When The Ship Starts to Sink ---- Jump

Discussion in 'Psychology' started by Illini Trader, Sep 12, 2010.

  1. I am still a rank amatuer compared to all the world class traders on this site but this was one of the toughest things for me to overcome in my 5 losing years.

    This thread title is actually the Third Major Axiom from the great little book by Max Gunther published in 1985 "THE ZURICH AXIOMS -- INVESTMENT SECRETS OF THE SWISS BANKERS"

    Why is it so hard to give up on a position even when you see your profits evaporating or your losses mounting?

    The Swiss bankers who arguably have been the world's best speculators for 300 years say there are 3 obstacles that cause us to freeze in our tracks.

    1. The fear of regret is number one. We fear that the losing trade will turn into a winner after we have gone away. We have all seen this happen and it hurts.

    2. This second obstacle is that we have to abandon part of our investment when we exit. We worked hard for that money and to just exit and abandon it, hurts. If we stay there is a chance we can get it back.

    3. This third obstacle is difficulty in admitting we were wrong. We all take pride in our trading and want to be right. Being wrong hurts.

    I knew all this and I still could not pull the trigger to exit soon enough. The market had me screaming uncle before I would close my position. My average loss in my early years was probably twice what it should have been because it was so hard for me to jump off the sinking ship. :eek:

  2. Your question goes hand in hand with this one, neither of which has been answered by the cognoscenti .....

    "If it takes 9 months for the baby to arrive, then why is the fellow in such a hurry towards the end of intercourse?"
  3. Try FX market. Lower trading costs and more opportunities alow you to not so sacrifice about given back profit.
  4. Redneck


    Most would say greed..., or fear..., - wrapped in ego

    Some may say lack of experience…..

    Some would say lack of rules/ an inability to follow rules

    I could make a case for unclear thoughts also – which obviously lead to unclear action

    And I am sure there are others….

    But they all lead to one


    The truth…. And our total acceptance of the truth – coupled with our ability to act in a truthful way

    Price, or more specifically Price’s action – is the absolute truth… We must accept it…, We must base all of our actions on it

    We question the truth every time we hesitate – the reason(s) we assign to why are immaterial – for the end result is always the same – we lose money

    Food for thought Sir

  5. ?......One seed out of millions produces the fruit? :confused:
  6. BCE


    Great post. :) No one likes to lose money. That's not why we trade obviously. But we need to learn from experience, and hopefully most of us eventually do, about keeping losses small and knowing that not all trades will be profitable, and then moving on to the next setup that looks good. But it is hard to learn all this.

    It's funny that this ties into some of the posts now on the ES Journal thread. :) http://www.elitetrader.com/vb/showthread.php?s=&postid=2950657#post2950657
  7. I believe you nailed the reasons.

    To get away from you emotions when in a trade use bracket orders.
  8. NoDoji


    I emailed my friends earlier today in a discussion about how the market rewards that which is difficult and here were my #3 and 4:

    3. Cutting losers. We are conditioned to be “right” as often as possible, to get good grades, to win games. By the time we’re in high school and college, our egos are so desperate to be “right” and to win that people cheat on tests and do performance enhancing drugs to excel in sports. If as a trader you believe price is going to move a particular direction because you studied all the fundamentals, indicators, etc. (did your homework and studied well), then you should be able to easily pass the “test”, which is to put on a winning trade. But every moment in the market is unique and if price tells us it’s going the opposite direction from what all our study told us, we will be rewarded by admitting we were wrong, and often rewarded even more by reversing sides, trading against our beliefs and following price instead.

    4. Letting winners run to target (or better). When a trade shows us some profit we are proven right! What if it reverses and then makes us wrong? Better to take that small profit and be right than to be a real idiot and let the profit evaporate. So here we are tempted to quickly exit a trade that’s working in our favor, while we have no problem holding a loser even when the setup becomes invalidated.
  9. What you say ND reminds me of a couple of trades I made once two hours a part with similar price action. In trade one, I was long and it went down 50 cents then rallied back to within 10 cents of my purchace price. I was feeling good, Yea, I was right after all, I am almost even. It reversed again and I took a 90 cent loss and it kept going down after that.

    Two hours later in the second trade, I was short and it went down 50 cents for a profit. The stock rallied back to within 10 cents of my purchase price and I covered before I lost all my profit. Then it reversed again and I could have named my profit.

    Like the cartoon character once said "I have met the enemy and he is me"

  10. Number one is probably the worst one. It might come back.
    What rule says that you cannot get back in if it does?
    #10     Sep 13, 2010