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Saturday, August 21, 2010

A Brief Comparison Between Stock Market Trading and Relationships (Huh?)

I wonder if anyone has ever navigated this topic.  I'll venture a guess this is a first.  To be clear, my comments are not directed at any person or situation, but rather are based on an aggregation of my personal experiences and those of others close to me.  I promise.  Okay ... out with it.

Over the past year, I've been taking classes and learning to invest in the stock market.  As I've thought about my first year as a "real" trader, I have found parallels between trading and relationships.  I'm hardly an "expert" in either area, except to the extent I have participated myself and heard both trading and relationship stories from others.  Romantic relationships and  friendships are an especially crisp comparison ... and the comparisons may apply with family members to an extent.  Among women, especially when men are not present, conversation inevitably flows to a discussion of what they did right or wrong in their dating relationships and friendships, and what will be different "next time."  Below are a few parallels, not in any particular order.
  
Engaging in emotional buying
The market - Emotional buying is when the market is bullish on a particular stock as an investment and without sufficient investigation, a trader may follow suit with a large position. 
Relationships - In relationships, this means getting in too fast without getting a little information first.  And often, the results aren't good.  In fact, often, they're dramatically bad, just sayin'.

Engaging in emotional selling
The market - Emotional selling is when the market is bearish on a particular stock as an investment, and without justification, traders may bail from their holdings at a minute profit or possibly a small loss.
Relationships - The same thing happens in relationships, a knee jerk reaction to a short-term or possibly unsubstantiated situation that leads to throwing the baby out with the bath water when something goes wrong.

Failure to rely on data
The market - Back testing using historical data is a way traders determine whether to enter a new position, or not. Traders use sophisticated software to back test potential trades.  
Relationships - As the relationship experts say, patterns seldom lie.  No software available.

Not placing stops
The market - An investor has the opportunity to make a "bottom line" of how much he/she is willing to lose in a trade.  When as the stock moves up, the stop moves up. If the stock moves down far enough, the stop is triggered and the stock is sold.  This is what is called "program trading" because it's automated.  I have traded in my sleep or while doing yoga.
Relationships - Theoretically speaking, we have "bottom lines" in relationships, too, that point beyond which we will not go.  The relationship gods don't expect you'll walk to the ends of the earth for anybody and everybody.  And no, it's not automated, nor can you manage your relationship bottom line in your sleep, although maybe a good night's sleep will clear your head.

Failure to follow trading rules
The market - Successful traders have rules for entering a new position and exiting existing positions.  These rules are based upon empirical data that suggests likelihood of price appreciation.  When traders follow their rules, they make money (assuming the rules are sound).  When they don't, it's anybody's guess, but it mostly doesn't end well.
Relationships - If someone fails to follow their own relationship rules, assuming they're based on common sense, trouble may await. 

Paralysis by analysis
The market - Active traders know that sources of financial market information can overwhelm. Worse yet, one analyst is bullish, the next is bearish. The best a trader can hope for is sighting of trends.
Relationships - Analysis from your friends and family is warranted if and when you ask for it, and you may want to note any consistent feedback.  But beware of people stepping into your shoes.  Do what makes you happy, don't over-analyze, and by all means, throw away your requirements "checklist."

When things go beyond control
The market - Sometimes, a trade goes wrong, even though the trader follows his/her own rules, sets appropriate stops/boundaries, and doesn't engage in emotional trading.
Relationships - The same is true in a relationship. Sometimes we may play the game according to our own rules and set appropriate boundaries, but still get burned in the process. When this happens, we have to review whether our rules need alteration, or whether it was just forces beyond control that led to the loss.  And as everybody knows, when a relationship fails, it is a loss.

Making revenge trades
The market - In the market, revenge trades are what a trader does to preserve his/her position after a bad trade.
Relationships - The rough equivalent, in relationship terms, is dating on the rebound.  The failure rate is 90% according to relationship experts.

Not sitting on the sidelines, even if you should
The market - Right now, market volatility is substantial.  Many traders are sitting on the sidelines with all cash.  When I first started trading, I used to aim to have most of my assets invested in something. One day my brother said to me, "Wait for the good trade."
Relationships - In a relationship sense, it's okay to sit on the sidelines, take a break, catch one's breath. In fact, it's healthy to do so, even if you reinvest in the same "investment" at a later time.  And as my friend once said to me in regards to waiting for a great relationship ... "wait for the great guy."   Duly noted.

Taking the emotion out of it
The market - The goal of most traders is to limit emotion. It's discussed frequently in financial markets literature.  That's because emotional trades are unsuccessful on a long-term basis.
Relationships - In relationships, emotional vulnerability is the name of the game.  After a while, you have to stop keeping score, quantifying, and analyzing.  Just go with the flow.  You can't play if you don't feel.  The good news is sometimes, our trades and our relationships will work out.  And that's a beautiful thing.  Nothing like having one's emotional wallet overflowing with abundance. { ;) }

1 comment:

  1. I have compared the two in my head and thought about the similarities. I love the train of thought and the way you break it down into each section.

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