Trading software

Friday, October 8, 2010

'Out of body' trading

I’m sure most of you have read about people who have had ‘out of body’ or ‘near death’ experiences where they are floating above themselves and can somehow view their body from afar.

Yes, yes, yes – I know that the link between out of body experiences and trading is extremely tentative but bear with me while I try to explain a psychological strategy I use which often proves useful:

Let’s say you take a position where you hope to get a tick or two profit but the market is starting to go against you...

When faced with this situation, many people will start to panic and as they stare and stare at the screen, they wonder why it always happens to them. When faced with fear, it becomes hard to relax and let the markets do their thing and it almost seems impossible that the market will return to where you want it. Yet, very few people will get out for a loss at this point – they will sit there almost paralysed, urging the price to move their way. Sometimes it will, sometimes it won’t - but this paralysis can see very intelligent people watch their position deteriorate before their eyes and it can even destroy a bank. Why do we act like this?

The increased anxiety and fear when a position goes against you can become suffocating and the need to be right can make you angry at the market. This can lead to irrational behaviour where further bets are made (bets you never would have made had you not been in the negative position).

I’ve been in this position many times but I definitely handle it in a very different way nowadays than I did when I first started trading. A couple of years back, my heart rate would rise, I’d move my eyes closer to the screen and, being honest, I'd often add to my position in an attempt to buy my way out of the situation at the next tick. I’d get so absorbed with the micro movements that I couldn’t see the bigger picture. If the price went further against me, I would be facing a very big red book and this could become quite depressing. The urge to go in-running becomes great in these situations and while you may get away with it the odd time, you will eventually bust your bank by letting your bets go inplay. Believe me, I’ve been there and have a cupboard full of those T shirts.

Nowadays, I don’t get myself into that situation and I let the market do its thing. This is easier said than done but one you learn to ‘switch off’ when your trade has been placed, it can become liberating in a way.

If a trade goes against me nowadays, I do three things:

Firstly, I set a stop loss in an area that won’t cost me a fortune if it is hit.
Secondly, I put in a ‘get out’ order for the desired profit.
Thirdly, I move the chair away from the screen and promise myself that I won’t touch the mouse until my profit or stop point has been hit.

The temptation to intervene can be huge but this is where the ‘out of body’ mindset comes into play. I sit there and breathe slowly to try make myself calm. Once my profit order and stop loss is in place, I step aside from the computer, and detach myself from the situation. Traders need to feel in control but you must accept that staring intently at the screen will not change anything so why stress yourself out?
Once you’ve learned to resist going back to the screen, you will often find that doing nothing is the best course of action of all. With luck, your profit order will be met and you will make money but sometimes your stop loss will be activated and the software will get you out for a loss. No-one likes a loss but a small one sure as hell beats the catastrophic ones as described above. It might be a bit far fetched to describe it as an out of body experience but i certainly find myself feeling detached from the situation. As mentioned, this feeling can be calm and liberating, as I'm safe in the knowledge that the inner 'panic Wayne' won't F*ck things up.

I’d urge you to try it when a trade goes against you. Set a get out profit point, set a stop loss – and then step aside from the situation. Don’t get me wrong, you need to manage the position if the race is about to go off but if you’ve time, take a little stroll around the room and forget about the market for a few minutes. You may be pleasantly surprised when you come back. Sometimes, you will be disappointed but one thing you won’t be facing is a busted bank. Protecting your capital is much more important than making a profit on a given race but so many traders can’t seem to see this.


This evening, I traded just one race but ended up stepping aside from my position a number of times. The good news was that it worked in my favour for the most part and I earned over €30. When the markets went against me, I simply put in my orders on both sides and walked away.

The need to feel in control can be almost overwhelming but there are times where you just have to let things take their course.

By the way, the thirty quid earned will NOT be added to the trading challenge total – I wanted to play around with some ideas today and had decided beforehand that any profit or loss would not be part of the challenge. I’ve a couple of hours off tomorrow so I’ll get as much trading in as I can for the challenge then.

I’ll probably just withdraw the thirty quid and buy a couple of pints over the weekend with it. It’s only a small amount but you have to withdraw a few quid now and then and spend it, even if it is just to make the money feel real.

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