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I think most would do well to heed Stewart's words, ESPECIALLY the
newbie. What we are talking about here is taking steps to avoid the
pitfalls of a very natural human emotion. It is a fight-or-flight
response to danger. Our culture and learning encourages the "fight"
aspect of the response - to defend one's position no matter what the
odds. That is what gets the overly-aggressive trader into very big
trouble- the inability to admit one's mistake early on.
The automatic use of stops is one of the easiest way of protecting
yourself from letting this culturally ingrained tendency get the
better of you. As I said before, I am very careful about using both
price and time considerations to recognize early on whether a trade is
working or not - and get out before my stops are hit - but I always
know that the stop is there just in case something unexpected happens.
That "something unexpected" can come from either adverse market
movements OR my own personal psyche.
What I find most intriguing about Stewart's comments is the fact that
veteran professionals can still allow something like that to happen
despite their years of experience. This is a difficult game we're
playing here, not so much the mechanics of it, but more the
psychological aspects.
It would be best for the newbie to get off on the right foot.
Bob Hunt
E-Mail: RHunt.066@xxxxxxxxxxxxxxxx
Web Site: http://home.att.net/~rhunt.066
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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/
--
Bob Hunt
THE T-BOND DAY TRADING REPORT
E-Mail: RHunt.066@xxxxxxxxxxxxxxxx
Web Site: http://home.att.net/~rhunt.066
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