Fear and Greed- What does it mean for each of us?
Much of what i have read -and experienced- on trading -suggests that the reasons I and most other retail traders will fail to even market perform is that psychologically we have a greater need/ fear of protecting our winning trades from becoming losers- prompting us to close out winning trades early to reinforce that behavior- We may take a profit quickly, while our stop may have been wider- IF we had an actual stop in place.
Conversely, we also want to be "proven" that our trading judgement is right, and want to allow our losing trade the opportunity to prove that we- the astute trader- indeed chose well- At one time, we have ALL likely done this and been taught by the market that this is not what a trader does- That is what a value investor does-and how one ends up being a long term holder in a position - unwilling to sell for a small loss, sitting through a much larger-on paper one- hoping for an opportunity to get our money back. So a 5% average loss suddenly becomes a 30% decline- and we find our losing trade has lost the equivilent of 6 separate stops at 5%- but we accomplish that in a single trade because of our ego- desire to be ultimately be proven 'right'. Does this ring any bells?
The only way to curtail our need to appease our psychological wants- is to override the need and implement the mandatory stop-loss - on each and every trade. Position sizing- and having a defined STOP-Loss set is the foundation recipe to implementing a disciplined approach-on each trade is the process by which we will survive the losing behavior of allowing a losing trade to go lower. Conversely, we need to have a method to allow that winning trade to go higher- as long as the winning trade doesn't roll over-
These are the things I need to be vigilant about and reinforce as positive behaviors.
Tomorrow- Sunday I will reassess my Friday trades and new Investment positions- Trades- as well as "Investments" and try to determine a common ground between the 2 methodologies.
Limited capitol to employ in a small trading account is indeed a liability- The costs of typical commissions has a much greater impact on a $1,000.00 trade, than it does on a $10,000.00 trade. Will discuss that in the BRKB trade.
Much of what i have read -and experienced- on trading -suggests that the reasons I and most other retail traders will fail to even market perform is that psychologically we have a greater need/ fear of protecting our winning trades from becoming losers- prompting us to close out winning trades early to reinforce that behavior- We may take a profit quickly, while our stop may have been wider- IF we had an actual stop in place.
Conversely, we also want to be "proven" that our trading judgement is right, and want to allow our losing trade the opportunity to prove that we- the astute trader- indeed chose well- At one time, we have ALL likely done this and been taught by the market that this is not what a trader does- That is what a value investor does-and how one ends up being a long term holder in a position - unwilling to sell for a small loss, sitting through a much larger-on paper one- hoping for an opportunity to get our money back. So a 5% average loss suddenly becomes a 30% decline- and we find our losing trade has lost the equivilent of 6 separate stops at 5%- but we accomplish that in a single trade because of our ego- desire to be ultimately be proven 'right'. Does this ring any bells?
The only way to curtail our need to appease our psychological wants- is to override the need and implement the mandatory stop-loss - on each and every trade. Position sizing- and having a defined STOP-Loss set is the foundation recipe to implementing a disciplined approach-on each trade is the process by which we will survive the losing behavior of allowing a losing trade to go lower. Conversely, we need to have a method to allow that winning trade to go higher- as long as the winning trade doesn't roll over-
These are the things I need to be vigilant about and reinforce as positive behaviors.
Tomorrow- Sunday I will reassess my Friday trades and new Investment positions- Trades- as well as "Investments" and try to determine a common ground between the 2 methodologies.
Limited capitol to employ in a small trading account is indeed a liability- The costs of typical commissions has a much greater impact on a $1,000.00 trade, than it does on a $10,000.00 trade. Will discuss that in the BRKB trade.