Here is a checklist that might be useful for self-evaluation:
1) Have you experienced one or more recent large losses in markets that shook you emotionally?
2) Have you experienced a recent painful loss in your personal life that has left you feeling more vulnerable in your finances and/or your personal sense of security?
3) Have you experienced a recent threat to personal safety that shook you emotionally, such as a violent attack or a serious accident?
4) Do you find yourself emotionally “overreacting” to what should be normal trading stresses and losses? Are you experiencing significant anxiety, frustration, anger, or depressed feelings when trades don’t work out?
5) Do you find yourself “overreacting” in your trading behaviors during what should be times of normal stress? Are you freezing up and not acting on your ideas or impulsively lurching into trades after losing periods in markets?
6) Do you look back on your trading and feel confusion, shame, or puzzlement over actions that you took that run completely contrary to your plans for the day?
7) Have you tried to reduce your emotional and/or behavioral reactivity to markets, only to see the same destructive patterns return during times of stress? (more…)
Archives of “Abnormal psychology” tag
rssThe Agoraphobic Trader
http://en.wikipedia.org/wiki/Agoraphobia
The market is risky. There is nothing about it that isn’t risky. Risk never changes, your understanding and ability to make decisions based on what you are likely to achieve does change.
One of the most important things about risk is liquidity. Agoraphobia is a “Panic disorder with agoraphobia is an anxiety disorder in which a person has attacks of intense fear and anxiety. There is also a fear of being in places where it is hard to escape, or where help might not be available.” –A.D.A.M Medical Encyclopedia
This plays out in two ways:
- Physical limitations: The ability to get out of a position because there are ample orders on the other side of your trade. We have seen many positions get too big to win. Amaranth Nat Gas trade, CDS, and most recently the London Whale Trade. For most of us we will never have the ability to get into a position that size but if you trade penny stocks you might find yourself in trouble and with some serious momentum trades.
- Mental limitations: As it is often said “second trade first”, meaning have your exit in mind before you get into a position. We have all been there before. Not getting out of a trade where we should have. Now we are down money or gave back open profits. We are essentially trapped. The trade begins to own us. We have created an extra branch on the decision tree that does not need to be there.