Common sense may be an uncommon mental state for experienced traders, and for newcomers who jump into the Wall Street game, but without it, players don’t stay in the game.

Intellectual definitions of common sense can be found in all the dictionaries, but we are most concerned about is experiential common sense, the ability to sift through data–technical, political, forecasts, trends, memory, chatter, etc., and come to a decision to do one of the handful of basic market actions: buy; don’t buy; go long; go short; hold; stop-loss; or sell.

Ego is the mortal enemy of common sense, for if we’re motivated by ego’s compulsion to be praised, applauded, and the highly regarded top dog, our lust for recognition and fame will forever be ridiculing and overruling common sense. 

Getting Ego out of the way is goal number 1 of sane traders. When Ego–false sense of self–is in control, some little–but crucial–factor will be overlooked or disregarded, or misinterpreted. Generals on the battlefield want to know the ego needs of their opponent because those needs may hold the key to unexpected victory.

Knowing yourself–what makes us think and feel, act and react in positive or negative ways–is key to success in the market. If we don’t know what “gets our goat” and makes us over-compensate wildly, our score will hover around zero. If we’re too easily embarrassed, we’ve lost control. If our temper makes us fly off the handle, we’ve lost control.

Common sense gives our work a light touch, so we aren’t unhinged by success or depressed and paralyzed by disappointment and miscalculation. The light touch of common sense lets us rebound from both success and failure. Years ago, in graduate school, I came across another prime ingredient of common sense. In the article I was reading, a medical professional said, “Learn to look at your patient with eyes of analysis rather than pity.”A market profession will learn to look at market conditions with eyes of analysis, unswayed by greed or one-upmanship, or revenge, or desire to teach someone a good lesson. Stay objective. There will always be pros and cons…and some risk. Common sense says, “Would I advise my mother to do this?”