Why do traders hold positions when the underlying doesn't do what's expected?

Topper · Nov 2, 2009

As a trader who only trades stocks, I'm at 100% cash right now, (11/2/9) and have been since Thursday last week, simply because my positions didn't do what I expected. In general, I'm confident with my methodology so when things don't "feel" right, I get out and wait for an indication and confirmation as to the 'new' high probability direction. As a right brained guy, this to me seems more logical than to hang on to perhaps an indicator that signals over bought/sold with a side of hope.

My question then is, what factors in a traders psychological makeup cause him/her to hold on in such unsure conditions? Does it maybe have to do with the fact that money was lost or perhaps ego, or, maybe it's much more deep rooted of a reason such as one's upbringing and the fear of disappointing someone? Don't know... just wondering what et'ers have concluded in the past about this (I'm sure) frequently asked question.

nazzdack · Nov 2, 2009

Quote from Topper:
Does it maybe have to do with the fact that money was lost or perhaps ego, or, maybe it's much more deep rooted of a reason such as one's upbringing and the fear of disappointing someone?

1) Yes.
2) Some people are in the market for "entertainment" from their boring jobs/careers/businesses et al.

Topper · Nov 2, 2009

Quote from nazzdack:

1) Yes.
2) Some people are in the market for "entertainment" from their boring jobs/careers/businesses et al.

Interesting spin! But wouldn't consistent trading be more satisfying? Otherwise, why bother? Many of the posts I've read undermine frustration due to what appears to come across as hope. Is it really that hard for many to just let go and take a loss? And, seeing that you mentioned it as a form of entertainment, wouldn't it achieve a more robust fulfillment to then turn it into an art? Or is that taking the entertainment aspect of it and twisting it into actual work?
I myself am trying to turn it into an art but I have a lot of learning before that can be anything close to perfect.
An example would be that tomorrow, seeing that I'm 100% cash now, I'm thinking about going long again but only based on the feel of things. What concerns me though is that I would hate to miss out on the beginning of a move to the upside, but this time doesn't feel the same as the last few bounces. Actually, it's kinda feeling tired to me so I'm wondering if sideways may be what we're in for... So until I know for sure, cash seems to be more comfortable to me. I hate to say it, but I'm going to wait, in risk of missing out.

One more thing in respect to the entertainment aspect you brought up, wouldn't it be more entertaining to just put funds across a group of trending momentum plays such as:
MSTR... HMSY... BARE... OFIX... ELON... ANGO... EMMSP... MANH... and so on and so on.

That would seen to get the feel of placing bets on horses or dogs...no?

nutmeg · Nov 2, 2009

The closest analogy to horse racing:

You can only bet to win. (No place or show payoffs).

Any time during the race you can get a partial refund of your wager if your horse is losing.

PTVtrader · Nov 2, 2009

Quote from Topper:

My question then is, what factors in a traders psychological makeup cause him/her to hold on in such unsure conditions?

Why the Hell aren't you short?

Topper · Nov 2, 2009

Quote from PTVtrader:

Why the Hell aren't you short?

Waiting for the confirmation. I'm not just going to jump in there without a solid probability as to direction. If I miss I miss.

Topper · Nov 2, 2009

Quote from nutmeg:

The closest analogy to horse racing:

You can only bet to win. (No place or show payoffs).

Any time during the race you can get a partial refund of your wager if your horse is losing.

Nutmeg, howdy. I read alot of your jokes and tell some of them! As a person who has never bet on anything, I think you meant to say 'can't' get your money back (?). If so, good point which then makes me wonder why my grandmother and great aunt never played around in the market.

DrEvil · Nov 4, 2009

Quote from Topper:

As a trader who only trades stocks, I'm at 100% cash right now, (11/2/9) and have been since Thursday last week, simply because my positions didn't do what I expected. In general, I'm confident with my methodology so when things don't "feel" right, I get out and wait for an indication and confirmation as to the 'new' high probability direction. As a right brained guy, this to me seems more logical than to hang on to perhaps an indicator that signals over bought/sold with a side of hope.

My question then is, what factors in a traders psychological makeup cause him/her to hold on in such unsure conditions? Does it maybe have to do with the fact that money was lost or perhaps ego, or, maybe it's much more deep rooted of a reason such as one's upbringing and the fear of disappointing someone? Don't know... just wondering what et'ers have concluded in the past about this (I'm sure) frequently asked question.

How about the converse? When you find that the market is doing exactly what you expect and you are already in, do you have a plan to add and really milk the opportunity?

Topper · Nov 4, 2009

Quote from DrEvil:

How about the converse? When you find that the market is doing exactly what you expect and you are already in, do you have a plan to add and really milk the opportunity?

No. I usually completely spread out between two or three stocks, and usually don't 'get in' them at the same time. In general, when I enter a position, I wait to see if it's going to do what I expect. If it does, and gets above certain levels, I then let it ride and focus my attention on the next one. I read about guys like Mr. Soros who says when he's right about something he can never own enough, but from my perspective, I'm happy with just winning. To give some insight, yesterday I went long again on a business execution software company that I've been watching. Great story, incredible growth, excellent price range to maximize momentum, just pulled out of the red...yadda yadda. Last week I sold it due to the way the overall market was acting coupled with the fact that they just released blowout numbers, and if you've traded stocks then I'm sure you're familiar with how many will sell off after earnings releases. Anyway, so here I am long again -- got in yesterday .12 above the low and currently my entry is well buried. BUT the overall market still has key resistance to break through, the Nasdaq yesterday has also shown that it is getting tired, and, my stock has been sideways all day. So, obviously I'm cautious. to finish this crazy story up, what I am looking for is for my stock to close above last week's high before I identify which one from my watch list will be at or near a comfortable entry point, so I can start the wheel again.