“The more slowly you go and the more patient you are… the better your chances of success.”
This is a quote from author Carson Block which I saw on Twitter over the weekend and it made me think a lot about a recent trading experience and how I keep repeating the same mistakes on my personal account. The mistake is starting to become a bit repetitive and I need to find a way to address it to protect my trading capital.
Here is my experience. A few weeks back I opened a contract for difference (CFD) account with IG South Africa and I took two small positions, the first one being a long position on Old Mutual and the second being a long position on Richemont.
In other words I expected them both to rise. Sure enough Old Mutual nudged upwards and I made about 40% on the trade and then I was fortunate to ride the Richemont roller coaster on Friday and make a very healthy profit. In a nutshell I had doubled my money in my trading account in less than two weeks on relatively low risk trades.
At any point in time, I could justify:
A) Why I had backed both Richemont and Old Mutual
B) The amount of capital and stop-losses I had allocated to them
The profit was there and it was banked.
Unfortunately my low-impulse control kicks in and suddenly I see a tweet saying that AngloGold is going to fall to R84 and another article somewhere saying that there is more pain for resources. What do I do? Logon to my IG account via my phone and start trying to short AngloGold and Exxaro which both then proceed to jump on a weak rand.
Suddenly my profits are down 20% and I’m sitting in positions that I didn’t really give a lot of thought to. I then spend the weekend trawling news sites for stories that will justify that gold shares are going to crash and that Exxaro earnings will be under pressure.
Now I might get lucky this week: the shares might fall and I may end up looking clever, but there is a similar risk that it goes the other way.
Having spoken to a number of traders, many of them recommend that you do a couple of things to help you better understand yourself and your decision-making.
1. Start a trading diary and understand what motivated you to make what decisions
2. Write down what you think you did wrong and re-visit it before putting your next trade on
3. Once you have made a profit then walk away and regroup.
4. You don’t need to always be in the market
Geared instruments are both a blessing and a curse because of the speed at which they build or destroy profits, but if you are going to play with them then make sure you understand yourself before you even try and understand the instruments.