Trading, Boredom, and the Psychology of Self-Destruction

[this is expanded from a piece I originally penned in 2016.  My efforts to aggregate pieces like this to my Substack page led me to expand upon the original piece; I then felt it had enough additions to merit "re-mirroring" it again here.]

The market’s solution to every problem you have is "take all your money."

If that doesn’t scare you a little, you haven’t been trading long enough.

Most traders think they blow up because they lack a great system. In reality, they blow up because they lack psychological armor. They make one bad trade. Then they chase another. Then they spiral.

The problem isn’t your system — the problem is how you react when things don’t go your way.

But one of the biggest enemies of traders (and maybe humanity in general) is not commonly recognized as such.

Most trading books or articles focus on either analytical/predictive systems or "trading rules in general" (while often emphasizing “lack of discipline” as the primary enemy).

But I’d offer that maybe the biggest enemy of traders often goes quietly unrecognized, as it slowly undermines our efforts: Boredom.

What’s the True Cause of Boredom?

Most people assume boredom happens when there’s nothing fun to do. But contrary to popular belief (especially among teens!), boredom has nothing to do with a lack of “fun” things to do.

Boredom comes about from a lack of productive things to do.

In my opinion, boredom is simply one of several symptoms that can develop from a feeling of general emptiness. And while that emptiness can be glossed over and temporarily hidden with frenzied "fun," it cannot be truly filled by vacuous activity.

That’s why we quickly grow bored again as soon as the fun stops: it doesn’t nourish us in any lasting manner, and certainly not in the way that truly productive accomplishments do.

Conversely, after a meaningful accomplishment, we can sit and rest for a while, feeling satisfied with a job well done. We can be doing “nothing,” but we are not bored — because the emptiness has been filled (at least partially) as our self-esteem has grown, our character has been enhanced, or some necessary task has been accomplished — or all of the above.

This is why "fun" works as a reward for productivity (after we're in the fulfilled mindset that accomplishment brings), but it fails when chased endlessly for its own sake. When fun is treated as an end in itself, the emptiness may retreat into the background momentarily, but it never truly disappears.

How Boredom Leads to Overtrading

The old expression “idle hands are the devil’s playground” almost captures the essence of the problem, but not quite. Because the problem isn’t “activity or lack thereof (i.e.- idleness)” — the core problem is that sometimes we can’t stand boredom, so we engage in activity purely for its own sake.

And sometimes “destructive activity” actually feels better than no activity at all (this is also a lesson politicians could stand to learn).

Many traders understand this dynamic, at least instinctively (whether or not they’ve ever put it into words). The problem isn’t that they’re too lazy to take action — the problem is that they can become addicted to trying to accomplish something productive.

And that leads to overtrading. It leads to forcing trades. It leads to bad decisions and, sometimes, to acts of outright desperation.

Is There a Solution?

Well, the solution may be to redefine our individual views of “productive” action.

But what do I mean by that?

Let’s start here: I’ve often preached that non-action can be just as important as action. If a trader has clear rules that prohibit action in certain situations, then they can derive a sense of accomplishment from merely showing the discipline to stick to their rules.

In other words, they can (seemingly paradoxically) obtain a feeling of accomplishment by doing “nothing” — because they have redefined “doing nothing” into SOMETHING. (In this case, not accepting entries that violate their rules becomes the “something” they’re doing.)

Yet this is easier said than done, because the market is always moving. So when one resists, say, a buy entry because it violates their rules… and then that (as Robert Frost might say) “Trade Not Taken” goes on to develop into what would have been a 1000% gain, it can and probably will feel like you did the wrong thing.

And that’s why this next section is key.

The Psychological Importance of Trading Rules

Everyone talks about how you need rules to maintain discipline, and that’s true — but you also need rules to defend yourself psychologically against the one (potential) enemy who knows your every hidden weakness: Yourself.

That may, in fact, be the most important aspect of trading rules.

Why?

SPX, INDU, COMPQ: Right on Target and the Next Key Levels

Last update noted that a bounce wouldn't be out of the question, and that's what we've had since.  Most interesting is how the bounce ran right to where I suspected it would -- INDU shows this most clearly.

INDU also most clearly shows the potential problems for bears, were the bounce to continue, so let's start here:

COMPQ ran to its red horizontal (its first upside target), then got rejected like a creeper on prom night:

COMPQ near-term -- note the thick black line:

And finally, SPX, which also tagged first resistance:

In conclusion, this is the first real test bears have faced in a while.  They probably need to hold the market below yesterday's peak, or things get a little sketchy for them.  If these noted key levels hold -- IF and only IF -- then all's well for new lows.  Trade safe.

SPX, NYA, COMPQ, INDU: Market Finally Does a Thing

The market has finally done a thing again, as both COMPQ and SPX have finally at least peeked above their respective crash channels.

COMPQ:

COMPQ long-term -- back above the long-term trend line, for now:

INDU:

NYA:

In conclusion, you may have picked up that the recurring theme I'm stressing to bears now is "don't get complacent."  It's very easy to feel invincible after the market has gone your way for a while.  But even if this is a fourth wave correction to the decline, fourth waves can get messy and complicated.  It's also not impossible for the decline to be OVER.  That seems like an underdog right at this moment -- but "underdog" and "impossible!" are very different things, and it is by no means impossible.  Trade safe.

p.s.- I've started aggregating a few enduring pieces, as well as publishing some new work, at Substack.  The latest piece is titled "AI and Robots Won't Take All the Jobs -- Here's Why."  If you enjoy the piece or my work in general, please "like and subscribe!"  Many thanks.

SPX, COMPQ, INDU, NYA: All Diagonals Go to Heaven

Since last update, the market has continued floundering around like an electrocuted mackerel, trending sideways down, but unable to bounce.  Let's start off with INDU, which has broken down from an apparent double-top:

NYA also suggests that prices would normally be expected to run lower still.  The diagonal I suggested back in November (when it was still forming) ended up being the real deal:

COMPQ is below its major uptrend line:

COMPQ has exceeded its targets, but if NYA and INDU run lower, COMPQ will too:

And the SPX diagonal I called out right before the top has also ended up being real, despite failing to overthrow its upper trend line:

In conclusion, one would think we'd get a bounce somewhere in here, but both COMPQ and SPX are still within their crash channels -- and as I noted a week ago, the "first step for bulls" is to break out of that.  Bigger picture, NYA and INDU both suggest that even if we bounce, the decline is probably not over, with lower prices likely to follow any bounces.  Trade safe.

SPX, COMPQ, INDU: Getting Closer

Since last update, the market has continued to drop like a water balloon, and SPX has captured and exceeded both its common first targets:

COMPQ is looking shakier, though not QUITE to its key overlap yet:

And INDU's whipsaw of blue was indeed a serious warning sign:

In conclusion and in short:  Bulls are running out of real estate rapidly.  If they can't pull out of this tailspin soon, then it will become increasingly likely that a major bear market just began.  We'll give them a little more breathing room, but right now things are looking pretty awful for them.  In the event this was the start of that major bear, we could ultimately retrace most of the rally that began in 2022... and if this is the start of a secular bear (a distinct possibility, given the wave positions in the big picture), we might not see current levels again for many years.  Just something to keep in the back of one's mind.  Trade safe.

SPX and COMPQ: Changing the Clocks is an Obvious Practical Joke

Just a short update today because I forgot the mainland was going to do their Daylight Wasting Time time change.  Hawaii doesn't observe DST, so this change means the market shifts from opening at 4:30 a.m. to opening at 3:30 a.m. here.  In other words:  Normally, the market doesn't open for another half an hour or so.

Anyway, hence the short (and slightly late) update, starting with COMPQ:

And ending (yes, already!) with SPX:

Luckily, there's not a lot to add to Friday's update anyway.  But my apologies for the misstep, and Wednesday I'll be back on track.  Trade safe.

SPX, INDU, COMPQ: The Bad News Bears

Since last update, SPX made a slight new low, while COMPQ and INDU retested their lows.  Before we look at those charts, though, here's a "let's keep it simple" chart.  SPX is currently in a crash channel:

COMPQ tested, but is still holding above, its first key overlap:

And INDU is probably the clearest indicator that the current drop is only 3 waves down (so far):

Probably the most noteworthy thing to come out of all of this is that while SPX made a new low, it appears to have done so in only three waves (coming down from Tuesday's 5865 high).  This implies that in the event it bounces directly (first target 5875-5904), then that will leave a b-wave low that would need to be resolved with another new low.  If it doesn't bounce directly, then it's likely going to need to run south of 5600 in order to create the requisite 5-waves down from 5865.

In other words, it appears more likely than not that bears still have the ball for now, one way or the other -- though a b-wave low and bounce would give bulls a short-term reprieve.  Trade safe.