Trading Mistakes – Trading Like a Man
I’m currently reading Come Into My Trading Room: A Complete Guide to Trading
Just a few pages into the book, there is an excellent piece on trading that really got me thinking about my recent experience. This section is in the context of talking about men and women as traders and what the differences tend to be.
A guy studies his charts, decides to buy, and now his self-esteem is involved—he has to be right! If the market goes his way, he waits to be proven even more right—bigger is better. If the market goes against him, he is tough enough to stand the pain and waits for the market to reverse and prove him right—while it grinds down his account.
This immediately made me think of my recent trades in Bank of America. Only a few days after I bought BAC I was looking at an impressive gain, up more than 30%. As the stock was rising, I was thinking just like the above quote said I would. The gains I had were nice, but I started thinking about how great they could be and what I would do if I was able to sell at this level or that level. I was feeling validated, like I was the brilliant investor who saw an opportunity and grabbed it. I think I got all the more caught up in it because BAC fell for the first two days after I owned it, by the way, demonstrating the other problem outlined in the quote—taking the pain and waiting.
In the end, I missed out on a lot of gains in BAC, though I still came out of it with a decent trade. The stock topped 7.00 shortly after I bought it at an average price of 5.15. I ended up selling at 5.77. I easily left $600 – $800 on the table, ending up with a gain of $480. This is on a $3,500 position. Remember, I’m not complaining—I’m just trying to learn from every trade I make.
I recall thinking to myself that I should set a stop-loss order at 6.15, this was when the stock was in the upper 6s. 6.15 was an arbitrary point, but it would have been better than not having a stop-loss at all proved to be. I want to be sure to use stop-loss orders in the future to prevent any winning trades from becoming losers. I haven’t made a specific rule yet, but I’m thinking that once I’ve topped a 5% or 10% gain I should set a stop-loss no matter what.
The lesson learned is that I have far too much emotional involvement in my trading and I need to work to become much more rational and disciplined. I like to think that I do a good job of removing emotion from my decision making, and while that may be true on a relative basis, I clearly have a long way to go to become a disciplined trader.
