Page 475 - THE MARKET WHISPERER

THE MARKET WHISPERER 47 1

problematic places - before there’s a chance to spiral down. We must let go
of those actions that undermine our capability, and stop them as they are
happening. I doubt most of us would be willing to admit we are incapable,
but if we admit to the existence of the process and set suitable rules of
behavior, we will overcome our unwillingness to admit we are in a bad
state. So, let’s set some rules.

• Three Straight Losses
Consecutive losses are known to lead to psychological incapacity. You’ve
started your day of trading. The first trade is a loss. Not so terrible. The
next one… is also a loss. Not so nice. If the third is a loss, you are not
in a suitable psychological state to trade capably and responsibly. You
may not want or like to admit it, but turn the computer off and do other
things. Note that I did not say “go away” from the computer, but actually
turn it off. If you don’t, you will be tempted to “just take a look” which
leads to “just recouping the losses” and we are back at square one, still
with a compromised psychological state.

• Set a Daily Loss Limit
Set a daily maximum loss figure and stick to it. If you have reached it,
turn off the computer. You really want to keep on trading in order to
recover the loss, but in 70% of such cases, you will only make things
worse. When you go over that maximum, you are no longer capable of
trading responsibly and are in a compromised psychological state.

• Never Return to a Losing Stock
Did you exit a losing stock? Then forget about it. Reentering will usually
only lead to another loss. Once you’ve lost money on a stock, it is natural
to want to recoup the loss. Our tendency is to deny the fact that we
have made a mistake, and we look for a second chance with that stock
to make good. Sometimes, we even take a third chance! This is the
outcome of the human reaction known as “I’ll show it!” When you exit a
losing stock, do not return to it that same day. Keep your distance from
it as you would from wildfire, otherwise you will get badly burned.

• Exit a Stock That’s Going Nowhere
You bought a stock, and nothing is happening. Is the price is moving
sideways, wavering between profit and loss, for ten minutes? Exit
immediately. Perhaps it will work, perhaps not, but the only reason