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Marilyn McDonald with us: keep it simple!
Mon, Jul 14 2008, 08:51 GMT
by Rob Booker
Marilyn, a trader and the Director of Marketing at InterbankFX, said it perfectly: you can add so many indicators to your charts that you can't even see the price anymore. And that's too complex. Today, we talked with Marilyn about her trading, her advice to new traders, her book, and more.
Click to listen to today's show
Why we add to losing positions
Pierre Charlebois over at FXStreet (in his excellent blog) talks about why traders add to losing positions:
- We hate to be wrong. It’s that basic. Think about it. When was the last time you were really wrong about something. How did it feel? Did you feel embarrassed? Stupid? Like you should have known better? I know that is usually my first reaction.
It's true that most retail traders hate to be wrong. Just look at the firestorm that erupted when a bunch of traders blindly followed an analyst's proclamations. More than that, traders are embarrassed about being wrong. We want to bravely proclaim that some currency pair is overbought, or ready for a breakout, and we want the rewards of being able to scream to the world about how smart we are. Or at least brag to our friends.
The problem comes when we have put so much money on that "great idea" that, when it starts to go against us, we not only look bad (hate to be wrong) but we are losing a crapload of money (embarrassing).
Most of us are never taught to enjoy the process of losing (obviously). Or the happiness that can come from making a bad decision. But we should learn to find peace in being wrong; to discover the strength that comes from admitting our faults; to enjoy the profits that come from being responsible about how much we risk on a single position.
Last of all, because we want to avoid embarrassment about our trading, we often follow someone else into a trade. That way, our decisions are not completely our own (in our mind).
Nothing is more dangerous than that.
P.S. I'd love to have Pierre on the radio show to talk about this.
Published on Mon, Jul 14 2008, 08:54 GMT
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