Continuing from yesterday's post about 'rotating lessons' and the 7 trading lessons that appear to constantly rotate in our learning. Before I go on, I just want to re-iterate that this list is not a serious, defining set of trading laws. It was a list done off the top of my head in 5 minutes, so please, don't look too deeply into it! Here is that list of lessons again:
1. Don't chase losses
2. Don't get greedy
3. Don't trade with amounts you can't afford to lose
4. Don't over-expose your bank on one trade
5. Don't cut winning trades short or let losing trades run
6. Don't get involved unless there's value
7. Don't trade when in the wrong frame of mind
All the others except for number 3 and 4, have come into play at some point this year. I was going to say I don't think I have chased losses but I actually think I may be guilty because there are two distinct ways in which we do this. The first is simply when we go 'on tilt', or the 'red mist' descends. We lose control of our emotions and it can last for days, weeks, even months. This is what I call 'overt chasing' - cos it's pretty bloody obvious we are chasing and we know that at the time, even if we won't admit it. We'll place straight bets, go 'all-in', try to win back specific amounts, over-stake, get involved in sports or markets we don't know much about etc.
But I think there's a second, more subtle variety of chasing. We often probably don't even know we are doing it. I call it 'subconscious chasing'. This is when you probably feel quite calm and think you've got things under control but underneath, you are still seething at an error. You won't do anything massively rash or risky and the bank will never be in danger but what you'll probably do is something like take on a price that is border-line value, which you'd normally ignore. Or you'll maybe stay in a trade a few minutes longer than usual, just to 'top-up' that green in line with what you may have lost. Or you'll find yourself wanting to trade for a bit longer than usual, despite the fact you may be tired or in a bad frame of mind.
It won't be anything major, nothing heart-stopping but nonetheless, it will be a slight stray from your usual strategy and if it goes wrong, can leave your mental state even worse. However, when you win, it will possibly just go down as a good trade or at least, you will tell yourself that and let it slide. Which is why subconscious trading can be almost as dangerous as overt chasing. With overt chasing, you KNOW what you did was wrong and no matter how much you might try, you can never truly convince yourself otherwise that even a win wasn't lucky (though many will sit in denial). But with subconscious chasing, the state of your trading won't necessarily come under firm scrutiny because you might not be noting this down as an error. This in itself, is a big mistake.
One of the hardest things for any trader to do, is to admit when their wins were lucky, or achieved through poor trading. But I think it's vital that you are able to be honest with yourself, otherwise, how are you ever going to improve? That's why whenever I make notes on my matches, I always jot down whether the green I got was achieved through the correct processes. If it wasn't, it often is because I've been subconsciously chasing. I haven't overtly chased for months now but I've definitely subconsciously chased on a few occasions. I know a lot of traders will say that 'green is green', which is a phrase I've seen a lot and don't like because it suggests that any green is OK, doesn't matter how you get it. This is incorrect - not all green is good! If you achieved it through doing the wrong things, especially by chasing, then green most definitely is not (good) green. And if you convince yourself that it is, it is highly likely you'll continue to trade that way until you finally, inevitably, become a cropper.
OFF-COURT BEAUTY: World number 10, Andrea Petkovic of Germany: