About a month ago I got a call from a guy, fairly new to e-mini trading, who had just taken a 4-figure loss in one day. The set-back shocked him, but he was still up 30% in his account and after talking to me he felt better.
Frankly, I was impressed by his results because his method was very simple (one moving average) and yet he was doing quite well in a difficult market. Some people really are natural-born traders. They have the right temperament and gradually develop the skills.
Moreover, the phenomenon of Beginner’s Luck is real. It’s based on the fact that neophytes don’t know what can hurt them, so they have no fear. In sports, in public speaking, in combat and in trading, the absence of fear brings us more presence of mind and we become more effective for it.
Once fear enters the equation, however, one is likely to over-analyze situations and trade-not-to-lose. That’s a recipe for breakeven trading or worse.
This same fellow called me again yesterday after having a very difficult week. Things had started to unravel and he gave back the majority of his gains. He reached out again because he realized that he needed help with risk management among other things.
His issues are typical ‘guy issues.’ There are many ways in which men and women react differently to the experience of trading.
For example, men tend to wait much longer before asking for help, so men stay lost longer. This is not due to any underlying ‘negative belief’… quite the contrary. Men simply assume that if we apply ourselves sufficiently we can solve virtually any problem and overcome any obstacle. This heroic bias is constantly reinforced by Hollywood and Madison Ave. ‘Just Do It,’ or else you are a wimp.
Studies show that men are also much more prone to making all-or-nothing bets than women, which means our drawdowns are more extreme and the risk of an account blowup is far greater. Generally speaking, women manage money (and risk) much better than men.
To find out more about how your trader temperament might be affecting your trading, click here.
