The Siren Song of New Relationships

In the course of my daily meditations during the market hours (when people in the office think I have closed my eyes and dozed off, I am actually meditating on the various issues affecting traders) I managed to completely identify and define a Law which I, in my inimitable unimaginative way, call My Law of Relationships.

Do you remember the first time you were in a relationship? The anticipation of the meeting with your loved one? The racing of the pulse? The overall feeling of lightness during the time spent with your partner? The general sense of well being and of being alive. That was an incredible feeling wasn't it? But that doesn't last. As the relationship stabilises the emotions die down and the feelings associated with it changes from anticipation and exhilaration to comfort and mellowness.

So My Law of Relationships states that stability in a relationship is a double edged sword. As stability increases so does comfort but exhilaration reduces. The consequence of this law is that if one falls in love with the sense of exhilaration then one has no choice but to destabilise the relationship because the easiest way to find exhilaration is to find another relationship. So there are some action addicts who all their life chases new  relationships.

However, this is not a note on pop psychology. It is a note about traders and markets. The key connection is that The Law of Relationships works even on the Relationships that Traders have with their methodologies. At first when a trader learns about a new method, he goes through the same gamut of emotions not unlike a new human relationship. Then as the comfort with the method increases the relationship stabilises.

But as in human relationships, with stability comes boredom. The sense that there is nothing new as one waits for the methodology to trigger a buy or a sell in the markets. That is when, if you do not like me know how to close your eyes and.... let us say...meditate during market hours, you can fall prey to the need for action and exhilaration. That is when you are most susceptible to try new relationships with new methods.

While trying out new methods is not a problem, it could turn into one if one, in this eternal quest for action,  is forever in search of new methodologies to trade. The success of a trader depends completely on how stable is his methodology and how comfortable he is with it. Continuously changing methodologies to fit in with the latest trend is hardly the path to success

In my own case, it is not that I do not suffer from a need for exhilaration. It is not that I am not tempted to change methodologies. That is when, once again,(check June 12 "In defense of inaction" for another instance) my weakness i.e. laziness becomes my strength. Changing methodologies requires some work. A little back testing, a little research and some thought, all of which requires effort. Why expend it when one can continue with what one has? Thank God for my weaknesses!

This methodology of mine got me to sell yesterday when Nifty broke below 5045. I will cut my short positions and go long only above 5175.