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Thursday 31 January 2008

Realistic Expectations of your Trading Results

Comment by Bill aka NO DooDahs!
Posted on the 24th of January, 2008 at 11:30 pm.

He admitted he had a problem, that it was emotional, and that it was related to risk. Good. He introduced a crutch that he thinks will help him handle it (smaller size, apparently a common step per Dr. Brett). It'll be interesting to see how it works.

The fascinating connections between all of these blowups? Disregard for the risks, failure to codify and follow rules, and unrealistic expectations of performance. They're willing to borrow against the entire value of their homes (with a risky strategy! with some strategies and a good credit score/low rate, a small HELOC might actually make a little sense). They're willing to swing 10-20 times their account balance overnight. All of them blow off their rules, based on emotional input. They even SAY IT, so it's not a knowledge problem. All of them think it's easy money. "I made $40K last year and $10K in a day, I'll make it back!" Not a one of them thinks in terms like, "hey, if I can make 25% a year slow and steady, I can save money on my job and throw my savings into this thing, and by the time I'm ___, I'll be swinging enough account to retire and live off of this easy!" Nah, these f*ckers are all about $10K to $2 mil in two years. Unrealistic? Hell yeah. Destined to blow up? Definitely.

It's an attitudinal problem. It's an emotional problem.

@ Prospectus: it’s all about fear and drama. Fear of losing “self”-esteem (in ” because it’s usually about how OTHERS perceive us), money, not meeting our ambitions, or losing relationships - these four fears usually trigger bad behavior. The “drama queen” aspect is about fulfilling some positive emotional need with the activity.

You ever do something really f*cked up because you thought it would make you look like “the man?” Get in a fight because someone dis’ed you? That’s fear of losing “self”-esteem.

You ever start a fight with a girlfriend or do something else stupid and destructive to the relationship, because in your heart of hearts you wanted to end the relationship but didn’t want the conversation; so arranging a “drama” could let you have an excuse to leave?

Now … how might someone act this out in trading????

The “not meeting ambitions” could arguably be related to a loss of “self”-esteem, but it’s a little different, in that these bozos all have unrealistic expectations about what they can do in the markets. When something goes against them, they don’t want to admit the f*ckup because that would conflict with their expectations of greatness, so they rationalize it into something that allows them to stay in the trade. Same thing with minimizing their losses, i.e., “I’ll make it back.”

There’s also the “drama” of f*cking up in order to get reassurance that you’re liked/loved/accepted, which you see in all the “there, there” messages that these guys get in their comments.

I think the first step is admitting the “why” of it. In Seykota-speak, they need to internalize the message that their results (and actions) are the best evidence of their intentions. If they intend to find an edge, design rules around it, stick to the rules, apply the edge repeatedly, etc., then they need to ACT their way into a new way of thinking, through repetition. When the feelings come up, admit to themselves “hey that’s my ego talking. I’m not godd*m Soros here, let me drop this dollar/pound trade now” instead of rationalizing reasons for staying in it. It’s a lot easier to do when you know why you were f*cking up in the first place.

I think they also need to find whatever emotional satisfaction they were looking for in trading, in some other place. That’s why I suggested, among other things, skydiving, hang gliding, and shooting slingshots at lions in the zoo at night. That oughtta give ‘em some drama!

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