The need to be right, at least on occasion, is important to an
individual's self-esteem. Most of us don't feel as good about
ourselves when we're wrong, so some of us have found a work-around
to this problem by occasionally (or frequently!) sacrificing our
grasp on reality in order to preserve our self-images.

The funny thing about this tendency is that it's difficult to
observe in ourselves, but incredibly easy to observe in other
people.

Let me draw an example, and see if you haven't noticed this trait
appear at least occasionally in a coworker, or a friend, or a
family member -- or maybe yourself. We'll start with an innocuous
example to illustrate what I mean, and then we'll talk about how
this can impact traders and investors on a more serious level.

Here's the example. You're playing Trivial Pursuit with family, and
the current trivia question is: "Which Dickens character said,
'Please, sir, I want some more.'" Uncle Richard answers "Tiny Tim."
Uh oh. Here we go again... "Sorry, Uncle Richard, it was Oliver
Twist." Well! As we all know from countless years of unfortunate
experience, Uncle Richard is NEVER wrong. So instead of simply
acknowledging this fact and letting the next player take their
turn, Uncle Richard forces the whole table into an impromptu debate
about classic literature -- and, although he's a plumber by trade,
he has suddenly become the World's Foremost Dickens Expert.

This goes on for the better part of 10 minutes -- meanwhile,
everyone else at the table knows Tiny Tim's famous line was "God
bless us, every one!" and sees that Uncle Richard is dead wrong.
But that doesn't matter. In Uncle Richard's reality, everyone else
is wrong and he's the hero fighting for truth. The debate
eventually ends, but only because we finally agreed to give Uncle
Richard the pie piece, due to sheer exhaustion in the subject
matter. He never admitted defeat. Nor will he ever; for whatever
reason, his version of himself requires him to be right at all
times -- even if it means he has to warp his perceptions of reality
in order to accomplish that.

This is what I mean about this trait being easy to see when it
manifests in others. We all know "how Uncle Richard is" -- but do
you think he notices this trait in himself? It's unlikely that he
does, because otherwise he would find a more efficient and
productive way of approaching life. Probably all he knows is that
he feels threatened and defensive a lot, and that most of the rest
of the world "is a bunch of idiots."

I mention this because I have seen traders and investors fall into
this same trap countless times. I myself have fallen into it on
occasion. I've talked about it before as our tendency to create an
imaginary "market morality" i.e.- "The market
shouldn't have

gone up yesterday!" As if the market did something morally wrong by
rallying, while
we

were in the right and thus hold the high ground. Even though our
positions lost money, we are thus comforted by the thought that,
somewhere out there, the Equities Gods have been angered by the
market's display of impudence and They will one day rain down fire
and brimstone upon the exchanges. People who took the other side of
the trade are invariably thought of as "fools," and "lucky." And
maybe they were, but that isn't the point (the actions and choices
of other people have absolutely nothing to do with our own paths,
and simply aren't our concern).

As far as I can determine, these thoughts exist for one reason, and
one reason alone: They are a self-defense mechanism for the ego.
But they are ultimately counterproductive to our trading ability
(as well as to other aspects of our lives). One of the hardest
parts about choosing and entering trades is removing bias,
preconceptions, and ideas about what the market "should" or "should
not" do. The need to be right precludes that ability, and can
actually cause us to misread reality.

Successful traders adopt the attitude that the market is always
right. I believe we should view it as our goal to align ourselves
with the market as much as possible -- not the other way around. If
we're to succeed, then we have no choice: Either we get in sync
with reality and go with the flow, or reality will drag us along
kicking and screaming. I simply don't see another option since, as
individuals, we cannot "force" the market to break or rally by
employing willpower, by wishing, by prayer, by bargaining, by
cursing, or by any other means (note: the preceding limitations may
not apply if you are a central banker).

The ability to accept that the market is always right is an
outcropping of humility. Ultimately, it's also the only way we will
recognize and learn from our mistakes. After all, if the market is
"wrong" when we lose money, then in essence we're saying that we
didn't make a mistake, the market did. And if we truly feel that
way, then there's no impetus to even go on the quest for knowledge
and learning in the first place.

Thus it is ultimately an act of humility to accept defeat and
accept the lessons of the market -- and in the end, we'll be better
traders for it. Without the need to be "right" slowing us down, we
can react more quickly to changing market conditions and reality in
general, and we'll find that we end up on the (actual) right side
of the trade more often and with greater speed. At the end of the
year, your account will thank you (and, in Uncle Richard's case, so
will everyone else).

There's been no material change in the outlook, so just one chart
today, in order to avoid having to reprint yesterday's article in
its entirety (
See:

SPX Captures Sixth Straight Target Zone -- Will Bulls
Reach the 7th?

).

Click to enlarge

In conclusion, there's very little to add to yesterday's outlook at
the moment; so please refer to it if you missed it on the first
go-round. Trade safe.

Follow me on Twitter while I try to figure out exactly how to
make practical use of Twitter:

@PretzelLogic

.