Lose Your Shirt and Eat it Too

In the stock market, controlling your emotions is one of the key characteristics that separates profitable traders from the ones who are destined to keep blowing up their accounts. While the thrill and rush associated with big wins may be memorable enough to “keep them coming back,” you should be taking pride in consistently trying to hit singles and doubles, day in and day out, while quickly cutting losing positions. As I have said before, to think of trading as a sexy and glamorous profession can be a very dangerous thing to do.

One tendency of many traders is to exacerbate the euphoria associated with having a string of profitable trades, but to then also drown in sorrow after experiencing a losing streak. After a winning week, it is natural to want to celebrate. Similarly, in the face of losing a relatively substantial sum of money, market players have a tendency to become morose, often beating themselves up over the weekend and beyond.

I believe that you should actually fade the normal routine. Remember, the idea is to be as levelheaded as possible. Euphoria has a few perilous friends who are called complacency, hubris and laziness. On the other side of the coin, being too negative after a losing streak will likely reinforce emotions that are actually going to cause your losses to continue, namely a lack of confidence, and diminishing objectivity in your analysis.

Therefore, the correct strategy is to be more inclined to enjoy your weekends after a tough week, even more than after a winning one. Of course, after a string of losses, you should be self-scouting to see what happened and why. However, if you followed your trading plan and you just happened to get very unlucky, then that is precisely the situation where you need to do everything in your power to bring yourself back to equilibrium. In essence, the goal is too never get too high or too low. In the midst of a spectacular winning streak, perhaps that might be the occasion to stay in over the weekend and do research, instead of buying a luxury car.

I recognize that this notion is completely at odds with the traditional trading/gambling mindset. In the poker world, it is not uncommon to see players eating only Ramen Noodles after a scary losing streak, for fear of going broke. A few weeks later, you might also see the same player blowing obscene amounts of money at restaurants, retail shoppes, on girls etc. after being on a heater. Simply put, traders with that type of mindset are likely to go broke. By all means, enjoy your life and the downtime you have after the closing bell rings on Friday.

However, just because we are now competing against robots everyday in the market does not mean that we can neglect our own human nature.