Enthusiasm and Mistakes - repeated
Summary – March 18 – April 9 2020
Due to the internet connection limitations discussed in previous posts it took a few days to return back to the markets. This break was a therapy after the trading day which I discussed in my last post (https://www.marketinsides.com/post/luck-big-mistake-recovery).
I returned fresh with a new set of 50GB of 4G data meaning that I would be able to trade without thinking of connection problems for a while.
The first days between March 18 and March 24 were mostly positive making stable daily gains by trading only Crude Oil and SP500 futures. At this point I reached the returns which I had made prior to my mistake, so I was feeling very positive and with a growing confidence.
Until it happened again…
Something that has chased me during my career as a trader is that I tend to give up my gains. I have never blown an account or lost a lot of money on my starting capital. That in itself is a success, however the amount of times I have managed to gain between 10-100% on an account and then come back to 0 is something that was worrying.
On the 25th of March I did a SP500 trade, and I had a serious lapse in discipline. I couldn’t accept that I was wrong and averaged into the position. This time rather than helping me, the better average price and double exposure increased my loss as the trade kept going against me closing it at a 1250GBP which erased almost all of my gains.
I remember being so angry at myself for not sticking to the plan and the amount that I was willing to risk on the trade. Had I booked a small loss of a few hundred, everything would have been fine. This time the pain was physical – I know I hadn’t lost the house, but not sticking to your plan and doing the same mistake again usually leads me to label someone as an idiot. As per my own principles, I was an idiot too.
People don’t understand that the euphoria of winning reaches a peak at some point, and then winning just doesn’t feel any better. The same could not be said about losing – when you lose, the bad feeling keeps increasing as the amount lost increases.
Furthermore, it’s important to be very aware of your emotions and everything that is happening in your brain while you are trading. If you aren’t in the right mindset, it’s better to simply not trade, rather than let emotions control you into making mistakes. Matters outside of trading could heavily affect you. At the time I was overcoming a recent break up which contributed towards my extreme moods – from feeling super confident to feeling like a loser.
Reading on mindset and the different biases and emotions which we have could prove essential to one’s trading. You become aware of the different processes in your brain and how they try to influence you.
The book to go to for psychology in trading is “Trading in the zone: Master the market with Confidence, Discipline and Winning Attitude” by Mark Douglas.
In terms of different biases which affect people I would recommend “Thinking Fast and Slow” by Daniel Kahneman. This is a book which is based on the work by the two psychologists who established the field of behavioral finance. It shows how irrational people are at making decisions and generally in life.
It’s hard to remember a book when you are having an emotional breakdown. It’s even harder to just stop and think about the things which you are doing at that moment. Everything spirals around you, until things are out of control, and by the time you are sane enough to see the results of that breakdown, had you managed to stop it earlier, the devastation could be a lot smaller.
All of this led me to create a list of rules for my trading. I put them on the wall, so I would see them every time before I do a trade. Having the rules and not breaking them is essential.
Remember that if you don’t blow your trading account, you would have done better than about 90% of the traders out there.