It is important that your emotions are kept in check whether your positions are going with you or against you. Getting overly emotional can lead to irrational, spur of the moment decisions, which more often than lead on to the followers saying later "Why did I do that?" or "If only I had left things as they were...".
Things are made worse if people are piggy-backing other traders, and don't fully understand the system rules being used, their appetite for risk etc.
To give an example, suppose a good trader announced he was going long on a currency, index or stock last week, based on his system. Inexperienced traders, knowing that this trader has a good record, blindly pile in following his recommendation, often with excessive risk and/or leverage.
The market then experiences a couple of volatile days - these traders emotions are on full display, panicking when the market falls, ecstatic when the market rises. Meanwhile, the good trader has kept his counsel. He has his position, he knows his 'uncle point', he has his risk well under control. There is nothing more to say.
The followers don't know what to do - is the good trader wrong this time? They start questioning the trade, some bailout of the positions.
You can see this on virtually any trading blog where people blindly follow another traders' calls. This is somewhat made worse if the traders' calls are somewhat discretionary, or his rules are not made public.
If you are thinking of following anybody else's trading calls, you MUST:
- Fully understand the rules - when do you get in, and more importantly when do you get out;
- Resolve to follow the rules come what may;
- Above all, control the amount of risk you are exposing your trading account to.
i agree with everything you say, and in my opinion i would say risk/position management is they most important areas of trading....ReplyDelete
Thank you for your comment.ReplyDelete