Observing the ruckus in Greece about what they plan to do with a maxed out credit card, I cannot help but feel a vicarious empathy. The state unions and pensioners are protesting planned austerity measures, but wouldn’t you if your government-sponsored welfare was being threatened?
Think back to when you we just a young child and your parents threatened you with taking away television privileges or some such entitlement that was important to you. It’s not fair to offer something and then take it away. It’s demeaning, insulting and dis-empowering.
The Greek Prime Minister, Mr. Papandreou, has been appointed that country’s liaison with Reality. It’s a job that comes with no small sense of peril and loathing. Imagine if you couldn’t even get to work because your employees were protesting your office and you needed to find other suitable office space to plot your solutions.
Greece has moved from the first Kubler-Ross stage of Denial (evidenced by currency swap chicanery) to the Anger stage (personified by the protests of the disaffected electorate). Mr. Papandreou is charged with moving everyone along to the Bargaining stage (brutal spending cuts and tax increases). Sadly, after Bargaining there are still the Depression and Acceptance stages. The Kubler-Ross matrix was intended to help those suffering loss to understand the process they needed to go through. But sometimes, maybe we bring about some of this agony on ourselves.
The most common application to trading is to use this matrix in dealing with trading losses, and to do it quickly so as to minimize the extent of the loss. For instance, if you have a losing trade, the notion is to accelerate the following steps:
1. Denial (There is something wrong with my chart)
2. Anger (I can’t believe the stupid market is doing this to me!)
3. Bargaining (I’m willing to get out break-even)
4. Depression (I’m never trading again)
5. Acceptance (Take my money, I’m moving on)
Of course, it isn’t always this neat. Many times we’ll learn to Accept our loss too soon, and subsequently screw up the order by becoming Angry and Depressed after we’ve Accepted our loss. The point here being that trading psychology is a bit more complex than what can be summarized in a 5-step process, but the behavior of other market participants and whole countries is not necessarily any more complex.
Besides utilizing dazzling fundamental analysis and pinpoint technical analysis, it’s useful to see that markets are comprised of humans (no offense to trading robots, of course), and we all respond in similar ways to certain events.
It’s unclear how Greece and the Eurozone will resolve itself around this latest issue of profligacy, but we know that the story is not over by any stretch. Those that don’t know their Sylvan history are condemned to repeat it.