Trading Tip #7 Never Trade in Pain
This trading tip is meant more for the day traders and people who trade their own money. I understand the traders that trade for banks or funds are probably not going to be able to walk in their boss’ office and say “I’m not in the mood to trade today” or “I’m in pain today, and I think it’s better for me to stay flat for the day.”
In previous posts, I’ve often mentioned how trading for humans is based on pain and pleasure as well as fear and greed. Over the years of watching hundreds of traders, as well as my own personal experience, it became clear that there was a definite connection between their losing streaks or erratic profit and loss swings and things going on in their lives. When I would see these signs, I knew it was time to sit down with them and see what was happening in their personal lives.
The issue is that trading in pain, whether mental or physical, interrupts the normal, yet needed, pain and pleasure response that ensures traders will perform at the highest level. Distractions in trading can be costly.
After I would spot a trader who was having issues, I would normally have them meet me in my office a few floors above the trading floor. I found that it was far enough away to have them focused on the conversation, and yet close enough that if the markets had a major movement we could both run down to the trading floor get through the web of phones cords and push ourselves back into our spots without missing too much of the action. (Yes, as you can tell, I still miss the rush) Back to the point – I would sit that trader down and explain how I have noticed the pattern in their trading accounts. Most of these traders just cleared their trades through us, and we had no financial interest in their account. They knew that we had a genuine interest in them, personally, and we were not solely focused on how much commissions we were charging them. (How many clearing houses would tell their clients to take a few days off?) Most of the time, they had no issue opening up with me. I had the reputation that whatever was said in my office stays in my office. We all know that in trading, and especially on the trading floors, trust was everything.
I’ve always found that the traders who had been consistently making money and would suddenly have shifts in their pattern would always have something more to their story than just what was going on in the market. I can’t tell you the amount of times, after long conversations with the traders, I would uncover either an issue at home with their wives or their children, some type of physical pain from an injury, or that they were just burnt out from the normal wear and tear of being a pit trader.
I remember one day when a friend of mine called me and asked why I was not at work. I told him I wasn’t feeling well and he made a comment about how that was no excuse and how staying home was the easy way out. I explained to him in great detail how while he is at work sitting behind a desk writing reports if he made an error it would have most likely not have cost him a great deal of money. I also asked if he could check his work at the end of the day and fix the issue. He said, “sure, why not?” I laughed and explained that, in trading, you definitely do not have the chance to go back and fix your mistakes. The market waits for no one.
Traders need to know that if you are not focused, light on your feet, and 100% mentally alert, it can cost you – and quickly!
My clerk had standing instructions that if he saw me trading flat-footed (and I simply mean just like an athlete who walks onto a field and you can tell that he’s flat or not focused) that he had the authority to literally pull me by my collar and get me out of the pit. There were too many times that we have learned, while looking back at the day’s events, that something had been on my mind and I was flat footed entering the pit. Those were the days the losses hurt the most. All traders can say there are days they got hurt by a position, but overall traded well for the day. But getting your butt kicked on a day your not focused for whatever reason, and ignoring the signs, just makes it worse.
There are exceptions to this rule, which I have now become one of. As someone who suffers from chronic pain due to a medical issue. I either had the choice to stop trading altogether or alter my trading habits. I ended up altering my trading habits by cutting down my volume, using an older style of trading which I will talk about in my future Trading Tips, Trading Styles.
My advice to traders, from the smallest to the largest, markets move faster than they have in the past. It is not always about what you make – many times it’s about what you don’t give back. On the days you are not focused, for whatever reason, do not push it. The markets will be around tomorrow. It is better to take a day off than it is to get crushed.
* For the bank and fund traders. Since you might be trading someone’s money that is reading this blog. As hard as it might be to walk into the main office and tell them you’re taking it easy for the day, remember that when you lose on a day you were not 100%, it just cost someone else money that they worked very hard for. As someone who only trades their own money – tell your boss they should respect their clients money as their own, and ask them if they want you to trade their personal money on a day that you are sick or in pain. Let us all know what their answer is.
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