Hero or Sucker?

Discussion in 'Psychology' started by BA_Trader, Mar 12, 2004.

  1. An observation given the equities markets as of late...

    When I first started trading -- I wasn't at all hesitant to sell
    into a rally or buy a decline thinking "this is as far as it can go"
    .. then "now this .. this is as far as it can go" -- and so on and so
    on. Sometimes I would give up... and (of course) prices would
    promptly swing around. If I kept at and finally hit the turn. I was
    a hero! I caught the falling knife. Look at me.

    I was also breaking even or worse. I think I had an aversion
    to following the trend because I would rather be a war torn
    hero who got the top or bottom than a sucker sheep getting
    whipsawed. I'm not elite by any means -- but I have learned
    that there is no room for heroes in trading. If you suck up your
    ego and let yourself get suckered now and then you'll end up
    better off in the long run.

  2. This is an interesting post for me...

    One of my biggest problems with trading lately has been to sell short into gap ups. This can be a viable strategy, but when you get it wrong, you just get murdered.

    So everytime I forget the pain of my last loss, I short sell into a gap and lose my ass , digging a big hole for myself. Today it was AET. Fortunately, I only lost .35 per share. I guess you have to get tired of losing money before you stop making these types of bonehead moves.

    It's tempting though, and I fall for it everyday. I made money with the strategy on LXK later in the day. And that is the lure, isn't it?

    On balance, this strategy has been a loser for me... so when I see those strong rallies or gaps... I try to trade into them instead of against them.
  3. Classical gambler's fallacy not knowing about the existence of persistency in probability law even in the case of pure random walk. So more a question of ignorance than purely psychology.

    btw persistency was discussed here
    http://www.elitetrader.com/vb/showt...highlight=persistency and trend&pagenumber=12


  4. good stuff.... seems like b.s. but (imho) their is a lot of wisdom in your comments.

  5. Correct me if I'm wrong but I know your persistency concept
    as "regression to the mean" -- in other words... coin flipping
    regresses to 50/50 even if you have a hot start of 10 heads or
    10 tails.

    So what you are saying is that a noticable run up or down in
    price is simply a deviation from some probabilistic average in
    stock price?

    This sounds like a theoretical/religious issue and there is plenty
    of discussion on the thread you mentioned.

    At any rate my point was not about following a trend that has
    already extended itself (which is what I think you are advocating
    against... and I agree) -- but rather how you go about trying to
    catch the reversal... early or late and why.