Fear, Greed, and the Art of Not Hunting

Part V — The Long Game and the Mind · 7 min read

Fear, Greed, and the Art of Not Hunting

Two wolves facing each other across a mirror — one angry

"Your enemy is rarely in front of you. He is in your bedroom, in your bathroom mirror, in the sound of your own voice."

A Story: A Tuesday Morning

A trader opens his account at 9:00 AM Tuesday. He had slept poorly. He had missed an SPY move Friday afternoon. He tells himself: "I am getting in today."

There is no setup. No thesis. No edge that he can articulate. He buys 3 SPY calls at 9:32 AM.

By 10:30 AM, SPY has fallen 0.5%. He is down 18% on the position. "Just a dip, it will come back." By 11:15 AM, SPY is down 0.9%. He doubles his position to "average down."

By 1:00 PM, SPY has fallen 1.3%. His drawdown on the day exceeds his entire prior week’s gain.

By 3:00 PM, he closes for a loss equal to 6% of his account.

By 3:30 PM, he is texting a friend: "What just happened?"

What happened is that he engaged the market with no edge. He brought emotion instead of process. He paid full price for that mistake.

The Five Behavioral Traps

Behavioral finance has documented these phenomena in detail (Kahneman & Tversky, 1979; Kahneman, 2011). The summaries below are adapted from those frameworks; the trader-specific cures are mine.

1. FOMO (Fear of Missing Out)

Trigger: a friend’s screenshot of profits, an X (Twitter) post about a "monster move," market making a new high without you.
Result: late entry, oversized, no plan, mediocre fills.
Cure: a written setup must precede every trade. If the setup is not in your notebook, the answer is no.

2. Revenge Trading

Trigger: a recent loss. "I need to make it back."
Result: bigger size, broken rules, larger loss.
Cure: after a loss, 24 hours before opening anything new. Close the platform. Walk away. The losses will still be there tomorrow if you must.

3. Anchor Bias

Trigger: "I bought at $50; I will only sell if it comes back to $50."
Result: holding losers while the world moves on; missed opportunities to redeploy.
Cure: forget the entry price. Ask yourself fresh: would I open this trade today at current price? If no, close. The entry price is sunk cost. The position is a new decision every day.

4. Loss Aversion

Trigger: a small unrealized gain feels much worse to lose than a similar-sized loss feels to take.
Result: cutting winners early, riding losers down. The exact wrong asymmetry.
Cure: pre-written profit targets and stop levels — and honor them. The take-profit at +50% on a long option is not an arbitrary number. It is the number that prevents the loss-aversion cycle.

Kahneman and Tversky’s prospect theory (1979) shows that humans weigh losses approximately 2× more heavily than gains in their subjective experience. The trader who is unaware of this asymmetry will, by default, manage their P&L in exactly the wrong direction.

5. Confirmation Bias

Trigger: a strong thesis. You seek out information confirming it.
Result: you ignore the counter-evidence that should have warned you out.
Cure: steel-man the opposite view before opening the trade. Write down: "I would be wrong if X, Y, Z." If you cannot articulate the bear case for your bull trade, you do not have a thesis — you have a hunch.

The Art of Not Hunting

Hardly any options book covers this. Almost every trader needs it.

Why Not Trading Is a Decision

"I went a whole week without a trade. I felt anxious."
You should not have. You should have felt disciplined. A week with no setup is a week your account survives. Trading because you cannot stand stillness is the sign of an addict, not a hunter.

The market does not owe you a trade every day. Real setups are episodic. The wolves who survive long careers are those who can sit still until the setup materializes — not those who manufacture trades to satisfy a craving for action.

When to Say No

You should pass on a trade if any of these are true:

Your setup checklist is half-complete.
The IV environment is wrong for the structure.
Your monthly risk budget is exhausted.
Your last three trades were losses (24-hour rule).
Life stress is competing for your attention — illness, relationships, sleep deprivation.
You cannot articulate the trade in two sentences without using "I think it will go up."

The Discipline of Waiting

Action is seductive. Waiting feels like nothing.

But waiting is not nothing. It is:

Studying past trades.
Refining your setup checklist.
Updating your watchlist.
Reading deeply on one strategy you want to master.
Journaling.
Sleeping well.

The wolves who survive the longest do most of their work while not in trades. The trades themselves are short, intense, almost mechanical. The work is the rest.

Learning to Lose

The single hardest lesson of trading: an individual trade’s outcome tells you almost nothing about whether the trade was a good decision.

This is Annie Duke’s framing in Thinking in Bets (2018), and it is the foundation of Douglas (2000) as well: the trader must separate the quality of the decision from the quality of the outcome. The two can disagree in either direction:

Good decision, bad outcome: properly-sized, well-researched trade that lost. Random.
Bad decision, good outcome: undersized, no-plan trade that happened to win. Lucky.
Bad decision, bad outcome: undersized, no-plan trade that lost. Inevitable.
Good decision, good outcome: properly-sized, well-researched trade that won. Earned.

Over time, the law of large numbers will reward good decisions and punish bad ones. But on any single trade, the connection between decision and outcome is loose.

A good trade can lose money. A bad trade can win money. The trade’s quality is decided when you open it — not when you close it.

This means: review your trades by process, not by P&L alone.

Did I follow my checklist? Yes/No.
Did I size correctly? Yes/No.
Did I have a written thesis? Yes/No.
Did I manage according to plan? Yes/No.

A trade that ticks all four "yes" boxes and loses money is a trade you should repeat. A trade that misses one "yes" box and wins is a trade you should not repeat — even though it paid you.

The "Three No-Trade" Conditions

Three conditions that should reliably stop you from opening any trade:

You cannot articulate the trade’s thesis in two sentences.
You have not written down the exit plan before opening.
Your monthly risk budget has only one slot left, and the next 14 days contain a major event window.

If any one is true, the answer is no.

Before You Click Buy — Behavioral Checklist

[ ] Is this FOMO, or a planned trade?

[ ] Has it been 24+ hours since my last loss?

[ ] Would I open this same trade if I had no prior position?

[ ] Can I articulate the bear case for my bull thesis (or vice versa)?

[ ] Is every checkbox on my setup checklist met? (If even one is missing — pass)

[ ] Am I sleeping well? Eating well? Mentally clear? If not — pass

Next Chapter

Chapter 21 covers the most underrated tool in the trader’s kit: the journal. Without it, every lesson in this book will be lost to forgetting. With it, you build the personal library that no book can give you.