Improve Your Trading (And Life) By Mastering Discomfort
To get this weekend newsletter, as well as daily charts and market commentary, delivered directly to your inbox, join over 6,500+ other traders and active investors by subscribing to the Lund Loop.
Ministry of Silly Walks. Cheese Shop. Self-Defense Against Fresh Fruit. Dead Parrot. My Friend Earwax.
These are the titles of four of the funniest and most irreverent Monty Python sketches - and one really bad idea I once had for a short film.
I have long posited the theory that there are only two types of people in this world; those who get Monty Python and those that don’t.
Personally, I love Monty Python, and although Michael Palin is my favorite, I’ve got a soft spot for John Cleese thanks to a speech he gave in 1991 that I can say, without hyperbole, changed the way I think about markets, creativity, relationships, and almost every aspect of life.
Despite the rather underwhelming title, “Creativity in Management,” this speech was a game changer for me, in particular, a section that appears near the halfway point.
It’s here that Cleese talks about the process he and his fellow Pythons used to create their sketches, which involved each member going off on their own to write, then reconvening to pitch their work to the group.
He goes on to describe how one unnamed member of the group, who he felt was much more talented than he was, always managed to come up with less original and creative material.
This puzzled Cleese, however after observing his colleague for a while, what was happening became apparent.
When the other member was faced with a problem while writing a sketch, as soon as he saw a solution, he was inclined to take it, even though he knew it wasn’t perhaps the best or most original answer.
Cleese himself realized that the reason he was able to write better material than his more talented colleague was that when he came to a problem, instead of taking the easy route and going with the first thing he thought of, he was able to stick with the problem longer and ultimately would find a better solution.
Simply put, Cleese was more comfortable with discomfort than his fellow Python. By “sitting” with discomfort instead of acting reflexively to end it, he was able to produce a better outcome.
This of course makes perfect sense.
The normal human reaction when faced with discomfort, no matter what kind, is to seek relief and do so as soon as possible.
Discomfort in the stock market comes in two forms and both have micro and macro causes.
Monetary Discomfort – Just like it sounds, this is where we become uncomfortable because we’re losing money.
This can happen simply because you have a position with an open loss beyond your comfort level, or it can have more a more complex genesis.
Is your account down big for the year?
Are you in financial trouble in your regular life?
Is the mortgage payment coming due and you just lost that much – or more – on a bad trade?
Control Discomfort – This where we feel discomfort not from the loss of money, but because the market is “not doing what it is supposed to.”
This could be the result of a choppy day where every trade you attempted, no matter long or short, reversed against you.
Or once again it could be a related to larger issue.
Are you the type of person that always needs to be in control in your life?
Do you have an obsession with always being “right?”
Is the world a place that would be better off if it listened to your opinions, dammit?
Does the market have the nerve to ignore what you want to do?
Whatever the cause of discomfort, it’s the actions we take to end it as fast as possible that are often the most devastating.
The list of destructive things we do to end discomfort is endless, but here are some of the more common ones.
Revenge trading: After a series of profitable trades, your day is blemished by a loss. Instead of shrugging it off and patiently waiting for another suitable setup, you find yourself rushing back into a trade, because that is the only way to erase the loss and end the discomfort.
Closing a losing trade too soon: A trade has gone against you, and you can’t stand that you are in the red. Even though your stop has not been hit yet, you know it will be, and you just want to cut your losses and end the pain, so you close the trade early. Your pain is only increased when price reverses before your original stop and proceeds higher, turning into what would have been a profitable trade.
Closing a winning trade too soon: You have a profit. You need a profit. So you want to bank it, even though the stock hasn’t hit your target. Every minute that profit is open there is a chance it can go away, and so you take it right where it is, only to see the stock continue higher, and higher, and higher throughout the rest of the day – and sometimes beyond.
Holding a winning trade too long: Price has hit your target, but you want more, because you need more. You let it go, until it reverses and comes back down below your target. With every tick down you continue to hold the position because you wanted to close it out one tick higher. Eventually it goes back to even, or worse, into a loss.
And the list goes on.
It’s also important to note that though discomfort can cause you to react and make bad decisions, but it can also paralyze your thought process, causing you to make no decision at all - even though you should.
Mastering your discomfort is tough.
It first starts with mindfulness, acknowledging when it arises that you are in fact experiencing discomfort.
Then you have to reverse engineer your thought process, being as brutally honest with yourself as you can so you can determine what is making you uncomfortable.
Are you trading too big? Too often? Too fast?
Are you trading a time frame that doesn’t suit your personality?
Are you afraid you won’t obey your stops?
Has trading turned into an ego trip where you need to impose your will on the market?
Once you can sincerely answer these types of questions, then you can start the process of minimizing their impact.
The issue of micro monetary discomfort is the easiest to work on, and it begins by taking some steps to remove yourself from the trade, distancing yourself from the discomfort.
That’s starts with making sure you have a trading methodology.
A methodology gives you an objective framework for your trading. An objective framework gives your confidence. Confidence allows trust and trust brings comfort.
Another thing that can help is if you know that before you take a trade you will never lose more money than you are comfortable with.
That can be accomplished by using the “R” method to size your positions, one of the most important concepts for becoming a successful trader.
Another thing that helps you deal with micro control discomfort is changing your perception.
For example, accepting the fact that you will lose on more trades than you will win. It’s just the nature of the beast.
I also helps to develop some perspective about what you’re doing. To understand that you’re just trading.
Sure, it’s complex and mentally challenging, but you are sitting at a desk in front of a computer. You can take a break, listen to music, drink a Coke; it’s not like you are tarring roofs in the hot sun or working in a coal mine.
Getting some perspective can do wonders towards alleviating your trading discomfort.
Macro trading discomfort, both the monetary and the control type, is much tougher to deal with.
From the monetary side, you once again have to ask yourself some tough questions.
For example, are you well capitalized enough to be trading in the first place?
If paying your bills is solely dependent on your trading profits, you must have enough of a bankroll to weather the inevitable losing streaks.
If you don’t have enough, perhaps it is time to rethink things.
One way to alleviate the stress of paying you bills with your profits is to create another revenue stream.
Could you start a side hustle that would help provide a steady stream of income separate from trading?
Maybe you should take a steady job and concentrate on swing trades that you can manage without having to look at a screen all day long?
Point is, whatever the reason for the macro monetary discomfort, you have to make real and serious changes, because the alternative is that your account will, in all likelihood, eventually implode.
Macro control issues are the absolute most difficult to deal with because they extend way beyond trading and can be hard to identify, e.g. your mother didn’t give you enough love when you were a kid.
I am totally serious and totally sincere in saying that if you have macro control issues, you really owe it to yourself to seek the services of a psychologist or psychiatrist.
Doing that can also provide the extra bonus of improving your life in general in addition to improving your trading.
The process of mastering your trading discomfort, no matter what kind, and no matter what scope, all starts with first acknowledging that discomfort.
Then from there you must identify what the causes are of the discomfort are by asking yourself some probing questions.
And finally, you have to take concrete actions towards minimizing or eliminating it so as to not adversely affect your trading – and your P&L – going forward.
John Cleese on creativity in management. YouTube
The Monty Python bit. YouTube
Subscribe for free to get the Lund Loop newsletter delivered straight to your inbox each week.
The Lund Loop is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
It should go without saying - but I’ll say it anyway - all opinions expressed in The Lund Loop are my own personal opinions and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.
Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.