Balance isn't something you achieve 'someday' - Nick Vijicic
As we strive to be the best we can be each day, we often find ourselves out of balance. When we lean too far to the left or the right we lose confidence in standing upright,and we can fall down on our weight, thanks to gravity. But when we are in balance, toward the middle we can plant ourselves in a position where only powerful forces can knock us over. Being in balance is about having power in our body and mind. This should be the goal in all aspects of life. Strikingly, few have the ability to achieve even a little balance.
We talk about different areas in life. Some areas are more important to others. We look for balance in our diet, relationships, sleep, work life and leisure time. Even in the investment/trading world, our goal is to achieve some balance in our portfolios in order to dampen volatility. For instance, we may carry put option protection to help balance out a heavily skewed bullish portfolio. This will lower overall volatility and allow us to sleep better at night (just in case something funky happens to markets, we are prepared).
What are the keys to achieving balance? One of them is moderation. Whether it's food, alcohol, fun, trading or rest - if we take things in moderation we avoid the risk of extremes. This is where the danger lies if we don't moderate. We risk illness from excess. Our insatiable appetite to be satisfied is not fulfilled by moderation, but we must be able to say 'enough'.
The mental extremes we put our minds through in trading are bizarre. Some things in trading/investing are uncontrollable, like price action. Yet, we respond emotionally to each tick as if our life were at risk. Of course, that is a complete exaggeration but when you're in that spot and unable to see it then our response seems irrational.
My good friend and fellow trader Dawn Thibodeau summarizes beautifully about trading balance here: Trading extremes are no different. We can teeter totter between fear and greed countless times in a day. Always shooting for home runs can also leave your portfolio absorbing many intense losses. The emotional roller coaster this creates paralyzes our ability to make rational decisions or see opportunity. Why do we lack balance in trading?
More from Dawn: It can be lack of will power, which like anything else, just needs to be exercised to grow. Or the belief that you are the exception, not the rule. Trading is an ocean of probabilities, you are not the outlier and like any healthy relationship, you must respect it, if you want it to respect you. Perhaps you were previously rewarded for your extreme trading behavior, which reinforces the continuation of the pattern. This comes back to our monkey brain and needing to learn to harness its abilities.