WARNING! AGGRESSIVE TRADING CAN BE DANGEROUS

We all go through periods where we feel our trading is getting out of control. We can allow this aggressive behavior to become a direct reflection of who we are.  In other words, we can take it personally when we experience losses.  We become confused.  Anxious. Feel stupid. Inadequate. These feelings usually lead to aggressive (a.k.a. over trading) and an even longer string of losses.

A recent study,  entitled  “Aggressive Driving: A Consumption Experience,” by a Temple University Fox School of Business professor may hold the key in understanding how we can take better control of aggressive trading.  Although the study is directed toward aggressive drivers, I believe the conclusions are just as applicable to aggressive traders.

What follows is a list of the study’s conclusions, compiled by professor Ayalla Ruvio, along with my interpretation for traders.

1. People who perceive their car as a reflection of their self-identity are more likely to behave aggressively on the road and break the law.

Traders who perceive their trades as a reflection of their self-identity are more likely to behave aggressively and break their trading rules. Traders want to be “right” making themselves look good…able to perfectly time trades based on expert technical analysis or, in most cases, by holding on to the false belief that the future can be predicated on current expert decisions.  No matter the car you drive or the kind of trade you make, remember that cars can be totaled and crystal balls can be shattered.  No reason to take it personally if the wreck is caused by another.  No need to take it personally if a trade does not work out as planned.  Sometimes we just happen to be at the wrong place or in the wrong trade at the wrong time.  It is what it is.

2.  People with compulsive tendencies are more likely to drive aggressively with disregard for potential consequences.

Compulsive traders are more likely to trade aggressively with utter disregard for potential consequences.  Trading off pure emotion (e.g. anger), without a controlled process, is much like the driver, who mad, cuts off another driver, only to lose control and run off the road.  Hotheads are dangerous, both between the lines and in the markets.  Best to pull over and wait for re-entry.  Might save a life…like our own and give ourselves a chance to trade another day.

3.  Increased materialism, or the importance of one’s possessions, is linked to increased aggressive driving tendencies.

A focus on money, and what it can buy, encourages aggressive expectations.  Focusing on a positive trading outcome increases the tendency to add to losers and go all in on the “sure thing”.  Drivers and traders who are materialistic will expect certain outcomes that make them look rich and important when doing so will eventually make them dime rich and quarter idiotic.  Successful trading is about building a skill, not about looking good.  If we get the two confused we are an accident waiting to happen.

4. Young people who are in the early stages of forming their self-identity might feel the need to show off their car and driving skills more than others. They may also be overconfident and underestimate the risks involved in reckless driving.

New traders in the early stages of identifying a suitable trading strategy might feel the need to show off their trading skills to others.  With an early string of winners they will become overconfident and underestimate the risks involved in reckless trading.  The last time I checked reckless driving was best left for daredevils at county fairs and reckless trading for those who have more money than sense.

5. Those who admit to aggressive driving also admit to engaging in more incidents of breaking the law.

Those traders who admit to aggressive trading are breaking most of the other rules as well.  If you speed you usually will run red lights, pass with a solid yellow line, and ignore yield signs. Breaking basic stock market rules such as choosing not to exit at a predetermined loss line usually leads to adding to losers;  staying in a trade too long usually turns into greed; and getting into a trade too late usually results from the fear of missing out.  Break one and you begin to break them all, leading to more aggressive trading.  Breaking the law once usually gets us a slap on the wrist; do it over and over again and we end up with matching steel bracelets.

6.  A sense of being under time and pressure leads to more aggressive driving.

Traders who need to make money “right now” will trade more aggressively not realizing that the market will do what it wants when it wants regardless of the sand left in the hour glass.  I don’t know about others but I would much rather chase three turtles than one rabbit any day.  Slow and steady determines the pace while fast and furious can end the race.

 

Ayalla Ruvio concludes “individuals may view cars and the road space they occupy as their territory and will seek to maintain control over it and defend it as necessary.”  Traders who view their trades as an extension of who they are will do anything to salvage a loss, aggressively defending a position even in the face of undeniable evidence.  Sounds to me like getting home later than expected is a much better alternative than becoming just another statistic.

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