The Important Matter of Balance

I alluded to the need for balance in this post.

Here, I’ll illustrate my points with aviation.

Balance is essential for beginners. When you learn how to fly, or are an amateur, licensed pilot, you typically fly aircraft that are designed to be balanced, and stable, like this:

A Cessna 152.

What do I mean by “stable”? I mean that it’s designed to revert back to the norm when you input a change. If you pull way back on the stick of this airplane for a few seconds, then let go, what’ll happen? It will take a steep climb, lose airspeed, then dive for a while, gain airspeed, climb, lose airspeed, etc, oscillating up and down, and eventually stabilize itself back to level flight. Your input is damped out, and things return to normal. The plane could, literally, fly itself until the gas ran out.

This is opposed to an “unstable” airplane, like this:

An F-14 Tomcat.

Opposed to the damping input, this kind of aircraft is unstable in that it AMPLIFIES your input. You pull the stick way back, and it will scream upwards. If you let go of it, it’ll go completely out of control, and you die.

Why would they build an inherently unstable aircraft? Because if you know what you’re doing, you can make it do unbelievably nimble, tactical aerobatics. IF you know what you’re doing.

The slow Cessna will be less affected by your piloting, whether they’re horrible or superb. The Tomcat will amplify your skill, or complete lack thereof.

This is where I’ll segue into trading in the stock market.

Living a “balanced” life as a trader means that if you make one error, the inherent stability and balance in your life and trading plan will damp out the error, absorb it, and eventually even things out. The drawback here is that if you’re really good at trading, the balance, (which in my mind means time spent exercising, sleeping, spending time with your family, etc) will also “dampen” your success. Your skill won’t show up quite so much, since trading is a smaller part of your balanced life. Hence, “balance” helps you when you’re new and learning from mistakes, but restricts you when you really know what you’re doing.

The Obsessed Expert versus The Obsessed Imbecile

I notice my life becoming unbalanced when I stay up late, spending way too much time looking at charts, over-trade, and generally become consumed with the stock market. When this happens, even my small errors lead straight to bigger ones, and occasionally, a death spiral.

Have you ever noticed the time-stamp on blog posts or comments made by some of the tabbed bloggers on this site? I wonder how, for example, The Fly gets any sleep at all, when he’s trolling the PPT at 2:30 am on a sunday night. From my perspective, he and others here are very unbalanced. They’re abnormal. But that’s because they’re flying the F-14, and are able to “fly” circles around the idiots, shooting them down and moving on to the next tool. Their abnormality enhances their success. They should be unbalanced, because they’re that good.

Following _____’s Trades

I think it’s amazing, reading comments of a few clearly dimwitted people on this site who like to try and follow on Fly’s trades, or anyone’s trades. That’s potentially like a new private pilot watching the Blue Angels, and then thinking,

“I’m going to get in a supersonic jet and follow that guy, and do all the same aerobatic moves he does! This will be easy!”

If you don’t have the hair on your chest yet, don’t fly with the big swinging dicks! Learn some of the principles they use, then scale it back a little bit. Keeping balance will keep your wits about you, and keep things in perspective. Someone who reads Cramer’s investing books and then starts trading with FAZ and FAS, or TNA for that matter, is probably caught in the bizarre misconception that you can make money without putting in hard work.

I remember a month or so back when THE FLY bought TNA. A bunch of people said that they got in that trade, following him. Did they have any idea of his rationale behind buying it? His timeframe? How that buy worked into his other strategies? Negative. Many of them jumped in the cockpit of a dangerous machine, and were subsequently keelhauled.

I learned this through trial and error, noted it, and moved on. I’m an amateur, and try not to get into deeper water than I’m able to swim out of. I’m learning more with every mistake made, and lately, that it’s important to seek balance.

Follow the Warning Signs

Also important to note is that there are always signs which warn me of pending imbalance. For me, some of them are:

• Irregular sleep patterns.



• Starting to smoke, out of anxiety & nervousness.



• Drinking unreasonably.



• Neglecting goals and good habits.



• Self-inflicted seclusion.

I notice a few of these , and throttle it back a bit. What level of equilibrium are you comfortable with? Are you in way over your head?

In conclusion, take some risks, and learn from them. Your trading risk can mature as you mature as a trader, speculator, or investor. Think about what a balanced life looks like to you, and what might be warning signs of imbalance. Over time, you’ll be able to catch dropping knives, fly with the pros, and one day, bank some serious coin.