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I have to say that Stewart is not the only one to see wonderful people go down
the drain financially and emotionally because of a bad trade and then adding to
it.
There are a couple of things that happen when you trade that don't happen in
any other occupation. One is that after you have made a decision to do
something you have to provide for the fact that your decision might be wrong.
Designation of blame is not an alternative. The second, and most fatal, is
trying to defend the mistake you have made.
There is also the GOD syndrome, where continued success leads a trader to
believe that he knows the market and what ever he decides to do the market will
accommodate. When the market doesn't he fights the market all the way to
bankruptcy court or a mental institution. I have seen both.
Stops are the answer to most of tradings emotional and money management
problems. Yes every now and then the 3% factor will get you with limit up or
down days, sometime three or more in a row. That is one of the reasons and
understanding of options and how to use them helps a trader. On many occasions
I have used OCO orders once in a position and then gone and played golf, and
not worried about it. If my target was hit, I was out, and if I was wrong, I
was stopped out.
The major problem with not using stops, or using mental stops, is that you
start to mentally defend the losing position you have. You find every reason
to justify what you have done. You look at every tick and believe that the
next one is your salvation. Hope turns to dreams, and dreams to poverty. The
only time you can look at a situation objectively is when you have no
position. Nothing to defend. Right or wrong, once you are out of a position
you can analyze what you did right and what you did wrong. The did wrong part
is the toughest, but every trade, win or lose, should be analyzed for your own
benefit. You don't have to wait to be stopped out to be wrong. Many times
you can look at what is happening on the screen and think that this doesn't
look right and bail out of the trade. Now you can look at the trade in an
unbiased light. You may decide to reenter the trade, take the opposite side or
go elsewhere for your next trade or position. But all these decisions can now
be made with a clear head.
Sorry about getting so wordy. Have a good week end. Ira.
Stewart Taylor wrote:
> Why have I gotten a little upset over this thread:
>
> I have seen traders, good guys and girls that managed to get behind the 8
> ball, ultimately commit criminal acts (embezzlement and fraud)that
> effectively ended both their professional and family life in order to cover
> up losses long enough to hopefully recoup.
>
> In two cases I have seen professional traders put successful, tenable
> business under with their losses. The result, over 120 people unemployed,
> some of them long term employees with 20 years or more service.
>
> I had a good friend take his own life. He was an institutional trader, had
> many years of experience in trading and doing risk management. He let one
> position take him out. He got bigger than the market, refused to stop out,
> started hiding trades, diverting funds and hiding confirms and less than 3
> months later a wonderful guy was dead.
>
> You have to understand that a whole new set of emotions develop when you
> get a bad one going. Decisions that should be easy can become extremely
> difficult. Your thinking process can become very erratic. You can
> completely lose touch with trading reality. It is a frightening thing to
> witness. It is funny (in a sick way) to see how much a person caught in a
> really bad trade can change years of successful behaviors almost overnight.
>
> Anyway, most of these situations begin when an account begins to take
> unreasonable risk. In almost every case, the trade began as a single trade
> that spiraled out of control.
>
> Keep in mind, these are not accounts that churned themselves or were
> horrible traders. Each person involved was a market professional with years
> of professional trading under his belt. There is something about finding
> oneself in an unexpectedly bad position that can render the most even
> handed trader frozen in the head lites.
>
>
> So do I get a bit heated when I see someone advocating what for most people
> is very dangerous? Yeah, yeah I do. Avoiding problems and managing the
> bad tail is a big deal.
>
> Stewart.
>
>
>
>
>
> Stewart Taylor
> Taylor Fixed Income Outlook
> Voice: 501-219-9774
> Fax: 501-228-0963
> E-Mail: staylor@xxxxxxx
> Web Site: http://www.cei.net/~staylor/
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