(If you haven’t already, you should read << Just a gambler first)
My father has always taught me that “when you fall from the horse, you get right back on it”. The first time he said that, I asked why and I never forgot the answer he gave me — an answer that reverberates inside me until today and always gets louder at difficult times.
“You don’t want to live in fear, do you?”
That idea always scared me much more than then the initial fall, irrespective of how high it was. Live in fear.
However, I see now that’s exactly what I had done with respect to the Stock Market. What put me away from that endeavour was fear. Fear of losing money, fear of disappointing myself and others and, beyond all, fear of being wrong again. I am extremely competitive, but not towards others — towards myself. At that time, I had a very rough understanding about what “long-run” really meant, so when losing trades began to coalesce into a long string of losses, my competitive and unprepared mind immediately saw that as indicative of being wrong. Fear began to contaminate my decisions. You don’t put a stop-loss because of fear; you do that because you have evaluated the inherent risk of a given trade and have come to the conclusion that the breaching of such price level means your trade went wrong. But there I was, putting too tight stop-losses out of the fear of being stopped-out too far away from my entry price. For a similar reason, I would move my stops as soon as the trade began to unfold in my favor, so as to not leave any money on the table. I don’t need to tell you that all this went wrong and the tighter stop-losses made me lose would-be winning trades all the time.
I eventually decided I had to pick better trades. Because they were so good, I could put very wide stop-losses so as to not incur in the risk of being stopped-out in a small random move. Well, needless to say that the wider stops made me lose a lot in losing trades that should have been identified as such much earlier. That created a vicious cycle. The short-term string of losses was telling me I was wrong, thus inflicting fear in my mind and soul. My fears were totally annihilating my technical judgment, thus increasing my losses. The consequent growing string of losses was creating more fear and joining forces with the discomfort generated by being behind, thus making me over-bet to recoup the losses faster, but effectively making them ever more painful and feeding this self-destructive cycle.
I finally decided to make one large bet on a very risky asset in a “make it or break it” sort of strategy. There was no reason whatsoever to get that anxious to recoup the losses since I was betting a replenishable bankroll that I had designated just for my initial learning endeavours in the Stock Market. Nevertheless, I was anxious and, as a consequence, very risk-seeking, so I placed the bet.
And lost… all of it.
I fled from the Market in shame and decided I would never trade again before I really understood the game. I blamed everything on my lack of knowledge. This in turn almost automatically gave me a clear (and relieving) solution for my problem: go buy books and study. Easy. The problem, I decided, was with my market analysis, so it was easy to forget about my biases and fears. It’s always easier to look away from the mirror and blame another person. In this case, I was blaming myself, but only half of myself. I was blaming the right side of my brain, the one that rationalises things, the logical one. All I needed was to study (what I love to do anyway), so it was only a matter of finding some free time.
The real problem, however, was with the left side of my brain, the one that loves, that hates — the one that feels fear. I see now that, by simply reducing my problem to a lack of study, I wasn’t really getting back to the horse — I was merely looking for another tamer animal to mount.
Right now, while I lie in bed sleepless after those last two days of losing in Blackjack, I decide I am not going to do the same this time.
(Continues on Finding my bearings >>)