Don't Worry, Take Action

After lunch at my favorite Chinese restaurant, I opened my fortune cookie, and read, "Action is worry's worst enemy." Of course, I immediately thought, "How can I relate this to trading. Is their some wisdom in this trite saying that can help enhance trading performance?" When you trade the markets, is it true that action is worry's worst enemy? Is worry so bad? According to Webster's dictionary, to worry is "to feel uneasy or troubled." When you're trading, you surely don't want to feel troubled or uneasy about anything, but should action always be the antidote to worry.

Worry can be adaptive at times. If we have a legitimate matter to worry about, worrying let's us know that we may be in danger, and that if we are not careful, our doom is inevitable. That said, there are those times when worry gets us nowhere.

Many times, traders and investors worry unnecessarily. If you are making a longer-term trade, for example, and you have a clear exit strategy, looking at the stock price unnecessarily can make you worry. "What if it doesn't go up any higher? Is that minor dip reflective of a major change in trend?" These minor "what-if" kinds of worries can throw you off balance. You can't let minor worries unseat your trading plans. You must follow through. When it comes to patiently waiting for a trading plan to come together, you actually may want to sit still rather than take action.

Obviously, complete stagnation will get you nowhere. If you are feeling stuck and worried about what you want to do next, sitting around worrying can make you feel so bad that you start to think the future looks bleak. Surely, taking action will help prevent you from entering a rut. But you have to be careful about the kind of action you take next. If you feel stuck, and out of desperation, make an impulsive trade just to feel you are taking action, you may end up losing money. And this can lead to a downward spiral in which you lose more money, and more money, and so on. Soon you will find yourself in a really big slump. How worried will you be then?

So what's the right kind of action to take? It depends on the situation (A) If you are stuck in a losing trade and afraid to face the consequences, take decisive action: Close out the trade. (B) On the other hand, if you are in a potentially profitable trade and unnecessarily worrying about it, stop worrying. Don't take action. Think about something else. (C) If you are wallowing in self-pity, don't act impulsively. Act decisively but diligently. Make a few practice trades, or just trade on paper. Study a few charts to get your creative juices flowing. Worry can often be a trader's enemy, but action isn't always the solution. When you are worrying too much, however, stop. You will trade more profitably if you are in an optimistic, calm state of mind.