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Trading Psychology and Optimism : Part-1

By 26th August 2019 News No Comments

If you walk into a bookshop, you will see there is an entire section on “self-help” and “positive thinking”. The message in these books can be simplified in a few words: believe in yourself, be optimistic and everything you want will follow.

This approach, which is very popular today, works for a lot of people, and it can be applied in many fields. I have nothing against it.

Self-help authors or motivational speakers want to turn people with low self-esteem into someone who overestimates themselves.

Once this sense of high energy and high self-esteem has been built, accomplishing most tasks in the modern world become easier. However, the idea that “anything is possible if you really want it” is an irrational act of faith. To me, it is the same as believing in miracles.

But, if you want to be a good seller or worker in most corporate environments, this approach can work well.

A humble and insecure human being, after this “treatment”, thinks that he or she is now superhuman.

He has now, at least, as a positive consequence, the energy and the willpower that he needs to survive in modern society. He won’t feel so low anymore, not as low as he used to feel when he thought he was a failure and bought a five-day course for some supposedly “life-changing” event.

The side effect of pretending to be superhuman is that it is easy to ignore risks. When someone is in an artificially good mood or thinks that anything is possible if he just wants it enough, every call from reality will be ignored.

Just by ignoring things, life can go wrong. But this is what allows this state of optimism to go ahead.

If someone is finally happy and feels strong enough to open a new business, and he is sure that he will succeed, he won’t have a B plan in place in case the bank refuses to give him further credit or in case he doesn’t get enough clients.

When someone believes, as an act of faith, that success will simply arrive, the hypothesis that he might need someone else’s help is discarded from the beginning.

The fake super humans that motivational speakers produce can succeed only when the negative outcome of ignoring risks is low enough to not lead to disasters.

If you are a salesperson and you believe that you can sell anything, then thanks to your good mood, you really will sell more. Mostly because you’ll come across nicer and more confident to potential clients. In the worst case, you won’t sell any more than you did before becoming a “new human”. In this case, there are no side effects of having a strong sense of self-esteem.

The same is true for a man who wants to find a partner.By over-estimating himself, he is more likely to do more in an attempt to look more assertive and finally find a woman.

For an entrepreneur, things are more complex. A lot of people need this irrational sense of power and confidence in order to start a business, because the initial moment of taking that leap is scary for anyone. But after that moment passes, if some sense of reality remains missing, a lot of important risks will be ignored.

In trading or in investments, anyone who has just gotten “motivated” will very quickly fail.

There are many reasons, and I will try to cover most of them, but the most important one is that, in the real world—not the financial world—your good mood can influence the outcome of your actions.

For example, if you are trying to convince someone to close a deal with you, your positive energy can make you more charismatic, so people will think that you are right and agree with you.

Let’s think for a moment about someone who has a relatively safe job as a chef but wants to open their own restaurant. They ask the bank for a business loan. The whole process of leaving their job to having their own place could be made much smoother by believing that they are the best chef in town. They can possibly even convince the bank’s loan officer to lend them the money based on self-belief and confidence alone.

In finance, on the other hand, events are not influenced by your mood or confidence in yourself. If you buy a stock, the forces that will drive its price are really not conditioned by how you feel.

Optimism would potentially have a lot of negative side effects for traders and investors.


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