I consistently destroy my account every couple of months by making the same mistake. I'll short a stock and the prices will go against my position by 30-40+ cents very quickly (my mental stop is usually 10-20 cents). Whenever this happens, I can't press the button and exit out of the trade because I can't come to terms with such a relatively big loss. I keep telling myself irrationally that the price will come down and it usally doesn't. The longer I stay in the stock, the more my losses grow, and the more 'paralyzed' I become to exit myself out of the situation. I use a spreadsheet to keep a track of my trades and I have a journal where I document my decisions for entering/exiting a trade but I still keep making this specific mistake. What steps can I take to overcome this psychological fear?
Stocks generally go up, you should deploy a long only strategy and master that way before you try to learn to short.
When you short a stock, you are in effect borrowing it. Naturally, if it runs up, your risk is now unlimited to the upside! Did you know that? A stop loss provides only a small measure of protection. Learn to trade options so that, you can trade both sides of the market safely. If you trade stocks, you should only trade from the long side and put stop losses on each trade to minimize losses. A mental stop will not work for most traders because they do not have the discipline to stick to rules and exit stops that are hit! For your sake, do not ever short another stock again! You risk blowing out your account and owing monies on top of that! Remember that stock needs to be returned to the broker! The broker will hold you liable for it above the value of your account! They will have to make good on buying it back because someone else owns those shares but, they will go after you afterwards!
Consider less shares per trade and a larger stop. You have too much on the line, you go into a coma and freeze. Then try to rationalize everything you are doing. It has nothing to do with shorting stocks or going long. I have made the same mistakes hundreds of times see my journal last pieces of the puzzle Journal.
As soon as you even get the first gut feeling that you've made a mistake get out. Don't second guess your intuition. Keep this in mind.. The market isn't going to shut down because you aren't there to trade. You'll survive to trade another day but if you stay in you risk not having that option at all. If you're the type that can't take losing, you're better off developing a completely transparent fail proof system. A system that completely takes the mental state out of trading.
1. Stop trading. 2. Study your trades carefully. 3. Design a profitable trading plan. 4. Follow your trading plan.
Before you enter, put in your stop loss first, make this a habit on every trade. or Hedge with options.
Give yourself a big break, your mental health is not favorable to forex. Give yourself ample amount of time to think about what you repeatedly did. Don't come back to Forex unless you got a prepared solution to get better than the previous performance.
i agree. before coming back read some motivational stories and prepare yourself for the worst before entering again.
I rarely short stocks because their indices tend to rise as membership is rotated. Indices have therefore an inherent buoyancy and when they start to rise with good momentum every member stock can be subject to a buying spree, even the dogs. You can try shorting stocks if an index is rising lazily or ranging but be ready to exit very very quickly if the index changes behaviour.