On Monday, we witnessed history in the U.S. financial markets. The media are buzzing, the legislators are bickering, those long only are in a world of hurt, the shorts are celebrating ( yes — one can still short in the futures markets), and the truth appears to be in short supply. There is mass chaos and confusion because everyone is trying to figure out “why?” History will tell us something about the “why?” and it really is not for us to dwell on. We are traders and it is our purpose to take monies out the markets and remain calm, grateful and humble for these gifts.
Since the inception of trade, there have been manias, panics and crashes. They are part of the ever-changing cycles of the markets and life. Fear is a powerful motivator. It is among the most primitive of all emotions, and has been a driving force in the evolution and survival of our species. There are two basic responses to fear: fight or flight. Today, we saw flight and panic as most traders and investors felt powerless in the face of relentless selling. There was no fight. The idea was “get me out at any cost because I can’t take the pain anymore.”
The financial markets are designed to take the most money from the most people. When people are absolutely panicking on a day like today, there are others who are lying in wait, ready to buy—just like the old men with the canes that hung out in their brownstones in the early days of Wall and Broad. When there was panic and blood on the streets, they calmly took out their canes, hobbled down to the exchanges, bought and hobbled back. They had no fear because they were able to think in a counter-intuitive manner. They saw opportunity when others were jumping out of buildings or paralyzed by fear.
These old men of Wall Street used their rational brains to override their emotional, fearful primitive brains. Most traders and investors are unable to do this, and this is the major reason that so many fail. They cannot keep their heads when all around them others are losing theirs.
Survival in the markets and in life requires that we do not fall victim to the primitive fear-based brain, and that we move into the clear- thinking new brain. In the markets as in life, survival is not related to being the strongest or the most intelligent. Those who survive are most able to respond to change without being threatened by, or in denial of change.
We have bought into the idea of true crisis. Panic is palpable. Now is the time for the true survivors to show themselves. Of all the tools in the trading toolbox, the most critical for survival are character, emotion, personality, thinking style and world view.
Those who can get out of their fight or flight mode and into the concept that movement offers the opportunity to both survive and prosper will be winners. Change is not to be feared or denied — is to be embraced, and used to prosper and grow stronger.
Life and the markets are not ever about what happens to us. They are about who we are, and how we respond to what happens to us.
The sun will come up tomorrow, and, and we will survive to trade another day as long as clear heads prevail and we stay in the moment, go with the flow and remember the lessons of history.
Janice Dorn, M.D., Ph.D., is a financial psychiatrist and chief global risk strategist for Ingenieux Wealth Management in Sydney, Australia. She also offer trading consulting and coaching services via her Web site, TheTradingDoctor.com.