with delight. We think we just made a really smart decision. And sometimes these sorts of impulse trades or investments even work out, particularly in bull markets where the environment is much more forgiving.
We know that luck isn't sustainable, and bull markets can make everyone look like a genius until the tide goes out and we have a much different environment. With that in mind, it's more important to focus on trades and investments that we are able to understand if we wish to stay in the game and thrive.
What does that mean exactly?
In order to have a process that we can duplicate regularly, we need to understand why our process may work for us. That is to say, in order to be consistent we need to know what makes our system work.
Don't have a system? That's okay. There's no better time than the present to start working on one. Traders and investors that take a more systematic approach tend to be more consistent. They also enjoy the benefit of less emotion when trading or investing because they understand their approach and do not take on trades or investments that do not fit within it.
If you need a hand, reach out! I offer one-on-one coaching that can help you address weaknesses and build on strengths, adding to your knowledge along the way.