Forex Trading Articles

MAXIMIZERS AND SATISIFICERS

Forexmentor Team
© 2007, Currex Investment Services Inc.

Apr 23, 2007

In the trading business, the more profits you make, the better. Winning traders must constantly search for high probability setups, and finding these setups isn’t enough. One must also trade these setups in a peak performance mental state. A study by Dr. Sheena Iyengar at the Columbia University School of Business, suggests that searching for the “best” alternative may undermine feelings of satisfaction. And when you don’t feel at your best, you will have difficulty trading the market with the proper mental edge.

When it comes to making decisions, some people are maximizers while others are satisficers. Maximizers seek the best alternative when making a decision. They make an exhaustive search of all possibilities. Traders who are maximizers put in extra time and energy to search for the best trading opportunities. They want to maximize their profits, and that means searching exhaustively for all possibilities, considering them, and choosing the best option. Satisficers, on the contrary, aim for “good enough.” They don’t make an exhaustive search. They simply look for a potentially profitable trading opportunity and they trade it. Maximizing usually pays off, but there are disadvantages. It takes a great deal of extra psychological energy to search and consider all possibilities, reducing limited psychological resources. Maximizers also tend to compare themselves to others and tend to feel regret and depression while making decisions.

In a study by Dr. Iyengar and colleagues (Iyengar, Wells, & Schwartz, 2006), for example, maximizers did better financially in terms of yearly salary as a result of their decision making strategies, but they felt worse. There may be an advantage to reviewing all possible options when making decisions, but thinking over them too much can be a distraction, and maximizers tend to get too wrapped up in fantasizing about the potential rewards of making the “best” decision. Although maximizers were better off financially than satisficers, they were less satisfied with their decisions, and felt more pessimistic, stressed, worried, and depressed while making decisions. At first glance, this finding is puzzling. How could people who do financially well feel so unsatisfied? Striving for perfection has its costs. Because they search for the elusive “best” option, maximizers increase the potential for feeling regret. By thinking and re-thinking potential opportunities, they put added pressure on themselves to make the “right” decision. But no decision is perfect, so they end up feeling uncertain and unsatisfied with any decision they make.

Trading profitably in the long term requires one to maximize profits. A thorough search of all possibilities will pay off in the long run, but it can also stress you out. The challenge is to find the balance between finding a high probability setup on the one hand and accepting the fact that it may not be the “ultimate” setup on the other hand. If you are a maximizer, it may be useful to tell yourself that you don’t have to be perfect. Remind yourself that you have done much more than other traders in terms of searching for a profitable trading opportunity, so you feel assured that you’ve done your best. After you’ve made your decision, stop deliberating and just execute the trade.

You can take the quiz to determine where you fall on the satisficer – maximizer scale.

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