Prepare for the Fall

There is no feeling quite like that of success in trading. To take the time to perform analysis on a name, establish a trading plan and then profit from your hard work is an awesome feeling. Putting a string of winning trades together like that is priceless. However, the chance of overconfidence or believing that you can only win can become an issue (especially if you are new to trading).

I’ve written about overconfidence before and there’s plenty of research out there regarding the topic. I wanted to touch on one other reason why overconfidence has a tendency to lead to over-trading. In a word, control.

The more people participate in a task, the greater their feeling of being in control. What better example is there than the active markets we all participate in on a daily basis? The technology boom over the last decade allows me to sit in my home office and trade any asset class I want. Instant news, inexpensive streaming data, discount brokers, all products of the technology boom over the last decade and all contribute to the illusion of knowledge and control.

Research suggests that we have a deeply rooted desire to master our domain, to strive for perfection. In fact, the very thought of not being able to control what goes in our environment is distasteful. This is especially true when the environment consists of skill and chance, like the markets. Hard to believe that one might find control issues in the markets, I know.

The question to ask yourself is whether or not you are indeed “in control” or can your success be attributed to some other factor (perhaps even a small portion). Find out! Summer is a great time to reflect on your prior trades, conduct research, and prepare for the Fall when trading volume picks back up. I can’t imagine going into the markets in September without a thorough review of my trading thus far and a method to approach the remainder of the year.