Are you a P&L addict? Do you constantly check your account balance minute after minute, day after day, wasting your time and most likely killing your returns?
You’re probably aware of the teenage addiction to social media. These kids live for the little notification on their phones, telling them that someone liked their Instagram photo. It’s an instant dopamine shot that feels amazing.
This phenomenon goes back to basic psychology. Just like Pavlov trained his dogs, social media companies have trained their users to crave that notification. Poor kids right?
But not so fast. It’s not just kids that get trapped in these dopamine loops. Why are you stuck checking your account balance so much? You’re looking for that little bit of green to flash on your P&L counter aren’t you? Just like a social media notification, you’re scratching a dopamine itch!
Why fall for this and become addicted to your P&L? The whole reason you invest in the first place is for financial freedom. You’re in the markets to make a return on your savings that will help you to live the life you want. So why be a slave to your account balance?
This fixation also leads to other major problems.
For one, it’s stressful. Checking your account too often will expose you to every fluctuation in the market. A cent here, a dollar there. Gains and losses. Red, green, red, green. If you’re looking for some anxiety, congrats, because you’ve found it.
Profitable investors know these tiny day-to-day fluctuations don’t matter. It’s the larger trend that matters. And as a knowledgeable investor, you know this too. But if you’re continually checking your account, these fluctuations start to affect you regardless.
You start to care about pennies. You worry that maybe instead of market noise, you’re actually seeing the beginning of a new trend. You get a feeling that “this could be it!”. But at the same time you know you should stick to your investment plan. So you become conflicted. You start to suffer from the constant push and pull of knowing what’s right, but feeling something wrong. And the more you check your account, the more you struggle.
This constant struggle will wear you down. Mental stress is no joke. It’ll affect everything from your sleep to your job and home life. And all because of your investments? You become a slave to your money instead of a master of it.
But it doesn’t stop there. If you’re dragging around this huge mental burden, there's no way you can make good decisions. Sound analysis goes out the window. You’ll likely abandon your carefully crafted investment plan and let emotions take over instead. Things will fall apart as you start making buy and sell decisions in a worn down state. The subpar decisions will lead to losing trades and eventually a blown out trading account.
And it’s all because you checked your P&L too much....
Terrible scenario right? Fortunately, you can avoid it.
The trick is to extend your investment timeframes…
At Macro Ops, we only evaluate our investments on a week-to-week basis. This means we have no reason to check our account multiple times a day. Intraday price movement doesn’t matter to us. Even day-to-day price movement doesn’t matter too much.
The key is the closing price at the end of the week. This goes for both our current investments and any future plays we’re looking into. Our method requires us to only open our account once a week.
If something major does happen during the week, we have alerts that are set to warn us.
All modern trading platforms allow you to set alerts. Your brokerage will send you a message at whatever price you tell them to. If alerted, you can then login to your account and calmly make a decision. Otherwise you can keep a safe distance from it all.
Extending your timeframe melts away market stress. By only checking your account once a week, you're protected from the daily market fluctuations that drive others crazy.
It’s funny how the financial media tries to attach meaning to the daily moves in the market. Their efforts are always a waste. Think about the turbulence in a glass of water. The most powerful supercomputer in the world can’t even calculate the variables involved in that “simple” process. So do you really think it’s possible to interpret something as complex as the market’s daily movements and all of its infinite variables involved?
Don’t waste your time and energy trying to understand that. By avoiding this futile analysis, you avoid the conflicting feelings mentioned earlier. There’s no need to try and discern if today’s tiny move is the start of something bigger. That’s something you can only pinpoint in retrospect.
With fewer conflicting feelings, you’ll also reduce your mental struggle which will keep you from being worn down all the time. A good mental state will lead to better decision making that is less emotional and more rational. This makes it easier to stick to your investment plan which results in better returns.
Extended timeframes also help by reducing the amount of noise you encounter in the markets. A breakout on a longer timeframe is a far more powerful signal than a breakout on a shorter timeframe.
The longer timeframe breakout gives you a big picture view of supply and demand forces in the market. It clues you in to where the biggest trends are forming. A shorter timeframe breakout is usually just noise. It's just money managers positioning themselves or traders chasing prices back and forth. It’s nothing too meaningful.
As they say, it’s important to not lose sight of the forest by focusing too much on the trees. Sticking to longer timeframes will ensure that you focus on the big picture trends, not the little fluctuations that will only distract you. The big trends are the key to making the big bucks.
The goal of investing is financial freedom. You should be the master of your money, not a slave to it.
It's time to kick your “account checking” addiction. It doesn’t make sense to deal with the stress and crappy returns that come from day-to-day market movements. Just extend your investing timeframes. Not only will your reduce your stress, but your returns will improve too.
For more information about using extended timeframes in investing and trading, please click here.