Saturday, November 11, 2006

>Taming of Trader's Gremlin(s)

A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called “pouring on the gasoline.” This activity of his would involve “lining up cans of gasoline as far as the eye could see.” What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss–the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the ‘nut within’. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my ‘nuts within’. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These ‘nuts’ managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The ‘nuts’ were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won’t work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast–chase that thing from the shadows. Don’t yell at it, don’t try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don’t mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don’t appreciate that. After awhile, they just don’t bother to come out. If they do manage to come out, they don’t stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don’t you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don’t argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

By Michelle B

  • "Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great." - Mark Twain
  • "In this game, the market has to keep pitching, but you don't have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch." - Warren Buffett

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