I'm exploring the psychological torture of managing equity gains - mostly in trend-following. I shall not go into methods. I wish to distinguish trend-following from trend-continuation trading. Those who do not know the difference can read up on the net, or start here.
At the outset traders will have watched their positions move into much positive equity in a trend-following trade, and would have felt a strong urge to 'take the money'. They may not have felt fear of losing out, or even anxiety - though the urge could well be driven by unconscious emotional factors. In all this I'm considering long positions for easy understanding.
Trend-following is where the big money. However it is more challenging as there are no predefined targets, though there are exit events or criteria (in any strategy). In some markets that are pretty volatile one has to be prepared to give back as much as 50-60% at a moment in time, in order to milk a trend that could realise a 500-1000% gain.
I'm giving some of my own thoughts and feelings - from when I was much younger in this business. So for example I'm watching say the equivalent of $1200 in equity on a position. Something inside is driving me to take the money. But cognitively I know this is not any part of my strategy or method. I know in advance that I can expect that equity to fall off and stay with my chosen trend envelope. It's a real battle and it's painful (torture).
In other words 'feelings' of some sort are trying to direct my mind to do what it shouldn't. On reflection over many of those situations, where I've stupidly taken the money and not followed by trend indicator, I came to realise that my methodology was sound. When I did take the money I might have been relieved when the price fell back as it would but stayed within trend parameters. That then brings relief in the form of self-talk such as "Yes - it's a good thing I took the money." But then comes another problem of trying to re-enter the trend. In attempting to do so, there is niggling anxiety about losing what I've got and wrestling with fear of missing out (at the same time). So, on some of those occasions 'happy' with my stash I didn't re-enter. Then - lo and behold the market takes off, follows the trend from my very first assessment - and I feel pretty stupid that I've missed out on 300% more over say 4 days. More torture!
I theorise that some of the above behaviour is driven at least in part by the most subtle of human instincts - that of survival. We have been programmed by nature to 'take the food or water' when we see it, as that's our survival right there. That taking of gains is probably hard-wired into all of us. Nature didn't envisage that we'd want to cope with trading environments. Money also translates into 'food', other basic needs and comforts - it's the very reason why we're in this business.
As I think about it more I recognise that quite a few of the enemies are derived from the survival instinct.
All of trading is a battle in the mind and not nearly so much about battling with markets. Now with the benefit of hindsight I take 'technical analysis' and other types to be just 'tools'. The outcome of using those tools depends far more on skill in manage my mind (aka self-management).
It may be that it's never a battle one can 'finally win'. All I can do is to catch impulses that might drive me to stray outside of my methodology, and overcome them. This sounds simple but it's not easy. It takes time and much practice.
From what I see out there, most traders talk about their successes and probabilities for gains in the market. Sharing of the really more important stuff in the realm of the psychological is uncommon. It would be nice if new traders especially, can share stories that are resemble any of the above.
At the outset traders will have watched their positions move into much positive equity in a trend-following trade, and would have felt a strong urge to 'take the money'. They may not have felt fear of losing out, or even anxiety - though the urge could well be driven by unconscious emotional factors. In all this I'm considering long positions for easy understanding.
Trend-following is where the big money. However it is more challenging as there are no predefined targets, though there are exit events or criteria (in any strategy). In some markets that are pretty volatile one has to be prepared to give back as much as 50-60% at a moment in time, in order to milk a trend that could realise a 500-1000% gain.
I'm giving some of my own thoughts and feelings - from when I was much younger in this business. So for example I'm watching say the equivalent of $1200 in equity on a position. Something inside is driving me to take the money. But cognitively I know this is not any part of my strategy or method. I know in advance that I can expect that equity to fall off and stay with my chosen trend envelope. It's a real battle and it's painful (torture).
In other words 'feelings' of some sort are trying to direct my mind to do what it shouldn't. On reflection over many of those situations, where I've stupidly taken the money and not followed by trend indicator, I came to realise that my methodology was sound. When I did take the money I might have been relieved when the price fell back as it would but stayed within trend parameters. That then brings relief in the form of self-talk such as "Yes - it's a good thing I took the money." But then comes another problem of trying to re-enter the trend. In attempting to do so, there is niggling anxiety about losing what I've got and wrestling with fear of missing out (at the same time). So, on some of those occasions 'happy' with my stash I didn't re-enter. Then - lo and behold the market takes off, follows the trend from my very first assessment - and I feel pretty stupid that I've missed out on 300% more over say 4 days. More torture!
I theorise that some of the above behaviour is driven at least in part by the most subtle of human instincts - that of survival. We have been programmed by nature to 'take the food or water' when we see it, as that's our survival right there. That taking of gains is probably hard-wired into all of us. Nature didn't envisage that we'd want to cope with trading environments. Money also translates into 'food', other basic needs and comforts - it's the very reason why we're in this business.
As I think about it more I recognise that quite a few of the enemies are derived from the survival instinct.
All of trading is a battle in the mind and not nearly so much about battling with markets. Now with the benefit of hindsight I take 'technical analysis' and other types to be just 'tools'. The outcome of using those tools depends far more on skill in manage my mind (aka self-management).
It may be that it's never a battle one can 'finally win'. All I can do is to catch impulses that might drive me to stray outside of my methodology, and overcome them. This sounds simple but it's not easy. It takes time and much practice.
From what I see out there, most traders talk about their successes and probabilities for gains in the market. Sharing of the really more important stuff in the realm of the psychological is uncommon. It would be nice if new traders especially, can share stories that are resemble any of the above.
FED balance sheet 42% of GDP @ 2020-01-26. Does money have value anymore? [Different perspective on the virus youtu.be/NjTdvALChwk ]
