“Understanding Your Trading Psychology: Let's Take Control! Part 3 (Optionetics.com via Yahoo! Finance)” plus 1 more |
| Posted: 17 Feb 2010 02:13 PM PST Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.
The contestant said from the outset that he would be happy to take home $9000 if he won that much. The game began and the first offer he received was about $8000. The game is all about odds and chance, so depending on how he played the next round, his bank offer could go up or down significantly. The likeness to trading here is that he actually has no control of the outcome of the game - all he can exercise is money management. The same exists trading in the stock market, we can have the best entry into a trade with every indicator lined up, but once we're in, there's only one thing left - ourselves and how we handle our money. The only moves we can make are to buy or to sell, in or out, or use some clever ways to manage our money (like sell off half the profitable contracts and leave the other half on). We can't control in any capacity what the market will do, or where our stock will go. All we can do is make decisions about what to do with our position, i.e., what to do with our money. Back to the game: the contestant decided to stay and play on. Luck was on his side, "the market went his way" and his next bank offer was $18,000. He talked with his wife and they went through the same thoughts of, "If I was watching this at home, I would take the money." Haven't we heard something similar to that before in our trading lives? - perhaps in backtesting, "This is where I would have gotten out!" But no, the husband and wife discussed all the great things they could do with the money. They could build the pergola out the back; they could take the family on a great holiday. You guessed it - they stayed in the game. Where is the money management? Again luck was on their side and the next bank offer was $25,000! Now even reading this article, what would you do, if your original profit target was only $9000 and you were up to $25,000? I bet most readers would take it. I bet most people watching the show would take it too, but after much deliberation, he played on! What was controlling him here? - Had his trading plan had suddenly changed? No, his emotions were now playing the game. Not just greed, but also ego (so he could look great in front of his friends), and peer pressure (the audience shouting for him to play on, and not wanting to look bad in front of them). Things looked great on the upside but did he ever ask himself the question "What if I'm wrong?" What people and traders fail to remember is that the pain of losing is much greater than the pleasure of winning. He was about to find this out. He played on, and this time the odds went against him. His profit was sliced in half in an instant and the bank offer was now $14,000. Can you imagine the look on his face? Ironically, he would feel worse now in front of his family, peers and audience for losing, than he 'thought' he would have felt if he took the larger profit before, but people don't realise this. They don't realise it's actually better to go out a winner with some profit than to go out a loser. Also, it usually feels worse having a great winning trade that turns into a loser than just having a trade that was a loser from the beginning. Now this guy was smart - he actually took the money here and ended the game. Technically, this trade was still a winner because he came away with profit, but let me share with you what the average trader would do here - by that I mean a trader who is solely running with his/her emotions. The emotional trader, who also by the way has trouble admitting to being wrong, will probably think "Ah, it'll turn around," and then when it falls further to, let's say $6000, would commonly think, "Well, I've lost most of it, I may as well leave it on as a wildcard and see if luck goes my way," and then when it falls again to $2000, thinks, "Well, this trade's a write-off, it can't get any better, so I'll just take the couple of grand and get out now." So here he/she is, closing the trade for $2000, when they could have exited for $18000 (originally) if they had followed their trade plan. Which trader are you? Do you know you actually have a choice here? You can choose to let your trading plan manage the trade, or let your emotions, feelings, beliefs, personality traits and mindset manage the trade. If you don't choose it, your emotions will most certainly take control - but if you choose to stick to your plan, and be disciplined, it's a whole other story. For more great reading about trading psychology, please see Jay Kaeppel's "It's All In Your Head," at Optionetics.com from Nov 29, 2009. Be in control! Matt Baker For more information on learning how to make money with options, go to the Optionetics.com full site! We empower investors through knowledge.
Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction. |
| About our teen driving series (The Mercury) Posted: 18 Feb 2010 04:36 AM PST Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it. " THe 800 number isn't the worst idea, though I think it's a bit unrealistic to think it will have any major effect. We have raised the age for licensing; we have tried to encourage parents to take responsibility for training their children by mandating a certain number of road hours before young drivers are eligible to test. The effect has been minimal. Parents are the only answer, and we do not have enforceable laws that demand people parent efectively. Kids need a healthy dose of fear in their lives, as do most adults. One thing that can help is this: every parent should sit down with their fifteen year olds and make the following deal: if you ever need a ride, any time, anywhere, for any reason, I will come to get you. No questions will be asked until the next day. Yes, you might be subject to consequences the next day, but for that particular moment, you have a free pass out of danger. I don't know that drugs or alcohol are the only causes for poor decision-making behind the wheel, but I would guess that the party attitude contributes on a regular basis. " Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction. |
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