Fear Vs. Anxiety and The Poker Analogy

The key to the trading system is the separation of fear from anxiety. Fear is a legitimate response to an extraordinary situation. Generally, it causes people to overreact to a threat. Though these overreactions are often unnecessary, they also help to protect us from real dangers.

Anxiety is different. It is the anticipation of fear: the emotion you feel when you think about something scary. Fear causes people to run. Anxiety causes people to avoid the situations they might need to run from. I'll use a poker analogy:

Imagine you're playing poker against me. You know I'm a good player, but you have a hand that's pretty good and you think you have me beat. So you make a nice sized bet.

I come right back at you with a much bigger bet. You get scared that I have you beat and you fold your hand. Yes, you might have overreacted, but you also protected yourself. Folding to my very real offensive threat was not a bad decision.

However. you now have a memory of being scared by me.

A little while later, we're in a similar situation: You think you have me beat and are about to make a bet. But then you get a little anxious. You're worried that I might scare you again with another very big bet. So you don't raise the pot at all.

This is probably a terrible decision. It is an avoidance of a very good gamble.

Getting back to the stock market:

There has been a lot of research into whether people overreact to scary situations. Do they sell something for less than it's worth because of their heightened emotional state? Perhaps. But how come there are no buyers to take advantage of the overreactions of others? I consider this side of this trade--and I hypothesize that the lack of buyers is due to anxiety.

For securities that are heavily traded by the types of traders that feel anxiety, there might be a significant lack of buying during situations that cause anxiety even if the traders think that a security is a good value. These are the traders that aren't raising when they should be.

Yet everything changes a day later when the anxiety dissipates.

That is how System HAG and System Z expect to profit.