Trading and 'The Weight of Expectations'

I am moved to write this, by several recent coaching sessions with clients which have touched upon this subject, and which crucially is an aspect I recognise in myself.

‘The Weight of Expectations’

‘The weight of expectations’ is a term which describes the pressure you put upon yourself to succeed.

We all have goals and aims that we believe we can achieve. It is when we fall short however, that we engage in unhealthy reflection, self-judgment and harsh self-criticism.

I’ve witnessed this in many trading and investor clients over the years.

It is not just the expectations they place upon themselves, but also the expectations they believe others have of them. These expectations can create some crazy behaviours, often completely out of character.

We see tangible examples of these in sport: The missed smash at the net in tennis, the 6-inch putt the golfer can’t make, the open goal somehow put over the bar. 

In practice, these are plays they could normally make with their eyes shut. But, with the gaze of the world watching, and the weight of their expectations upon their shoulders, the easiest of chances goes begging. 

One of my favourite tennis players of recent years was Andy Murray. 

Murray was someone who for years was a ‘nearly man’. Nearly making finals, nearly winning tournaments, nearly being great. But he had a major flaw: When Murray screwed up, he screwed up big time.

Murray would be winning a match but would then miss a simple shot, and would then struggle to reover. His 'head was gone'. - Then along came Lendl. 

Ivan Lendl was Murray’s new coach. I do not know what Lendl did to Murray, but suddenly, Murray could now double fault, but instead of folding, he would follow up with an ace. These same errors were no longer disasters: Murray could simply move straight on. – Instant closure. – Somewhere in his head ‘let it go’ was sounding. 

And thus, Murray started winning: Winning championships, winning Grand Slam events, winning Olympic golds. 

Expectations and the 'Trade From Hell'.

I see too many people beat themselves up over the weight of their own expectations. They don’t feel they are good enough, smart enough, patient enough, disciplined enough. They fear they are not learning, not growing, not improving.

I too was like that for many years as a trader,

Recognition of this is good. But recognition alone is not enough.

A trader needs to have a self-management strategies for dealing with this, for parking it, for moving on.

I once had the trade from hell. All traders will have their own personal 'Trade from Hell' at some point. If you have not a trade from hell yet, then it is possible you are not trying hard enough. 

I still shudder when I think of that trade. It was a market call I had got so right, but traded so badly, I had not only missed an open goal at one end, I had managed to put the ball in my own goal at the other end.

I suffered days of hell and anguish after this trade. I could not look another person in the face, let alone look myself in the mirror.

A few days later I decided to write my thoughts and feeling down in my journal. In about 5 minutes I had written down 3 pages of anguish. Then suddenly, as if by magic, the pain cleared, and the fog lifted.

With this exercise I had let what had happened go and moved on. I was no longer beating myself up for falling short of my expectations.

I reinstated the initial trade I meant to put on, even though it was at far higher levels than where I originally intended to buy. Over the next few weeks, this was to turn into one of my best ever trades. – I could never had done that, had I not let go of the weight of expectations I had put upon myself.

Moving on, Valuing yourself. 

If you find yourself burying yourself under the weight of your expectations. Then you need to make changes. You need to recognise what you are good at, and you need to value that.

Do not fall victim for unforgiving expectations you set for yourself. Do not ‘burden yourself’ with your own expectations, let alone the expectations of others.

Set yourself goals and objectives. Set up processes which help you get there. Calibrate and occasionally recalibrate these processes.

You may suddenly find your trading gets better, gets easier, gets lighter. That you start to enjoy it again. You may find you start to value yourself, and see the good and the great in you, that hidden diamond at the centre of your soul which contains all your hidden potential.

I

Steven Goldstein is a leading Performance and Executive Coach and managing director at Alpha R Cubed Ltd.  

Steven has worked as a coach with traders and investment professionals since 2009 with clients across the world. Steven's focus as a coach is on developing the 'Inner Game' aspects of trading performance. 

Prior to becmoing Steven worked for more than 20 years as a traders in Rates and FX at some of the world’s leading investment banks.

See Steven's Full Profile.

Alpha R Cubed work with people and businesses in the financial markets to help them improve and develop behaviours to catalyse stronger and more effective risk performance. Alpha R Cubed run leadership development programmes, coaching programmes for leaders and financial market practitioners, and 'AlphaMind' mindfitness programmes.   

If you are curious about how we could help you or your business, please email us at info@alpharcubed.com. or call +44 (0)7753 446097.

(c) Copyright AlphaRCubed Ltd, April 2019. Copyright in this blog and any accompanying document created by us is owned by us. Exception are stock images which have been acquired on license. Stephen Hwking image courtesy of Wikipedia.

*AlphaMind mindfitness programmes are a joing collaboration between Mark Randall Consulting and AlphaRCubed Ltd.   

‘We’re Blind to Our Blindness’: The Power of Self-Awareness in Trading.

‘We’re blind to our blindness’ is a quote by Daniel Kahneman from an interview back in 2011. This quote reveals much about the human condition which reveals itself in the realities of a person’s work as a trader or investor.

Trading Problems as Symptom not Cause

When I meet new trading and investing clients who are keen to develop and improve their performance, I ask them ‘what aspects of their work is holding them back?’.

Their answers typically involve a list of behaviours such as fears, being too emotional, stubbornness, irrationality, lack of discipline, impatience and a host of other behaviours.

“If only I could get past my ‘Fear of Missing Out’ ”, is a common type of response I hear.

The difficulty with ‘identifiable behaviours’ is that often they are not the cause of people’s problems but instead the symptoms of challenges which lay far deeper. Typically, the cause of problems resides well beneath the level of consciousness. ‘Out of sight and out of mind’. – These are the blindness that people are blind to.

As an analogy consider a tree: What you see are the visible aspects of the tree.

This is not however the full tree. The tree's root system is out of sight. This root system has a huge impact on the growth of the tree, but is not visible.

Even then that is not the full picture. The tree doesn't exist on its own in a vacuum: Stand back further and the complexity grows. 

The trees health and wellbeing is impacted by environment, its interaction with other trees and their root symptoms, climactic condition, weather events, quality of soil, nature; plants and animals which live off and interact with the tree.

Behaviours as symptoms are merely presenting factors of far deeper causes and factors both inherent and relational.  

Behaviour as Symptom: Consequences of trying to fix symptoms.

There are so many unseen and unknown factors which are subtly pulling the strings on our decision-making when trading and investing. This is what makes the job of trading so difficult. 

The ‘behaviour as symptom’ issue is however more damaging than merely mislabelling. Once the problem is incorrectly labelled, it is then compounded by trying to self-fix symptoms.

In medicine, problems are resolved not by fixing symptoms, but by attacking causes. The symptoms may disappear for a while, but the cause of future problems remain deeply entrenched.

In trading, failure to correctly attend to the causes of issues eventually impacts confidence. A person's self-belief starts to erode and self-doubt slowly increases.

Self-Awareness, Reflection, Standing back.

  

Trading does not occur in a vacuum. Traders sit within a complex web of relationships, both work and personal.

The job itself involves encountering uncertain and extremely complex situations whilst trying to find a path through the complexity of financial markets.

At the core of this is the individual themselves trying to fight their own ego. Their ego seeks to preserve feelings of self-worth and personal identity which have been forged throughout their life. The ego has been further re-enforced by its own efforts to preserve itself.  

Preservation of self, through the distorting lens of ego, is one of the greatest inhibiters to trading success. Faced with this, people are limited in their ability to perceive a true and realistic picture.

Everyone who trades or invests faces behavioural challenges. Those best equipped to deal with the behavioural challenges are the ones most likely to ultimately succeed.

It is said often of people such as Warren Buffett, Ray Dalio, Paul Tudor-Jones, that their ‘Intellectually Honesty’ is their greatest gift.

I see the same in many exceptional traders I have worked with. These people recognise their flaws, fully own their mistakes and errors, and see the emerging pictures that bit more clearly.

These traders are always curious, never accepting that they have the answers. They constantly ask questions and challenge their own, as well as others, ideas and perceptions.

With some outstanding traders I have recognised a trait called ‘Egolessness’. This is managing the ego in a way which captures its best aspects and downplays its worst.  

We must learn ‘how to be’, to be better than we currently are.

'Behavioural Trading' is something I talk about and write about often. When I coach individuals I am often working on helping them develop their 'behavioural trading' aspects. 'Behavioural Trading' is about coming to terms with how one really is and helping to shape an approach to trading around that reality.

Returning to the Daniel Kahneman quote, the full quote is even more revealing than the short excerpt: “We're blind to our blindness. We have verylittle idea of how little we know. We're not designed to”.

Your job as a trader, investment professional, or a manager, will be greatly helped by becoming a little less blind, and working to counteract some of our 'metaphorical' design flaws as humans. It is not just the market you have to overcome, it is also yourself. 

Article by Steven Goldstein 

Steven Goldstein is a Performance, Team and Executive Coach who focuses on Risk and Financial Markets people and businesses.

Core to Steven's work is the belief that everyone has the potential, often latent or hidden within them, to surpass where they are now and to grow into what they want to be. His work as a coach helps people to rediscover that potential, to recognise it, to value it, and to leverage it to be better, happier, and more productive.

Prior to becoming a coach Steven worked for more than 20 years as a Rates and FX trader at some of the world’s leading investment banks. See Steven's Full Profile.

If you are curious about how Steven could help you or your business, please email him at info@alpharcubed.com. or call +44 (0)7753 446097. To know more about the work of AlphaRCubed and their broader performance and growth development services, please view their brochure at this link. .

Click here to follow Steven goldstein on Twitter, here to follow Steven on Instagram, or here to join his open Linkedin Group.

Tune-in to the new AlphaMind podcast. 

Market veterans Steven Goldstein & Mark Randall plus the occasional guest, discuss the mental, behavioural & mindset aspects of Trading & Investing Performance. 

Hit these links to Listen or Download on  iTunes or Buzzsprout.

About AlphaMind

AlphaMind is a joint venture between AlphaRCubed and the Mark Randall Consultancy which seeks to help people develop and cultivate optimum mindsets (An Alpha Mindset) for trading and investing success. We offer workshops, group development programmes, and one-to-one coaching to people and individuals in Financial & Commodity Markets

AlphaRCubed offers Trading & Investing Growth Performance and Development Services for private indivudals and businesses involved in trading and investing activities. You can learn more about AlphaRCubed in their electronic brochure here, or via their website. The

Mark Randall Consultancy offers Mindfulness based trading and coaching to people and businesses involved in Trading & Investing and beyond in the wider corporate space. MRC's unique and powerful outcome driven approach is aligned to the US Special Forces “Ultimate Warrior” Mindfitness training programme and is applied to the corporate workspace.

Subscribe to the upcoming 'AlphaMind' Newsletter at this link.

Join the AlphaMind Linkedin Group. 

Follow us on Twitter and Instagram . 

‘It’s Not The Markets You Have to Overcome, It’s Yourself’.

‘If only’ is something traders say a lot. 

If only I had the perfect entry and exit system. 
If only I had put more size on. 
If only I would have held on a bit longer.
If only I had followed what my gut said.
If only ….. (You fill in the gap).

Were ‘If only’, and it’s sibling ‘Should have’, represented as small notes of paper, you could wade knee-deep through them on the floor of any trading room. 

‘If only’ and ‘Should have’ represent the battle each trader has with themselves as they seek to navigate the uncertainty of financial markets. 

For you as a trader or investor to succeed, it's not the markets you have to overcome, it’s yourself. 

‘It’s Not The Markets You Have to Overcome, It’s Yourself’. 

To The Victors Belong the Spoils.

An extensive research paper* found that whilst about 20% of traders make money in a typical year, they also found that it was not the same 20% every year.

The real success rate, those traders who achieved continued and sustainable success over many years, was actually closer to just 1%. 

And even then, only a small portion of that 1% achieved extraordinary outperformance: Otherwise known as ‘smashing it’. 

In this sense trading is no different to other fields of performance.

In sport, only a small number get to play at the very highest level, even though many will reach a very good standard. 

Sport provides a great analogy to trading. - The biggest enemy for any sports player is not lack of technical ability, the real enemy is the enemy within. 

During my trading years, I use to keep the following ‘Babe Ruth’ quote visible on my desk. ‘Never let fear of striking out, keep you from playing the game’. 

This quote sums up the mental challenge of trading, as much as it summed up the mental challenge Babe Ruth faced when he stepped up to bat. 

It emphasises the real challenge ‘Winning the Inner Game’. 

Winning the ‘Inner Game’.

The image below highlights the ‘Inner Game’ as the Foundation which the Outer Game rests on. 

I shared my own journey on developing my Inner Game as a trader in an article titled ‘What is Behavioural Trading?’

In that article I described my own awakening as a trader after going through a coaching programme and experiencing the huge impact this had on my performance. 

I now see many of my own clients go through a similar awakening and transformation as traders.

Developing the Outer Game, the tangible aspects of trading and investment performance, is relatively easy. It may not happen overnight, but in time and with good mentoring, one can become reasonably competent in these areas.

Becoming competent technically may mean you survive for a time, as I did. But somewhere along the line you need to become good. 

Even then, being good is still is not 'good enough'. To truly succeed you need to learn to become ‘excel’. 

Only the very good make it into the top 1%, and only the truly excellent become the small percentage of that group that ‘smash it’.

Becoming very good comes from developing 'Behavioural Mastery': Behavioural Mastery includes emotional intelligence, decision-making abilities, resilience, congruence between personal stance and risk approach, reigning in your ego, and a host of related factors.  

The sages of Financial Markets recognise this. - Warren Buffett said "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ." He went on to say that 'The key to success is emotional stability'. 

'The key to success is emotional stability'. - Warren Buffett.

Learning About Yourself. 

During the first half of my trading career, I spent much time searching for that elusive technical edge, perfect system, or secret signal that I believed would help me excel. That search only lead to marginal improvements at best. 

What really helped me to make the big transition to a higher level was learning about myself, with a coach as a guide on that journey.

Leaning about myself involved learning who I was, how I was, how I was impacted by risk and uncertainty, how my interactions with the environment influenced how I behaved, my style and how it could provide an edge, and what parts of myself sought to sabotage me. - That was the catalyst for what lead to a huge improvement in my trading. 

We spend so much time looking outside of ourselves, that we miss what is in inside of ourselves. 

There is a great quote taken from the ancient Chinese general and philosopher Sun Tzu in his book 'The Art of War'.

If you know your enemies and know yourself, you will not be put at risk even in a hundred battles.
If you only know yourself, but not your opponent, you may win or may lose.
If you know neither yourself nor your enemy, you will always endanger yourself.

Getting to 'Know Yourself' is something every trader should seek to engage in if they wish to succeed in the long-term.

It is why I firmly believe that your success as a trader or as an investor does not come from learning to beat the market, it comes from learning to beat yourself.

 
*The cross-section of speculator skill: Evidence from day trading: Barber, Lee, Liu, Odean: Journal of Financial Markets 18 (2014) https://www.sciencedirect.com/science/article/abs/pii/S1386418113000190

Steven Goldstein is a leading coach who helps people, teams, leaders and businesses in the financial markets to cultivate better and stronger performance. Steven has a rare and unique set of skills having worked as a coach since 2009 and having been a trader for over 20 years at some of the world’s leading investment banks.

At Alpha R Cubed we work with people and businesses in the financial markets to help them explore how they could help improve and develop behaviour to catalyse stronger and more effective performance. If you are curious about how we could help you or your business, please email us at info@alpharcubed.com. or call +44 (0)7753 446097.

WHAT IS BEHAVIOURAL TRADING ?

Behavioural Trading: Turning the Behavioural Spotlight on Yourself.

If you think being given the trading strategies of the best traders in the world, or a signal system which tells you where to buy and sell will make you a successful trader, then I am afraid you have not yet worked out what trading is!

Behavioural trading is the idea that success comes not from knowing where or what to buy or sell, but to how ‘to be’ when buying, selling and managing your risk. 

There is a common belief, that the best traders succeed because they can control their emotions and because they think before they act.

That is far too simplistic: The successful traders I have met succeed because they master the behavioural side of trading, not because they can control their emotions.

I worked as a trader for over 20 years, and for the past 10 years have been coaching traders from across the buyside and the sellside of markets. The idea that you can help someone who lacks discipline to suddenly become disciplined is nonsense, but equally it does not mean they cannot  become a successful trader.

Some of the best traders I work with continually moan about their lack of discipline, yet they are very happy when their hunches lead them on to act on a news event which turns out to be the trade of the year. – Discipline would never have allowed them to take that trade.

Behavioural Trading is about knowing yourself as a trader or investor. Becoming aware of yourself, of who you are, how you function, what needs you have, and working out how you are going to meet them.

"Behavioural trading is the idea that success comes not from knowing where or what to buy or sell, but to how ‘to be’ when buying, selling and managing your risk." 

Behavioural Trading is not Behavioural Finance or Trading Psychology  

Behavioural Finance looks at the markets and investor behaviour to make sense of what is happening.  

Trading psychology is an observational assessment of what people engaged in trading are doing from a psychological perspective.

Both take a third person perspective. They look at the behaviour of others and try to make sense of them.

Behavioural trading is about turning the spotlight back on yourself and making sense what is happening for you.

It is about becoming aware of who you are, your nuances and habits, your behaviours, what drives and motivates you, what pulls your strings, what contributes to your success, and what undermines you.

The more you know and can make sense of how you function as a trader, and the more you can start to take control of how you work as a trader, and the more you can develop and sharpen your edge.  

"Behavioural trading is about turning the spotlight back on yourself and making sense what is happening for you."

The Metaphorical Mirror

Behavioural Trading is learning to look at yourself in the first person and to be objective about it. To see the real you, not an idealised version of yourself.  

Back in the year 2000, some 15 years into my own trading career. I was asked by the bank I worked at, to join an Executive Coaching programme.

Though the programme was intended to focus on developing me as a manager, the real value was what I learned about myself. - The structure of the coaching was highly reflective; the coach effectively took me on a journey through myself.

If I am honest, until then, I had largely survived as a trader. – Though that was not how I saw it at the time.

Using the metaphor of the music charts, my career until then had seen me produce a few hits and even a number one, but I could not say hand on heart, ‘I was a really good trader’.   

After the coaching, things started to improve dramatically.

It was not quite a light switch going on, but rather the beginning of a new phase which snowballed in the years ahead. The years after the coaching were by far the best of my career.

The coaching had held up a metaphorical mirror which for the first time allowed me to see myself not as I wanted to see myself, but as other would see me. – This was hugely empowering.

That coaching was the catalyst for what I now call ‘Behavioural Trading’.

Developing your ‘Behavioural Trading’ Capability.

‘Behavioural Trading’ helps people to craft a way of trading which fits themselves.

When we learn to trade, we go with the ideas and methods of others. Somewhere along the line we must develop a way of working which fits ourselves.

When I work with great traders, I have noticed how often they have crafted a way of working which is personal to them, which suits their personality, their beliefs, their style, their philosophy, their attitude to risk. This crucially helps foster trust; trust in themselves.

"This crucially helps foster trust; trust in themselves."

If I was to say what is the greatest attributes successful traders possess, it is self-trust.

After my own coaching experience, for the first time I felt that at the end of each year I could trust myself to generate a significant positive return. 

Luck was no longer going to be the defining factor, I had it in me to make good performance happen.

That is Behavioural Trading  

Footnote

People ask me often why I no longer trade. – During a conversation in 2009, the same coach who worked with me in 2000, planted the idea in my head of working as a coach, helping others to develop their behavioural trading capability. I jumped at this idea, believing I could still trade and coach. The truth is, trading is full on, I found splitting myself between coaching and trading impossible. – Coaching was my new passion, and I chose to focus on this.  

At Alpha R Cubed we work with people and businesses in the financial markets to help them explore how they could help improve and develop behaviour to catalyse stronger and more effective performance.

If you are curious about how we could help you or your business, please call us or email me at steven.goldstein@alpharcubed.com.

Steven Goldstein is a leading coach who helps people, teams, leaders and businesses in the financial markets to cultivate better and stronger performance. Steven has a rare and unique set of skills having worked as a coach since 2009 and having been a trader for over 20 years at some of the world’s leading investment banks.

The Revenge Trade

Most traders at some time or another will have done ‘The Revenge Trade’. It’s one of the classic mistakes of trading. The Revenge Trade leads to immense frustration, deep anger, and a lot of soul-searching. More crucially, it is a major contributor to under-performance and to failure as a trader. – As with the image above, it is the metaphorical equivalent of punching yourself in the face, over and over again.

How might the Revenge trade look?

Let’s consider a simple example: You walk into the trading room, you do your early morning scan of the markets. – In your mind you start to formulate some trade ideas for the day. – Lets assume you are trading the SP500 futures.

You follow the opening price action and you quickly form a short-term bullish view. The market is trading around the 2130 and you think it is worth a buy. You like the price action, the momentum behind it, and the fact that its recently cleared and held a good resistance level. You have a sense that most short-term traders are not yet on the long-trade, giving it potential for further upside if they come on board. Your hunch is that in the next few days you could see a move up to 2150. 

Also emboldening your view is that your ‘Stop’ on this trade would not be far away, making it a great risk/reward trade. You believe it has a good possibility of holding above the 2127/28 area, and if it breaks there then you would have a stop at 2125. – So you are sitting there with a potential 4 to 1 payoff, a very favourable set-up. 

 

Day 1: You enter the market paying 2130 for 10 futures. That’s $2,500 a point. If you are wrong your risk is $12,500, if you are right you are looking at potentially a $50,000 profit, maybe more if you stay long beyond there. The market goes your way almost immediately, jumping to 2135. It then stalls and starts slowly ticking back down, it briefly tests the support but manages to  hold above 2128. Later that day it starts rallying again pushing up to 2137, before closing at 2135. You are off to a good start.

Day 2: The next day it opens with further gains, pushing up to 2140. The trade is going well, but then some news hits the wires which  sends the market lower, and an intraday sell-off starts to gather steam. Now you aren’t quite feeling so confident, people around you are selling and talking about a move far lower, the market drops sharply and soon it is testing 2128. Now you are starting to get nervous, instead of looking at the potential profit, you are on the defensive and fearing your stop at 2125 will be hit. The index ticks down to 2127, before stopping its decline and clawing its way back up slowly to just over 2130. Many day-traders around you are now short. 

In your mind the doubts start. As you watch the price action you start to question whether your view is right! You start wondering whether you would be best salvaging something from this trade whilst you can. Thus you make the decision to sell out at 2130. Now you are out flat, no loss  or no gain. The market again turns down to 2127, and for a short time you feel mightily relieved, giving yourself a metaphorical pat on the back. 

For most of the rest of the afternoon the index remains in a tight 2127-2130 range. Then in the last half hour it starts climbing, 2131, 2132, 2133, 2134, the intraday shorts have run out of patience and are now buying back. The market then puts in a surprisingly strong close, moving up sharply in the last few minutes to close at 2140, a gain of 6 points on the day. 

You are left feeling angry and foolish, the market has sucked you out of what was a good idea. Your original boundaries for your trade idea were respected, but you had let the noise and the uncertainty get the better of you. 

The Regret and the Pain. 

You ponder the day's events overnight. Outwardly you appear fine and calm, but inwardly things are turning over in your head. There is a circle you need to square; a cognitive dissonance is taking place in your mind. On the one hand you think, ‘I’m a good trader who knows what I am doing’, on the other hand your thinking ‘I’m an idiot, I’ve been made to look and feel stupid’.  

The Next Day.

You go back in to work angry with yourself, angry with the situation, angry with the market. You are determined to right the wrong inflicted upon you.

Day3: The market immediately opens lower and drops back to 2135. Immediately you feel a little better, perhaps you were right to sell after all, perhaps you weren’t such an idiot!! - Yes, your timing wasn’t great, but your new view was possibly right after all. For a short time this helps you square that circle'; 'I am a good trader and not a fool'. – (Here comes the Ego: You have now justified your actions 'in your mind'. - The need ‘to be right/to be proved right’ (validation of your brilliance) has been achieved.)

Now you are going to show ‘The World’ and ‘The Market’ just how good you are.  (Here comes the 'Revenge Trade'; You are now personalizing ‘the World’ and ‘the Market’, as if they somehow care about you.). 

You sell 5 lots at 2135. 

In your mind your are right and this is going lower, a lot lower. (No one messes with you and gets away with it: In your mind you believe 'the market bends to your will'). You have convinced yourself of this, and now you are ready to take advantage of this. But the market has other ideas, it plays around a bit in the range in the mid-2130s, so you what do you do. You sell another 5 lots. (If you are right in 5, why not be right in 10 instead, maybe you can even help give it a slight nudge !!!!). You are now short 10 lots at 2135. But the market starts to rally, soon it is back to 2140. But so convinced are you in your ‘rightness’, that any objectivity, a characteristic you usually possess in spades, is no longer part of how you are working at this time. You convince yourself that this rally is just a blip, a re-test of last night’s close. Emboldened by your self-justifying rationalisation, you are staying with this, even considering adding some more. And duly you sell another 5 lots at 2140. You are now short 15 lots in total.

But the market doesn’t play to your tune, it keeps on rising. 

Now you are starting to get fidgety. An uneasy feeling starts to descend over you. You have no plan, no strategy, no prearranged stop, no levels, and if you pull the plug on the trade, you are an even bigger fool than yesterday. You are now relying on that most fickle of all allies, 'hope'; but hope is not a strategy. The market continues to climb:. 2145, 2146, 2147, you are glued to the screen, you cannot see or hear anyone else, all sense of perspective is gone, you have become increasingly animated and visibly angry. – A sign to all colleagues who may be long, that this move still has legs, until at least you cut out. – You however are fully invested in 'the pain trade'.  

Then the market hits 2150. – Enough is enough, you pull the plug, you square up. Where you should have been booking a $50,000 profit, you are now booking a $50,000 loss.  A total cost to you of $100,000. 


That is the Revenge Trade. 

But it is unlikely to end there: The new sense of self-doubt, the hit to your confidence, the damage to that most vital of assets 'self-belief', may potentially be more damaging in the long-term than the actual physical hit. Dennis Gartman's 3rd Golden rule of trading states that:

'Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.'

 

There is a Chinese proverb, which it would do well to heed: 'He who seeks revenge should remember to dig two graves'. However in trading, this could be adapted, because in trading you only need dig one grave.

________

Steven Goldstein is a leading Performance and Executive Coach working with Traders, Banks, Energy Firms and Hedge funds: He is Managing Director of Alpha R Cubed, which works with banks and investment firms to improve their human capital within their financial risk businesses. To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.

Other recent articles:

Winning Gold in Trading and Investment
How 'Risk Personality' Influences Trading and Investment Performance
In trading - 'The best loser is the long-term winner' 'How to Profit from the Coming Economic Catastrophe'. – And other grand delusions.
Brexit – An ‘Ambiguity Aversion’ Perspective.
Webinar on 'The 10 Behavioural Traits of Highly Successful Traders and Investors'. The Chimp Paradox and Trading
Winning at Trading and Investing - 'Its all in the Mind'.
The 10 Behavioural Traits of Highly Successful Traders.
The Pre-Mortem: A De-Biasing Technique to Increase Trading and Investment Success.
Meet the ‘One Person’ who could really transform your ‘Trading and Investment’ Performance.
FOMO (Fear of Missing Out): Is it killing Your Trading and Investment Performance?
Video: Trader Risk Personality - How it Influences Trader and Investment Performance.
Killer Biases: How 'Cognitive Dissonance' Devastates Trading & Investment Performance.
‘Billions’: Why Top Hedge Fund Managers Use Coaches?
Following the Crowd: Why we do it?
Dennis Gartman’s Timeless “Rules of Trading”, with added emphasis.
What is Trading 'Risk Type'? Why is it getting so much attention?
Still making the same old trading mistakes. What are you doing about it?

 

If you have enjoyed reading this article and would like to know more about our 'Behavioural Performance Coaching' work with Traders and Investment Professionals, please click on the above image. Alternatively email steven.goldstein@alpharcubed.com or visit the website www.alpharcubed.com.

Join the flourishing LinkedIn Group ' Behavioural Trading'. and follow me on Twitter.

Punch in Face Image Courtesy of stylephotographs / 123RF Stock Photo