Optimistic or Pessimistic?

Optimism vs pessimism concept. Half empty and half full glass of water vector illustration

By: Gaurav Taneja, Financial Trainer, Venteskraft
May 23, 2020

Often we come across dilemmas like should we think positive while trading or should we also give more importance to the negative outcomes? What if I am taking a trade and I keep thinking about the negative outcome and I deliberately exit the trade as soon as a little opposite direction starts. Or maybe I become so optimistic during the trade that even when I should exit the trade, I keep my positions open and I face even bigger loss. One upon a time there were two friends who started a trading business. Rahul and Rajesh had a conversation, Rahul said, “I feel that we’re going to be millionaire by this time next year” But Rajesh says, “I doubt that, it would take a miracle” Now in this conversation we can see that Rahul is being unrealistically optimistic and Rajesh is being realist. This is exactly what we need at the time of trading. So should we be optimistic or pessimistic?

We need to be realistic and should set reasonable targets. For example, you entered a trade on a stock of RS100 and if you aim for that stock to go up to Rs110 in a single movement that would seriously be impractical. And not only during the trade, we need to be realistic when we are thinking about the stock market as a career. If you think like overnight you will become a super trader then you need to rethink about it. If you are overly optimistic, you are setting yourself up for failure.

Dr. Martin Seligman has shared his study about how an optimistic mindset helps people to do better than those with a pessimistic mindset. If you want to become a successful trader then you need to take trade after trade even thought you might lose sometimes. You neither have to be so pessimistic about the trade and neither so optimistic. You have to maintain a balance between both and at the same time be realistic.

Rather than being disappointed in yourself after a loss you should be asking yourself questions. Have I accounted for every possible adverse event that might go against my plan? Have I managed my risk properly? Do I have enough capital to reach my financial objectives? Asking such questions and making sure you have the answers will help you survive in the long run. There are real obstacles on the road to become a profitable trader. Sugarcoating the realities will only make you feel better for a day or two. In the long run, you will see the bleak realities. Rather than set yourself up for disappointment, it is better to face the obstacles head-on.

If you haven’t read the Market Psychology series, go read it here.