Monday, February 13, 2017

SPX Update: And...

Before I get into the charts, I had a few people ask me for some follow-up thoughts on my "Why Do We Trade?" article.  One of the questions that was asked was basically, "How do I stop myself from trading for the wrong emotional reasons?"  I've addressed this before, but it's been a few years, so I'll revisit the topic.  Who knows, maybe I'll even have some new thoughts on the matter, a few years older.

In my opinion, when our emotions seem to be dragging us in directions we don't want to go, we have two choices:

1.  We can learn to control that raw emotional energy (which requires a ton of self-examination).

2.  We can attach our emotional "payoff" to something more constructive.

Let's address each of these in turn.

First off, when it comes to negative emotions, one thing that never works is to "fight" the emotion.  To tell ourselves some variation of "I shouldn't be feeling this, I need to feel something else," etc..  When we attempt to fight our emotions through direct conflict, we launch ourselves into a state of inner turmoil.  We are attempting to beat down at least one portion of ourselves -- and it's simply not possible to feel good while we're attacking ourselves.  So, instead of calming us and allowing us more positive focus (which is ultimately what we're trying to accomplish by eliminating a negative emotion), we actually create more strife and distractions by fighting to eliminate that negative emotion. 

Not to sound too "zen," but think in terms of "inner peace."  Ideally, that's the state of mind from which we want to be placing trades (or doing anything else that requires concentration, really). 

And really, isn't inner peace the honest-to-goodness end goal of everything we strive for in life?  We trade to make money; we desire money because it provides security; we desire security because it gives us peace of mind.  We seek a good mate because it fills a void in our hearts; we seek to fill that void because it makes us feel complete; we seek to feel complete because it gives us a sense of peace.  And on and on.  At the end of the day, if you trace all your desires and motivations as far as they can go backwards, and as far as they can go forward to their logical conclusions, you'll find that virtually all of them are looking for the same thing:  Peace, in one form or another.

The irony of it all is that we can't achieve our very highest potentials without inner peace -- but as long as we think peace and happiness can be found in something "out there," then we can't actually find inner peace, and thus we cannot achieve our highest potentials in order to reach our goals in the first place. 

In other words:  Any emotional struggle to achieve our goals actually hampers our abilities, and makes us weaker and less equipped to achieve our goals.

I don't know if I'm saying what I want to say here, but the bottom line I want to get to is this:  Why not eliminate the middle-man?  Instead of giving ourselves away to something "out there," giving away our efficacy and our sense of security, why not just allow ourselves to feel peaceful for the sake of feeling peaceful?  With no conditions.  No "gotta have this or that, THEN I'll be happy and feel secure."

Because the fact is, even when we get what we're striving for, we're still not happy and secure.  Oh sure, we might feel elated for a while after getting what we wanted, but that fades soon enough.  Because then we shift our focus from "getting" to "protecting/maintaining," and we're right back on the hamster wheel of strife and unhappiness. 

All of it, everything, follows the same pattern.  It goes something like this:  "Oh, if I could just get a beautiful, intelligent wife [or whatever, the pattern is the same for all of it], then I'd be SO HAPPY."

"Guess what, Joe?  My intelligent beautiful girlfriend and I are getting married tomorrow!  I'm SO HAPPY."  And they lived happily ever after, right?  

Ha ha ha.  Yeah, right.  In reality, the "SO HAPPY" thing only lasts for a while -- long enough that it's become cliché to eventually say, "The honeymoon is over." 

So we shift from "getting" ("I'll be happy IF/WHEN...") to
"Got it!  Yay, I'm so happy" (the fleeting moment) to
"Protecting/maintaining" it ("I'll be happy IF/WHEN...") 

At "protecting/maintaining," we're right back to being stressed.  Because now, instead of searching for a beautiful intelligent wife, we're busy trying to make sure our beautiful wife doesn't cheat on us... or, depending on our definition of "beautiful," we're busy worrying that she'll gain 400 pounds... or depending on how important the "intelligent" condition was, we're busy getting annoyed that she doesn't seem to recognize just how blindingly brilliant WE are.  And so on.

But wait, we got what we wanted -- why aren't we HAPPY FOREVER?  You already know the answer:  Because nothing "out there" can bring us true joy.

So, after all that -- after all that struggle! -- we're right back where we started:  At war, with life and with ourselves.        

The point being, all this fighting we do to try and control our negative emotions is stupid on several levels, the aforementioned being one.  This next statement being another -- and this sounds so self-explanatory that you'd think we'd never forget it, but we do:  Inner peace can never be achieved by waging inner war. 

We cannot achieve a relaxed state by force.  So fighting our emotions will never, ever take us where we want to go.  In fact, it will take us in the exact opposite direction:  It will only stress us out even more.  Even if we manage to gain the upper hand on a negative emotion by using a "brute force" method, we have simply suppressed the negative emotion temporarily, and it will continue to return again and again.  We have placed ourselves in a position where we're subject to an unwinnable, never-ending conflict.

So, what is the answer to dealing with negative emotions?  Well, first off, we have to recognize what that negative emotion truly desires -- because it doesn't desire what it thinks it does.  It doesn't desire alcohol, it desires calm.  It doesn't desire to gamble on a high-risk trade, it desires security.  It doesn't desire sex, it desires intimacy.  And so on.  We have to look past the surface desire and figure out what we're actually trying to gain. 

Then we have to look a step past that, and see what lies at the very root of all of it

Because at the root of all of it is the quest for inner peace.  The money, the mate, the house, the car, the career, the whatever.  We strive for all of it in an attempt to fill the exact same void.

So we repeatedly fail to overcome our negative emotions permanently, because we're just too busy looking in the wrong places.

That got a bit heavier than I intended, so I'll leave it at that for now.  Anyway, what do I know -- not like I have this stuff all figured out yet either.  Food for thought. 

In the meantime, what I actually started off intending to write was a bit simpler:  Don't fight the negative emotion (since we know direct conflict will fail), replace it.  For example, change the "emotional payoffs" in your trading.  Instead of feeling good about winning trades, choose to feel good about trading correctly, win or lose.  That payoff shift will take you out of the high-risk excitement trades, because those trades only pay if "feeling good about big winners" is a payoff for you.  High-risk trades do NOT pay emotionally if "trading correctly" is the payoff for you.  Make sense?

Also -- don't confuse "high risk" with "high risk."  Sometimes I'll take a trade that 99% of the population would consider a ludicrously high-risk trade, but I "know" what the market is going to do with almost complete certainty, and I know the trade is good.  That's not the type of trade I'm talking about.  Those can be some of the lowest-risk trades out there.

Anyway, let's look at just the SPX big picture chart today, since even near-term patterns that look like they'll lead to very minor corrections have been ignored by the market:

In conclusion, there's no change to the big picture yet.  But I do feel like I should throw another sentence down here, just to have two sentences. Or three (incomplete sentences count!).  Trade safe.

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