Why do traders fail to cut?

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.

FOMO and System Hopping

System hopping and FoMo is a bad mix. It's like drinking a mix of Tequila and Milk. It's a common problem traders have and I got tons of this kind of message in my inbox - this guy asked everything in one go and so I'd like to share what I told him in response.

I don't think "hindi mo talaga siya maiiwasan." - you can. it's just that nagpapadala o nafofomo ka sa ibang traders. My advise? Start to unfollow all trader friends na nkikita mo sa social media. And focus on a system that would fit your lifestyle and do that for at least 6 months - don't force systems that aren't compatible with your lifestyle, otherwise, this:

You can also read comments from other traders in the FB post by clicking here.

Trading as a Performance Sport

Many consider trading as a performance sport. And if professional athletes have coaches, I have my own. 

Meet my trading psychologist/peak performance coach Rooting For Celeste. And let me give you a glimpse of what she does.

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Today was quite interesting for me as I started to dive into the FX markets with real money. 400USD lang muna since newbie pa and getting a feel of things.

Take note:

1. I have a system I am adapting into.

2. I know the rules and how to execute them.

3. I have mentors that are currently guiding me.

And as you all know, our beloved PSE went wild today with several issues flying - 8 in my watch-list, 3 of which were in my port ready for selling for a switchblade.

It was chaos.

By the end of the trading day, I hit at least 500k in profits and took a nap. Pag-gising ko, BOOM! 400USD in my FX account got decimated and I am left with a measly 22 bucks. 18k pesos down the drain. 

Dali-dali akong pumunta sa workstation ko and went Sherlock on my trading day. And in these special cases, called my coach for help. I wish people can see how these sessions are done, iba grabe! You know that feeling when you're a level 2 trader and you just "discovered" a high probability setup while doing your backtesting and you think to yourself "this is the shit that my life has been missing!" - that's the kind of feeling I get whenever I have these psych sessions. Will try to record an actual session one of these days so you know what I mean.

After the session, we got to identify what went wrong. I traded even if:

1. I didn't get enough sleep.

2. I lacked the focus.

3. My current psychological state wasn't sharp and healthy.

4. I was busy doing other things I shouldn't have been doing during trading hours.

5. I was aware that I was getting high on certain negative emotions (manifested by my right leg restlessly fidgeting.)

Consider this: Professional athletes make sure they are at the optimal condition when they play or fight. Because it would be stupid to play at the championships when you're injured - physically or psychologically. And today, I was stupid.

There are things you discover about yourself on your own and that's cool if you do. But its amazing when you are able to unlock and see yourself through the elusive 3rd and 4th panes of Johari's window.

I knew what I was supposed to do, but I messed up on my actual execution. I may not have lost 100k pesos today, which is my initial psychological pain threshold, but I lost a certain level of discipline which I need to recover as soon as I can. 

I'm sure that you are aware that big institutions that handle millions and billions of funds have risk managers and performance coaches employed to help their fund managers. Because a single professional fund manager that is left unchecked, no matter the years of experience, has the potential to deal enormous damage to their funds. At kung ginagawa nila, why not we retail traders do the same? This is one of the reasons why we advocate having accountability groups/partners in trading. Hirap kasi pag wala kang kausap at ka de-brief sa mga ganitong bagay diba? Wag lang kayo mag hawakan ng kamay pag pareho kayong naipit. Hindi ito prayer meeting. 

So always remind your accountability buddy to

 CUT

THEIR


LOSSES

Thankfully, I have a beautiful performance and psych coach keeping an eye on me, making sure I don't dig my own grave.