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Two Emotions

  
  Education
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Two emotions that plague the inexperienced trader are Anticipated Loss and Buyers Remorse.

Does your trading life go something like this? You see a trade line up, and suddenly a cramp in your solar plexus appears as you anticipate a possible loss. You put this down to simple fear and make an effort to mentally overcome this internal barricade so as to enter the trade. Acting quickly so as not to miss out, you swiftly enter the position and your trading platform indicates that you are filled. Now you are gripped by the sensation of buyers remorse – too late to back out now… A small voice in the back of your subconscious says “what have I done?”

To your great delight and surprise, the trade soon goes in your favour, and for a while you feel a warm fuzzy glow and give yourself a little compliment, but soon the old feeling returns in the form of a hot flush. Anticipated loss is back again as you worry about the market turning against you and taking away the profit you now have. You watch the current candle as it bobs up and down… You stare at it in a trance as the feeling of being gripped by a giant hand increases. You struggle for a moment against this sensation, but then it overcomes you and you exit the position. Price moves on without you, and you are filled with buyers remorse again! On and on it goes, slowly eating away at your confidence and sanity.

Here’s what it feels like once you overcome this hump :

Having been watching a dull market for several days from the sideline you suddenly see a trade shining out on your chart. You have an initial “ah ha!” sensation, but you let that go so as to think carefully and not do anything rash or impulsive. You decide to take the trade, and spend some time calculating the correct entry and stop position; you know your standard 1R risk value already. Having checked and double checked that everything is ok, you enter the orders into the market and fill out the necessaries in your trading log, including entry time, size, reason for entry etc… Then you switch off to go read your favourite novel or walk the dog.

The next day, you check the market to see that your order has been filled and the market has moved in your favour. You think “good…” and examine the chart for the correct new stop placement, and you adjust your order in the market. You switch off and go do something else.

3 more days of these quick adjustments follow, and your profit increases with each surge, but on the forth day you check to find that you have been stopped out during a sudden reversal for a profit of 2.6R… Nice trade. You fill out the rest of the entry in your log, and then assume the attitude of sitting on the sidelines again for the next trade.

Now – the thing to bare in mind in the above examples as that both people might be TRADING THE SAME MOVE…

Why does it happen?

  
  Education
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There seems to be a consistent pattern when it comes to these trading teachers turned rogue traders. The story usually is that a trader struggled for years, then “made it”, and decided to teach others. Students etc began offering them money so they set themselves up as a money manager and then *bling* collapse in flames and do a runner.

One obvious theory is that their trading psychology had adapted to trading their own money at a certain equity level, and they might even have been very successful at that, thus making them confident and bold. But then all of a sudden they are thrust into new territory in terms of both a massive influx in equity and thus volume to have to trade, and the burden of being the crux for investors hope and fear all day.

Imagine it – you are happy trading 1 or 2 standard lots and you have a good rate of return on your own account, but now all of a sudden you are trading 100 lots per trade, and the phone is going every half an hour with someone yapping “So?! How’s it going? What level is my investment at now?! Has their been any losses??!!”

*Brring Brrring!!* – “Someone grab that god damn phone, I’m trying to focus here!”

You could almost feel how this would cause your heart to start pumping and you would break out into a sweat; your mind would go foggy – yet you are supposed to stay cool and trade. I personally sense that many of these guys just didn’t consider this at all. They thought they were ready; they weren’t.

Add to this possible new market issues that throw a spanner in the works, such as trying to get filled with bigger volume, slippage – your positions maybe starting to show up on the radar of other market players and drawing interest to yourself.

The trusty old scalping system seems to not work like it used to work. One bad day and you’ve drawn down 20% of the account and you can’t sleep at night. You can’t bring yourself to tell the investors right now until you try to reduce that loss, so you tell a bit of a white lie.

Down the rabbit hole you go. Soon everyone is calling you scum and saying the honourable thing to do is commit suicide and you are facing six years jail. The moral of the story – think twice before becoming a home-brew money manager.

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