There are a number of key challenges which most traders must face at some point during their career. A massive issue for some, depending on personality, is the loss of discipline and becoming reckless – what the world of poker refers to as “tilt”. Trading becomes emotionally tainted, whilst trade plans and loss limits go out the window. Hard graft over weeks, months and sometimes more, can be undone in a matter of minutes if your chimp decides to go on the rampage at the most inopportune of moments.
This lack of control and emotional trading is usually triggered by obviously poor trading decisions or when you take ‘unlucky’ losers. It’s also frequently primed by an increase in volatility. But rather than resetting and looking for the next trade with a clear and in the present mindset, a trader is likely to go on the offensive and fight the market – just when the market is suggesting to do the very opposite.
Although numerous, the triggers for a raging chimp are usually fairly obvious. Unfortunately, because the whole experience tends to leave you feeling emotionally exhausted, it’s sometimes hard to address these reasons by the time you’ve regained your composure. So as this is such an important obstacle to conquer in order to achieve long-term trading success, I thought I’d go through some of the possible triggers in this post and discuss some possible solutions in the next.
Consequences of a raging chimp
Studies have shown that self-control is effectively an exhaustible resource. When people who have had to exert self-control are faced with situations requiring more effort, they are more likely to break. I’m a big believer in this principle and it’s my contention that emotional control is at the very heart of the issue. If your chimp’s calm, there’s no problem. But if something annoys it, scares it, threatens it or makes it look foolish, it’ll start to become agitated. The more it happens, the more agitated your chimp becomes and eventually, you might find that you have completely relinquished control of your trading platform and have a big fat account debit to boot. Not good.
Clearly the direct consequences are where it hurts the most at the time – account equity. But there are couple of other really big factors here too. The first is that the frequency that your chimp goes ballistic and the stability of your chimp are inversely proportional. So the more this happens and you have to deal with the consequences, the harder it becomes to maintain control unless you address it effectively. If emotional and self-control are exhaustible resources, think of your chimp stability in terms of capacity – the more capacity for a resource you have, the more it will take to deplete it.
The second factor is rather more subtle. When you are in “raging chimp mode”, experience becomes far less objective and far more emotionally driven. Emotions cloud judgement. Any aspiring trader trying to find their edge or for that matter, a more experienced trader who’s trying to decipher the market auction from day to day, is likely to struggle to understand what’s happening in the markets if they are constantly in this emotional state. Learning about the market needs to happen through the eyes of the human mind, not the chimp.
Scenarios where it might happen
I want to stress that the list below takes into account some common chimp activators. An individual event usually won’t cause a loss of control. There might well be other situations which cause your chimp to become agitated. Some situations can be avoided and others are completely out of your hands, but here are a few to mull over.
- Being tired or hungry can severely weaken your resolve when trading isn’t going well.
- Impulsive movement-based trading which happens particularly when you are not fully focused, is a sure-fire way to agitate your chimp.
- Jumping straight back into a trade right after it stops you out and taking another loser.
- Taking trades outside of your plan which lead to losers.
- Taking losses as a consequence of not having done your pre-planned preparation.
- Letting a nice winner turn into a loser.
- Hesitating on planned trades which would have been nice winners.
- Seeing your daily loss limit, ignoring it and losing some more.
- Failing to remain impartial to a number of possible trading scenarios.
- Getting one-ticked out at the high/low of the day.
- Getting out in accordance with plan only to see the market go “to the moon”.
- Taking a string of winners and then a string of losers but before you reach day’s target.
- Every trade’s a loser.
Try to list the things which get your chimp going and in the next post, I’ll go over a few ideas to avoid unnecessary situations where they might crop up and some thinking on what to do when you find yourself in raging chimp mode without a paddle.
Dumb Trades, Bad Beats and Going “On Tilt” – part 2 is now available!