Every trader has a specific range for pain tolerance.
In my years of being a mentor, the average range and threshold for traders is around 7% of their total portfolio.
For example, if a trader has a total of 1M in his portfolio, he'd be able to psychologically withstand a 70k loss in a day and still be able to act with the right judgment.
Oh, I gotta cut this pain in the ass? Alright.
Of course, the trader will still feel pain and frustration but he'll manage to cut his losses and move on quickly.
However, there are many instances during a trader's life that he'll find himself in volatile situations. BSC, PHA, AR, APL suddenly breaks support and waterfalls quickly. Because of this, I got several consultations done - a few from my team who manages our company funds in ZFTCapital and some who are in our community in TradingRepublic.
All had the same reaction :
Ang bilis, hindi ako naka-react!
But here are the most common factors:
1. They over-allocated.
Prior to this crash, making money in these stocks had been easy. Winning makes you confident. Confidence unchecked can lead to Greed. Greed leads to the disrespect of risk management.
2. They had 2 or more of these names at that time and no automated stop was set.
This is a classic case of trying to catch two or more rabbits at the same time. You won't catch any - especially if you're hunting in bad market conditions where there's a high chance that the trade goes against you. If you are trading with multiple accounts and do the same trades, you've signed a deathwish. Save yourself from the stress and just consolidate your funds into 1 or 2.
It's ok to chase when you're riding the trend. But if you are counter-trend trading, that's a different story. Focus is key.
3. They went beyond their pain threshold.
Going beyond your pain threshold adds the "in" in sanity. Once you cross your limit and if you aren't prepared for this scenario and if it is your first time, you'll most probably FREEZE. It isn't because you don't know what to do, oh you know that you need to cut, it's just that your psych isn't ready for this shit. It wouldn't have been a problem if the drop was slow because it would have given the trader more time and emotional energy to react. But these things are never slow.
Now you know why Roadkills happen.