Loss in "Emotional Capital" Can Lead to a Crisis in Confidence (Part 3)

12/03/2008 10:19 am EST


Timothy Morge

President, MarketGeometry.com

Though he had been anxiously awaiting an opportunity to get short this market for about six hours, he finally saw an opportunity to take a trade using a trade entry setup he recognized. All thoughts he had previously about the bonds trading lower went out the window when he added those up sloping lines. He had been waiting for a trade for over six hours and he was going to get one!


Just after he got long, news hit the market and bond prices rallied in a fast market. But they failed well before they made it to his upside target. Because he had been watching this market for over six hours, waiting for a trade, his focus wasn’t particularly sharp. The bonds came down as fast as they went up and he hadn’t moved his initial stop loss order to break even—and he was quickly stopped out of the trade.

Now that price had violated his up sloping lines, the thoughts he had before the trade came flooding back into his mind. He had been waiting for several days for a chance to get short this market, and this was an exhaustion rally! Rather than looking for a place to enter sell orders, he had got caught long—along with everyone else—and then stopped out—along with everyone else. He was angry with himself.

He had made two key mistakes, though he wouldn’t realize them until the trading day was over: 1) He’d been waiting several days for an opportunity to get short the bond futures, and after waiting for six hours for a set up, he found one when he was low on focus, got long and was stopped out; and 2) He was now spending more emotional capital being angry with himself over the failed trade.

More in Part 4 tomorrow…

I wish you all good trading!


Timothy Morge


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