My trading gurus, The Simpsons

If you've read this blog for at least a couple days you'll know that a subject I tend to revisit ad nauseum frequently is the importance of limiting your emotional involvement with the market. Getting too caught up in a particular trade or obsessively watching for new trade opportunities at all hours can lead you into a costly spiral of overtrading, second guessing your trades, trying to recoup losses by taking on excessive risk, and making yourself thoroughly miserable and possibly broke in the process. To avoid this type of addictive overinvolvement, one of the trading strategies I try to follow is the Fire-and-Forget Principle, in which all the key parameters of a trade are set beforehand, allowing the trader to just walk away until the trade completes itself.

Easier said than done, right? Because it's so tempting to keep checking on your trade once it's in progress, and if it's not working out, it's even more tempting to try and fix it. You know, move that stop-loss up a bit, or maybe move it down so the trade has more room to breathe, or how about just close it early and trade in the opposite direction? Once you've committed to firing and forgetting, how do you avoid falling into this trap? Well for me, that's where The Simpsons come in.

One of my favorite Simpsons episodes is a Halloween special called "Attack of the 50 Ft. Eyesores" in which a lightning storm causes giant advertising icons to come to life and rampage around Springfield (the Simpsons' hometown, for you Antiques Roadshow watchers out there). Desperate to stop the destruction, Lisa Simpson consults an advertising executive who explains that the marauding eyesores will lose their power if no one looks at them. To get the point across he then writes the following jingle, which is memorably sung to the townsfolk by Paul Anka:

To stop those monsters 1-2-3
Here's a fresh new way that's trouble free
It's got Paul Anka's guarantee...
[Lisa]
Guarantee void in Tennessee!
[All]
Just don't look!
Just don't look!
Just don't look!
Just don't look!

Well, the same idea goes for your current trade. To prevent it from becoming a monster that takes over your day, week, month, etc., take a break and do something else for a while, like go get a donut. (Sorry, all the donuts in this episode must've gotten to me.)

In all seriousness, the Simpsons' point is an important one: we grant psychological power to things by choosing to pay attention to them. By the same token, we can reduce their power over us by choosing to limit that attention, especially when it serves no good purpose.

OK, now that I've beaten that point into the ground, here's the episode in question, courtesy of YouTube:



Related topics:
Limiting your emotional exposure to the markets
The Fire-and-Forget Principle