Felix Dennis on Mistaking Desire for Compulsion

  • Wishing for or desiring something is futile without an inner compulsion to achieve it. Such lack of compulsion, if not frankly acknowledged, can lead to great personal unhappiness. We have all met deeply unhappy souls muddling along in professions or careers for which they are patently unsuited.
  • Worse still, by continually wishing and never delivering, you risk denting your confidence, beginning a vicious downward spiral that appears to draw misfortune like a magnet. The assumption that you might be able to achieve some goal if you only wish hard enough is not just a f***-up. It’s a potential personal tragedy.
  • Consider very carefully whether you are truly driven by inner demons to be rich. If you are not, then my earnest and heartfelt advice to you is: do not on any account make the attempt. What are riches anyway, compared to health or the peace of mind that even a modicum of contentment brings in its wake? In and of itself,great wealth very rarely, if ever, breeds contentment.
  • But no condescension is intended whatever when I ask you to quietly turn over in your mind whether or not you are fit to be rich. Whether the sacrifices involved — not only your own, but those you will ask of your family, present or future — are worth the tyranny that such ambition, by its very nature, exacts.
  • ‘Better to have tried and failed than not to have tried at all,’ drones the old saw. But in this instance, the cliche is wrong, utterly wrong. Better to have chosen a different life, a quite different path, than have placed yourself and those you love in harm’s way when early reflection and thought could have advised you differently. I repeat: do not mistake desire for compulsion. Those that do nearly always fail, at great cost to themselves and those around them.

Countertrend vs. Exiting Early, Breakouts vs. Flipping

Countertrend vs. Exiting Early

Say the current trend is an uptrend.

  • If you did not have a position, and you take a short, that is a countertrend trade.
  • If you have a long position, and you exit early (compared to what your trading system dictates), your exit trade is actually also a countertrend trade.
  • In both cases, you are betting that the market will go down. In a way, a net short position is a more “aggressive” version of the countertrend trade, because you are willing to lose your original capital if you are wrong, whereas flattening a long position gives up potential upside if you are wrong.

One benefit of recognizing this link is that it helps to set the re-entry price for traders that still want to exit early. So when you take a countertrend short, you would likely place your stop just above the most recent high. The stop is placed at a level where you admit that your countertrend trade has failed. Since your early exit is also a countertrend trade, that same level is the spot where you should also admit that your early exit has failed, and hence you should get back on the trend again.

So when you want to exit early from your current position in line with the trend, immediately after you exit, place a buy stop just the most recent high. That defines and limits your risk for being wrong on your countertrend exit, and gets you back on board.

This should help to address a common issue where traders after they exit early from their trend trade, they freeze as price goes back on track and they are stuck in indecision as to whether or not to re-enter, and at what price to re-enter. This freezing on the re-entry decision in fact is exactly the same as freezing when faced with an increasing open loss, in this case, the open loss is on the exit trade that was just made. And as we all know, freezing as your loss increases is a recipe for disaster. (more…)

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