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.
*order filled*
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.
And lastly,
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.
Solid Sir Z
ReplyDeleteThese are brilliant observations. I have experience the same thing. WHen I saw my port getting more gains, I told my self to wait and gain more and more. When the market crashed which was too fast, I know I need to cut but I can't beacuse I am thinking of the gains that I already have and hoping that the price down is just temporary. Then the price went down to where I entered but still the hope that the price will go up is still there. Until I am holding the same stock with -15% loss. Now, the only thing in my mind is to sell when the price reaches my entry point. Sad.
ReplyDeleteYou nailed it boss!
ReplyDeleteThis may help to all of us especially this time. https://kbrvirtualsolutions.wordpress.com/2021/01/30/how-to-get-out-in-unnecessary-debts/
im 1, 2, and 3 the other day, major loss. but not quitting.
ReplyDeleteAS a new trader, I have the same problem, Knowing when to take profit or to cut my losses. I always felt afraid of missing out on potential gains, thinking that prices can go up and up. FOMO is real and is very difficult to trade without a plan. I saw my port gain by 10% and thought that it can go way way up, only to see it fall down and left me a port with almost 50% loss.
ReplyDeleteI just finished today reading your blog Sir Zee. It's like I'm reading a book. Though I didn't feel sad because I know there's more to it, I feel inspired knowing that you are mentoring me indirectly. Others may find this blog gold, but for me this is rhodium. Thank you for giving us hope. I thank God for bringing you to us. I missed the chance of studying last year's whole quarantine but this year I will definitely make it. I hope to see you someday magpapicture man lang as I strive to learn more in ZFT system. May God bless you and the ZFT tribe more. Salamat kaayo -bear market baby from Doha.
ReplyDeleteI just read all entries up to this point in this blog. I'd like to thank Zeefreaks for sharing his journey in stock market. This is very inspiring! Zeefreaks has done it without a mentor and without a blog like this. I'am very lucky to have accessed this resource. Thank you so much. Whats next for me to do, read it again while applying all the things I've learned here.
ReplyDeleteReading these blogs all over again since holiday today. I have to refresh, slightly experienced trader but still, this give me chills and vibes to never stop learning. Thanks Boss Z! Hope to see you all!
ReplyDeleteStarted reading last month and just finished today. I'm thankful I found this treasure, thank you ZF for sharing all of these, and somehow being our "indirect" mentor in trading and in life. I'll bring all the learnings with me as I start my trading journey and move forward in my life. It won't be easy but I know it will be all worth it.
ReplyDelete