Cognitive distortions and impact of psychology on making decisions

Volfixtrader said:
I guess there is some border after in losing money after which people lose their rational mind. LIke "tilt" in poker, like knockdown in boxing, after people can't make rational decision.
Losing to much or to quickly might launch in your head some mechanisms when we can control ourself. There is why coach throw white towel while boxer want to continue the fight. In casinos people increase bets by maximum and don't care what might happend.

They don't realize what happens. And they can't contol theirself. In this case the best point to close position and make a break, even you are right, even price move in your direction est. If they lose their brain the best point is stop it.

Reasons which launch such mechanisms might be different. But I guess we should have some triggers which signal us that something wrong. Moving stop losses, increasing position (if it is not part of strategy), ALL IN or something like this should give us signals that something wrong with ourself. And it this state there is no good decissions because we are managed by older part of brain, which responsible for hit and run. And there are no rational solutions in this state.
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So true! I have heard this from traders and experienced it. It's horrible! A powerless experience. I think it is trauma from the past. It is usually a bigger reaction than the circumstance warrants. It is like PTSD from the past. It can be healed!!
 
deaddog said:
My experience was Nortel. A Canadian tech darling in the early 2000's.

I held at the beginning because I didn't want a capital gain for tax reasons.

I kept holding because the pundits and talking heads on TV kept telling me that it would come back.

I kept holding because I knew the whole market was waiting for me to sell then the stock would shoot back up. (I knew I had this power because it had happened so many times before):)

I kept holding and hoping because I didn't know what else to do. I was afraid to sell because it might go up. I had anchored the price to the high or near the high and didn't want to take a loss. I'll get out when it gets back to XXX.

I had originally bought the stock for 10 bucks. It went to over 100. I rode it all the way down to 11 then pulled the trigger. It eventually went bankrupt.

On the positive side that experience cured me of Buy&Hold. Once the stock was sold I couldn't for the life of me come up with a good reason to have held it all the way down. There were lots of opportunities to get out that I rationalized away because I was holding that particular stock. Almost like I took it personally, me against the market and I hated to give up. My self-esteem was at risk.

I'll write it off to trading tuition, an expensive lesson but in the long run i hope it was worth it.
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If you get the lesson and don't do it again that is awesome!
 
old coot said:
I am fascinated by the phenomena of sitting on a trade that's going deeper and deeper in the hole. 13 years ago, I did more or less the same thing, bolstered by the fact that, until that day, I'd always been able to add to my position and trade in and out, still holding the original trade, until I finally was green on the entire series, considering it to be one trade. Of course, fact is, it would have been easier to have taken a manageable loss on the original trade and, if I felt a need to "get even" make other trades later on, or even another day.
I could see my problem as I was making it, and I repeated the very next day. It's some sort of feeling like nothing else, losing a shitload of money while knowing better, like the ultimate rush of misery adrenaline. Super not good, and definitely something you wouldn't want to repeat. So, why would someone want to do it over and over?

That's the sort of screwup a person should only have to make once in a lifetime, but I see people making exactly the same move over and over. I really want to understand what people are thinking when they do that. Most of the people I've asked about it clam up when I want to know exactly what's going through their mind. One person was honest with me(up to a point) The cessation of communication came when I asked "So, when you, after hours, days, weeks, and months of calm, logical thought came up with the figure of X as being the perfect stop.....decided in the heat of a trade that your most logical move was to cancel that stop and take a chance on a turn on tick past your stop, or an epic beating.. what were you thinking? All I could get was "I wasn't" Possibly he actually stopped thinking, but seems like if he did, he'd been unable to click to cancel his stop. More likely, he didn't want to tell me.

In my own case, I was right, I knew I was right, and dammit, I was gonna get my money back!! But, of course, it doesn't actually matter if you're right. You're always right, the market will go up, it will go down...just maybe not right now. In my thinking, right or wrong doesn't matter. It offends me to be making long trades with the current state of world affairs, but that's the way the market is going, and I'm in it for a few bucks here and there, not to make a statement.

So, if anybody who has had experience, or knows anyone else who has in this particular field...sitting on a trade while it takes a huge pounding and not getting out...please post what you were thinking. What was the logic?
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I am still waiting for C to come back, after the great recession. :mad::banghead:
 
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