The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
3 Mindsets That Will Cost You Money
04/13/2011 4:43 pm EST
Traders can sabotage their trading success by developing a "Superman complex," acting like a "Tasmanian devil," or getting greedy like a "little piggy," explains Robert Hoffman.
You've probably heard that traders have, of course, their own personalties, but which trader mindset is the best to profit from the markets, and which ones do you want to avoid?
Our guest today is Rob Hoffman, here to talk about that. So Rob, you've mentioned several different types of trader mindsets. Talk about those.
Yeah, there's a couple that I focus on that I think are really obstacles to good trading.
One of those is the “Superman” or “Wonder Woman” complex, one of those is the “Tasmanian Devil” complex, and then also the “Little Piggy” complex. Just nice, fun little ways to remember some very serious mindset issues.
All right, talk about that Superman. We'll start with that one or the Superwoman or the Wonder Woman, what does that mean?
Sure, basically what I see is, and of course, Wonder Woman is for the great female traders that we have, but it's this complex of feeling invincible.
What happens is after a series of successes, people that I see often come to me and will go ahead and they’ll find a success they haven't necessarily had for a while. What happens is they suddenly shed all those old memories of the past failures and start to say, “That's it, I've figured it out! I've got the Holy Grail!”
Rather than taking each individual trade and basing it on its own merits—because each trade is unique—and rather than requalifying it fully…Let's say maybe steps one through ten that you go through to go ahead and make sure it's a high-probability trade that fits your trading plan.
They start skipping step six, step four, step eight, and start saying, “It doesn't matter because I'm on such a streak, I'm winning, I've got it figured out.”
What they do is they find themselves unfortunately taking a fall—meeting their kryptonite, if you will—and bad things can happen very fast.
Then they have that stark reminder of their past trading experiences. So the Superman and Wonder Woman are very dangerous complexes.
All right, “Tasmanian Devil.” What do you mean by that?
Transcript Continues on Page 2|pagebreak|
Well, I’ll tell you what happens. In my case, I work with a lot of different traders simultaneously throughout the day, and what I see is, after a good trade or a trade that doesn't work out the way I want, people want to move to the next trade, the next trade, and the next trade.
Rather than going and looking at the last trade on its own merits; what went right, what went wrong, what could I have done better?
I think that's really important to go ahead and kind of do a debrief, especially for all the junior traders amongst our group, to go ahead and focus on their opportunities for improvement.
If it's a winner, that's great, let's go to the next one, and that's exactly what happens. It's like that was a great trade in crude oil, let's go to this gold trade.
People don't want to focus on what went right, what went wrong, what they could do better, and take notes on what were the conditions of the trade at that time. What was I thinking, what was my mindset, what were my profit targets, what were my risk levels?
They just want to bounce from trade to trade to trade just like the Tasmanian Devil.
Then what happens is they all of a sudden find themselves two weeks from now in a situation where they're having a string of losers, they've got nothing to benchmark against in their past trading to see what were they doing even when they were successful because they were so consumed with the excitement of trade number one that they want to bounce to trade number two.
So that Tasmanian Devil—bouncing from place to place to place—is another very dangerous habit.
All right, last one, talk about that.
“Little Piggy.” You know, we have all these other things. We've done it right. We've been tracking our trades, we've been going ahead and not bouncing from trade to trade, we were properly documenting them, we've been going ahead and making sure we're checking our list, checking it twice, we're not getting into the Superman complex.
But then, we have another winning trade on our hands. What do I do? How much profit do I take?
So many people tell me that over the last few years, they've gone ahead and taken some pretty hefty losses in the markets through long-term investment strategies, and so what they want to do is they want to come in and be a trader to quickly make that money back.
So what happens is they finally see a green light on the table, if you will, they see a profit, and they're like “I need more money out of this.”
“I've been sitting here for the last couple hours, or I've taken these losses in my long-term portfolio. I'm up $100 or $200, or whatever it may be, on this particular trade. I need this much more though. My daily goal is $500 or whatever magic daily goal you have.” What if you’re $30, $40, or $100 shy of that target?
People want to try to meet that daily goal. They try to force their will upon that goal, and Little Piggy sets in.
Even though the trade itself may say this is only a profit target for ten ticks or 20 ticks, or whatever it may be.
People go ahead and they turn around and try to eke more out of the trade than the market is willing to give, and they turn a winning trade into a losing trade. Another very dangerous scenario.
Rob, with any of these things it sounds like you need to get back to basics and remember what got you that success in the first place. Thanks for your time.
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...