Trading Discipline - What have you done to get pass the feeling of "it'll go back up so i won't sell now" mentality?

Jabber Monkey's picture
Rank: Chimp | 4

This has been something that's a complete plague for me for the longest time. As I got older I look pass it but every now and then this comes back to me and haunts me every time I make a trade.

You know that feeling where you bought ABC stock, and once it drops a few dollars, you KNOW you should sell, but you don't because you hope that it'll go back up, but then it doesn't, it keeps falling.. then steadies, you hear SOME good news and hope and hold. You try reading articles, giving you some more hope, but it falls a little more, few days later, it falls again, again and again. Now you're down over 30% of what you put in.. next thing you know.. its 65.. then 75%, you panic, you go onto message boards to look for insight, you then feel miserable and finally pull the trigger and sell at a 85% LOSS. You think back, if ONLY you effing sold it when it was just 5-10% down, you would have saved thousands and used it to invest or trade in something else and would have gained back that loss in no time. Nightmare right? I know we've all been through it, and some still do. Even with all the charts and fundamental analysis we try to pour into our decisions, its always our gut feeling that makes us pull the trigger, or withhold the trigger button to wait.

What kind of things have you done to discipline yourself in cutting your losses to lose the battle to fight another day, or what have you done to take some greens off the top or sell it all for the profit and not be greedy? I've gotten a little better myself in letting it go because I have confidence I can make up for the losses in the long run, or near future, but then again sometimes it comes back.

Comments (9)

May 20, 2013

Well I've set a simple rule for myself. First I classify the stock position as A,B or C and depending on how much based on technical and fundamentals do I really like the play. If its a A setup that means I am willing to risk X amount of dollars on the play.

When I put the trade on, I have a mental stop equaling the max dollar loss amount I am willing to sustain on a A trade.

I also have a stop out amount on my platform that wont let me trade past a certain amount of loss for the day and week. So I am forced in a way to cut losses quick if I want to keep "playing" the market.

I look at it this way. After a certain amount of loss Id rather just cut my losses and save my ammo for another trade.

Sure it can come back but it could also not. The chances of either outcome could be even 50-50, however I am personally not willing to afford a loss greater than X percent to play a 50-50 game. I'd rather take a 100 loss now than a 50-50 chance later of having either a 0 loss or 500 loss.

    • 1
May 20, 2013

Happens to everyone. I'm sure just about everyone tells you this, but it is very simple. Before you make ANY trade, always set a stop loss. Enter a stop mark to automatically sell your shares once it hits that pre-realized amount of loss. This way, being automated, your emotions are out of the game and your trading account will automatically sell at your predetermined set amount of loss. I'm sure just about everyone that comments on here will say this same exact thing. It is very overlooked, and completely undervalued. Just do it, it will save you the headache and your wallet will be happy.

"An investment in knowledge pays the best interest." - Benjamin Franklin

May 20, 2013
ValueAdder68:

Happens to everyone. I'm sure just about everyone tells you this, but it is very simple. Before you make ANY trade, always set a stop loss. Enter a stop mark to automatically sell your shares once it hits that pre-realized amount of loss. This way, being automated, your emotions are out of the game and your trading account will automatically sell at your predetermined set amount of loss. I'm sure just about everyone that comments on here will say this same exact thing. It is very overlooked, and completely undervalued. Just do it, it will save you the headache and your wallet will be happy.

I'm sure those stop losses worked well during the flash crash.

May 20, 2013
NorthSider:
ValueAdder68:

Happens to everyone. I'm sure just about everyone tells you this, but it is very simple. Before you make ANY trade, always set a stop loss. Enter a stop mark to automatically sell your shares once it hits that pre-realized amount of loss. This way, being automated, your emotions are out of the game and your trading account will automatically sell at your predetermined set amount of loss. I'm sure just about everyone that comments on here will say this same exact thing. It is very overlooked, and completely undervalued. Just do it, it will save you the headache and your wallet will be happy.

I'm sure those stop losses worked well during the flash crash.

Second that. If you can't watch your investments by yourself then you shouldn't be investing. Stop loss orders are awful and should never be used.

May 20, 2013

Added to that... If you want to throw in a simple derivative trade, whenever you go long on a stock, you could also purchase an out-of-the-money Put option which will hedge your investment. That way if it crosses below your strike price, you can now sell your shares at the higher price, which is your strike price. This is a simple way to hedge any trade and avoid heavy losses on the downside, but the only pitfall to this is the premium expense for the contract. By doing this, you are ultimately "loosing" money right out of the gate because of the premium, but it is setting up a hedge. Definitely a trade off, just something to keep in mind.

"An investment in knowledge pays the best interest." - Benjamin Franklin

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May 20, 2013

One thing I have done is constantly check, double check and triple check my thesis for the investment. Normally, the positions I screw up are ones that I have no real impetus or reason for. That isn't to say I jump in blind, but when you have a defined reason and impetus behind your investment you can force yourself to get out before it gets ugly. It also leads into something else that I always abide by which is understanding my time horizon. If I buy JCP as it gets annihilated hoping for a bounce the next day, and the bounce doesn't come, you cut the position no matter what. If you believe the market is wrong and JCP is fundamentally strong you could buy it on the way down in pieces, average down, and then hold onto it until you believe the market fully realizes it's value. There is a stark difference between the two concepts, but they are easy to confuse. It is really easy to start talking yourself into turning a trade into an investment. Christ, I convinced myself once what CHK was a great investment and not just a trade. Whoops.

I know what always got me early on was position sizing. I was AWFUL at sizing up a position. Emotion always manages to creep back in when you go outside your comfort zone and trade to big for your mind to handle.

Another thing (sorry, I'm kinda rambling at this point) that helped me was always looking at positions in percentages rather than dollar amounts. Dollar amounts allow you to anchor your losses or gains to things you can actually buy. If I have a $10,000 dollar position on and I'm up $1,000 dollars I would equate that to a rent payment and immediately cut it, or something dumb like that. Saying, oh, I'm up 10% takes that relationship away and moves it towards competitive territory where you start putting it up against returns on indices, other stocks etc. It's kinda stupid but I know it really helped me to get away from being emotional about money.

May 20, 2013

I somewhat agree with the above statement. I do not use them very much, but you can see HOW they would be useful. For someone that needs "discipline" in trading, and talks about a time where he watched their investment spiral into a financial pit, then yes, stop/loss is probably something you should use, especially if the lump sum is very large and your risking a lot. Also meant for people who cannot check their accounts on a regular basis. I do not use these, however I do usually tend to purchase an OTM put option. Most people do not do that, as a stop loss is more common, but purchasing a put and creating a hedge is something I do regularly and I encourage people to do that as well.

"An investment in knowledge pays the best interest." - Benjamin Franklin

May 21, 2013
Jabber Monkey:

This has been something that's a complete plague for me for the longest time. As I got older I look pass it but every now and then this comes back to me and haunts me every time I make a trade.

You know that feeling where you bought ABC stock, and once it drops a few dollars, you KNOW you should sell, but you don't because you hope that it'll go back up, but then it doesn't, it keeps falling.. then steadies, you hear SOME good news and hope and hold. You try reading articles, giving you some more hope, but it falls a little more, few days later, it falls again, again and again. Now you're down over 30% of what you put in.. next thing you know.. its 65.. then 75%, you panic, you go onto message boards to look for insight, you then feel miserable and finally pull the trigger and sell at a 85% LOSS. You think back, if ONLY you effing sold it when it was just 5-10% down, you would have saved thousands and used it to invest or trade in something else and would have gained back that loss in no time. Nightmare right? I know we've all been through it, and some still do. Even with all the charts and fundamental analysis we try to pour into our decisions, its always our gut feeling that makes us pull the trigger, or withhold the trigger button to wait.

What kind of things have you done to discipline yourself in cutting your losses to lose the battle to fight another day, or what have you done to take some greens off the top or sell it all for the profit and not be greedy? I've gotten a little better myself in letting it go because I have confidence I can make up for the losses in the long run, or near future, but then again sometimes it comes back.

Sometimes it's helpful to do a quick visualization exercise and imagine your stop getting hit and you taking the loss. A quick mental run through of what it feels like to take the loss makes it seem less traumatic when it actually happens. Other than that, plain old discipline.

May 21, 2013
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