Overconfidence is an Expensive Habit

You see many new traders who are gun shy.  They here the loud noises, they see deranged men extracting thousands of dollars from the market, and they freeze up when their well-thought plan comes to fruition.  I remember that feeling, it is a dangerous one.  You should enter any deal (trade, contract, relationship) from a position of confidence.  If you cannot, then the first dose of adversity will scare you out of your idea.

I suffered from a different type of emotional state last week and I am paying the price today—overconfidence.  At times I feel invincible.  Like when I erase over 10% in losses in a few short weeks.  It is not that I feel the need to make more gains, but instead that I “know” I have the Midas touch and everything I procure will immediately conform and take flight higher.  To be honest, most do.  Then they stall, then they fall, then they spelunk.

Resident internet trader psychologist Brett Steenbarger had a great exercise for nipping either of the above symptoms in the bud.  He advises traders to keep an emotional thermometer.  Like a regular thermometer it has a scale, only this scale reads frigid cold coward to burning hot madman.  You measure yourself regularly to temper the emotion and also perhaps put a restriction in place.

In short, these last two days have reclaimed about 3% of my gains.

Moving on.  Jib at futures trading all you want, but today I literally called the bottom to the tick using market profile.  Going forward I intend to use straight futures to play the ultraviolent markets else end up stuck in a fag box like I was today.  Yes, I called the bottom to the tick and yes I went out and executed some buys.  I bought AAPL weekly calls, the strike is irrelevant.  The problem is AAPL made a modest move and then did NOTHING for what felt like many moons.  I am over here, taking conference calls and whatnot, constantly afflicted with a need to babysit the Apple chart intraday.  I would rather be duct taped to the ceiling then watch an entire day of Apple trading.  It was a tremendous waste of a solid market call.

Insistent upon making a winner out of this warm apple lemonade, I help the position overnight.  Here’s to hoping Tim Cook doesn’t do anything stupid overnight ::drinks said drink and smashes glass on desk::