At a recent social event I ended up in a group of people who were talking about their jobs. When the conversation came round to me I tried to use the standard line that I learned from my friend Joe Fahmy.
“I work in an ice cream shop, ” I said with a straight face. The conversation stopped momentarily as the group exchanged a few “what a loser” type glances, and I thought I was home free. Unfortunately, some dick who knew the truth spoke up…..
“No he doesn’t, he works in the stock market. He even writes a blog about it!”
So the conversation changed to the markets, trading, investing, and all the requisite things that go with those subjects. Mind you I love talking about trading with anybody, especially novices, I mean that is what this blog is all about.
But the format at a cocktail party, where you have such a short a time to talk any one person, makes it tough to have a substantive discussion about trading with “civillians” since there are just so many basic fundamentals about the markets that they don’t relate to.
Anyway, the conversation wrapped up and as the group broke apart I told them if they wanted to know more about trading and how the financial industry really worked they should check out my blog and the book I ghost wrote, “Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments.”
Later that evening, one of the guys from that group approached me and began to ask questions about trading. As the conversation went on he opened up and told me that he had been trading for almost two years now and that so far it was a losing battle.
He seemed like a nice guy and I was drunk by then so I thought I would try to help him out if I could. After asking him a number of questions about his trading it was obvious what his problem was. In fact it was the same problem most losing traders have; he held on to his losers too long.
Alert the press, right? What new trader doesn’t experience that issue at some point? In fact even experienced traders still will make that same mistake.
But if there is one thing I have learned from all those years of watching Dr. Phil, it’s that you can’t just treat the symptom, you have to go to the root, and treat the disease. It wasn’t good enough for me to say, “just sell quicker,” any more than it would be for me to tell an alcoholic “look, just stop drinking so much Grandma, you friggin’ lush!”
And I knew that if I wanted to “cure” him before the commercial break, I had to get moving. I had to find out what the issue was. Was he unwilling to book a loss? Did he have an issue admitting he was wrong? Was his computer monitor upside down?
So after doing my best amateur psychoanalysis routine for about five minutes I finally found out what his issue was. He was afraid that he would not be able to find another good trade candidate.
Or put another way, he was not confident in his ability to analyze charts and determine what stocks were setting up for a trade, so he held onto the good setups he had found too long so as not to admit that they had failed, and face having to try to find new ones.
I have to say that I could relate to him on this issue, although in a different area. If you ever have read my StockTwits bio, it goes something like this;
Great father. Good friend. Decent trader. Lacking husband. Solid drummer. Sometimes funny. Often A-hole. Shitty poker player. Too smart.
Each of these individual items is a blog post in themselves, but the one I am focusing on here is the “shitty poker player” part. It’s true, I have been playing poker for almost 30 years and I suck.
Poker to me is a social event. I like to talk to the players, chat with the dealer, flirt with the cocktail waitress, listen to my iPod, and basically do everything that distracts me from paying attention to the game. Because of this, about an hour after I sit down my focus starts to wane and I sense myself going into that zone where I know I am at risk of making one bad move that will undo all my profits to that point.
I then tend to latch on to good hands and overplay them, worrying that I have to make them pay off because I may not get another one. It is surprising how often I take a big loss in poker on a great starting hand.
I have however adapted to this weakness of mine and formulated a strategy to negate its ill effects. I first reach into my left pocket and pull out my wallet. I take only the amount I am willing to lose at the table out and place it into my right hand. Then I take my right hand and put it into my right pocket and deposit the funds there. It’s fool-proof. I never lose with this technique.
For my trading friend the solution was easy; I suggested that he subscribe to a trading service. This way he knew he would always have a few potential trade candidates to choose from, which should let him feel free to drop losing positions quicker.
I also suggested that he try to “reverse engineer” how the picks in his service were arrived at. With even a minimal amount of effort he should start to get a feel for certain setups on his own, which will only add to his confidence.