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You’re Programmed To Fail As A Financial Market Participant

You’re Programmed To Fail As A Financial Market Participant

By: Dave Rupe

To switch things up a little let’s take a look at probably the most important and most ignored aspect of markets; psychology.

Whether you’re an average American citizen or living as the poorest of citizens of a third world country, you’re not very different from each other at all. Let me explain. We’re all human beings. All human beings have something in common, human emotions. Fear, greed, anger, happiness, sadness, disgust and surprise. A basic list of human emotions. Those emotions lead to positive or negative consequences. More importantly, they can be used to manipulate your thoughts and your beliefs. Politicians are masters at this game of manipulation. Even greater masters of emotional manipulation are heavy weight market participants. Your banks, your Goldman Sachs, your hedge funds. They’ve all mastered the art of manipulation far beyond the imagination of most people.

No one is immune to emotion (Well, aside from extremely disturbed psychotic people I guess.) and every financial institution knows this. Emotions are part of the fabric of human kind, engraved into you since birth. Clever market participants know this. Clever market participants use this against you. Clever market participants have the ability to turn off the emotional switch just long enough to profit from you. Unless you develop the ability to flip the switch, you’re doomed as a financial market participant.

The Financial News Folly

Buy buy buy! Sell sell sell! No doubt you’ve probably seen Jim Cramer on television, totally amp’d up for 30 minutes like he’s been sucking down a concoction of Red Bull and thick black coffee, all while snacking on raw coffee beans since 4 AM. I suspect his enthusiasm is part of holding the attention of his audience because honestly, even I have a hard time staying awake because this stuff can become boring or so confusing that you just want to block it all out at times.

As entertaining as Jim is and as entertaining as many other shows on the subject are, they are nothing more than that; entertainment. The amount of opinion far exceeds the amount of fact in financial news. The guy pushing how great some company is, is doing so because he was paid an obscene amount of money to (these people don’t make television appearances for free) or it’s because he has something to sell you. Most likely his own stock holdings. Is that cynical? Maybe, but I’d rather be cynical than wrong.

Factual and reliable financial news is not free. There is an entire network of professional traders and financial journalists trading information with each other all day long, literally the definition of a profitable relationship. Want in on it? You can expect to pay as high as $2000 a month for it. Chances are if you do pay for it, you’ll have a hard time understanding it. The lingo is sort of like learning a new language. Much of it is a combination of shorthand and acronym. AF 1.60 1600 BCA. Makes perfect sense doesn’t it?

The public avenue of information is riddled with misinformation. Not only in the world of financial markets, but the world in general. The misinformation stems all the way down to your local news broadcast. Some of it purely unintentional, some of it is targeted to trigger an emotional response leading to say, a predictable action? Sinister, I know, but very real. Surely there will be those that deny the existence of such a thing, and those people lose money.

Money On The Line

Picture a giant fishing hook piercing though 1 billion dollars. As a smart giant fish looking for a meal you know you need to nibble on the bait without getting hooked. You get a few nibbles, but keep going back for more. Eventually as a greedy fish who’s hunger isn’t satisfied with a few nibbles, you slip up and bite into the hook. Now you hear the clever fisherman above yell “fish on!” and you’re yanked out of the water with no way to breathe and you die. A bit of an elaborate analogy, but bare with me here.

The amount of money up for grabs is astounding. In order to get it to transfer from the fish’s account to the fisherman’s account, the fisherman sets the bait and patiently waits for the unsuspecting fish to make a mistake. Then he  mercilessly kills the fish before throwing it back in the water because it is no longer of any benefit to him, or his fishing buddies. That’s the mentality you’re up against as a market participant.

Welcome To Bootcamp. Drop and Give Me 20!

Trading is a business that leads people to fling themselves from 15 story buildings. I make light of it, but in all seriousness the suicide rate of traders is quite high. No laughing matter. If you don’t want to wind up as one of these unfortunate individuals, you need to toughen up. Not get in shape tough. I’m talking M1 tank tough.

The bad news is reaching M1 tank status requires trading experience and a general willingness to never give up, no matter what the cost may be. It’s time to start a trading journal and focus on your emotions. What are you doing? How are you feeling as you’re doing it? Why are you feeling that way? You need to honestly answer all of these questions, otherwise you’re fooling yourself. Do not be afraid to commit to paper the words “I am fearful because…”. Then take a step back and try to be objective. Can you validate or invalidate your emotions? Can you look back and say “Well, that was silly. What on earth was I thinking?”  The good news is if you’re keeping track with a journal you can pinpoint exactly what you were thinking and you can see how those emotions lead you to be manipulated by other market participants. Many of which are driving you to make those mistakes. The same mistakes that make them profitable.

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