Page 472 - THE MARKET WHISPERER

468 PART 14 - The Demons Are Coming!

done that. If you’re still doubtful, wait until you do just that yourself. This
phenomenon, already mentioned in previous sections of the book, is called
averaging down. In some cases, the method will save you from loss, but
only one instance of a stock on which you have averaged down which does
not recover and that will be the last trade you ever execute.

Identifying Loss-derived Behaviors

As noted, our psychological state has a determining impact on our chances
of success. Intraday traders must be functioning at their best when
they sit down to trade. A bad mood, a stormy argument, a headache or
stomach pain, a baby that kept you up all night… all these will increase the
probability of mistakes, which obviously reduce the probability of success.
In these or similar situations, keep away from the screens. If you open the
day with a loss or two, your ability for reasonable decisions will almost
certainly be detrimentally affected.

We hate to lose. Losing causes pain. Our bodies resist pain. We are
naturally not built to voluntarily exit at a loss, since that translates into
pain and failure. But when failure leads us to denial, which affects the
results of our activities, the result can be catastrophic.

When I had to absorb losses as a novice trader, I suffered. I love the
sweet taste of success and winning. Losing several times in succession left
me with weighty psychological baggage, and I did not learn quickly enough
how to cope with it.

SMART Learn to turn your hatred of loss into acceptance, and use
MONEY it to successfully avoid additional losses. You must remain
conscious of the fact that your psychological state alters as
a result of loss.

Loss causes two contradictory reactions. On the day of trading itself,
we seek to cover the loss with fast profits. The outcome: we tend to

drop our guard and trade on everything that moves. We exchange good,

healthy logic for embattled hope and convince ourselves “everything will

be all right.” You must surely have heard about casino gamblers who lost
everything they own by trying to recoup their losses. Only in retrospect,
they understand what actually happened, that their mood spiraled down

to the point where they denied the dangers involved. Experienced traders

will acknowledge this phenomenon as it is developing. The warning bells