Quote from konviction:
Is it fair to say that he is gambling because he is down 40%? If he is not following his trading plan, they yes, he is gambling, but if he is sticking to his plan, then I think that he should get some props for that.
Neke made it clear that this week's excessive loss was a result of not sticking to his plan:
Quote from neke:
Then revenge set in as I placed an order to buy 1000 EQIX at 77. Got filled as the the stock crashed hard, and I decided not to get out but average in. My position monitor immediately closed out my trades that were above size, and instead of stopping, I decided to commit the unpardonable sin: remotely shut down my system, and then proceeded to average down until I had a size of more than 4K shares, four times the intended size. Watched helplessly, and eventually capitulated near the low of the day, losing 20K.
"Watched helplessly" is ego's way of saying "Surely I can't be
this wrong! I have to hold this position until I am finally made right or am knocked unconscious." Which is a metaphor for capitulation or margin call, usually at the point where price does turn your way, making it all the more difficult next time to exit a loser before it runs out of control.
Today I posted in a different thread about the most underestimated risk in trading:
"I still believe the most underestimated risk in trading is your own ego, whether it's the inability to accept a loss (to be "wrong")
or the inability to have faith in a proven system because you believe you can do much better than the system.
You can pick up one of many excellent books on trading or locate free educational materials on-line and learn how to trade. You'll learn risk management and position sizing, you'll learn to identify high probability price patterns that give you a statistical edge, and you'll learn how to target reasonable profits in relation to your risk and how to take even more when the market is offering it.
Since all this information is available through inexpensive books and on-line for free, how is it possible that the majority of traders fail to become consistently profitable?
What causes a trader to put on a trade before price fully signals the appropriate entry? What causes a trader to chase an entry when s/he misses the entry price that allows for an acceptable risk/reward ratio. What causes a trader to decide to trade without a stop or to trade dangerous size because a setup looks so good? What causes a trader to believe s/he knows when price is too high and is "due" to reverse when the majority of market participants are bidding price higher and s/he has no idea how many additional people will bid the price even higher still because they're afraid they'll miss the move or they have to cover their short position before they blow their account?
The cause of these mistakes is the trader's belief that s/he knows more than the market, the belief that all those market participants are idiots for buying this high (or selling this low), and the belief that s/he knows what's going to happen next.
The key to profitability is to surrender to the market (to the price action), which will carry you along with it most of the time if you allow it to happen, and to surrender to your risk management rules, which means your ego will have to accept being "wrong" at times." (Hopefully long before it's knocked unconscious.)
