One Reason It Can Be Hard To Keep Our New Year's Resolutions
I recently read an interesting article. It was about why people generally have a hard time following through after setting a plan or a goal and then what we can do about it.
It's not trading-specific, but it can certainly be applied to our day to day trading process. And, I thought it was especially applicable in this "New Year's Resolution" season.
Here's a snippet of the article. You can read the entire article here. And, by the way, I recommend this author's writing. He offers a lot of good behavior psychology concepts in easy to digest articles.
Why We Make Plans, But Don't Take Action
One explanation has to do with a behavioral economics term called “time inconsistency.” Time inconsistency refers to the tendency of the human brain to value immediate rewards more highly than future rewards.
When you make plans for yourself — like setting a goal to lose weight or write a book or learn a language — you are actually making plans for your future self. You are envisioning what you want your life to be like in the future and when you think about the future it is easy for your brain to see the value in taking actions with long-term benefits.
When the time comes to make a decision, however, you are no longer making a choice for your future self.
Now you are in the moment and your brain is thinking about the present self. And researchers have discovered that the present self really likes instant gratification, not long-term payoff. This is one reason why you might go to bed feeling motivated to make a change in your life, but when you wake up you find yourself falling into old patterns. Your brain values long-term benefits when they are in the future, but it values immediate gratification when it comes to the present moment.
This is one reason why the ability to delay gratification is such a great predictor of success in life. Understanding how to resist the pull of instant gratification—at least occasionally, if not consistently—can help you bridge the gap between where you are and where you want to be.
Again, you can read the entire article here. The author goes on to give some ideas and strategies that you can consider implementing.
***I'd also encourage you to think about how this push/pull between our long-term goals and short-term outcomes might be showing up in your trading.