lystn

Hey everyone, this is Kirk here again at Option Alpha and welcome back to the daily call. Today, I want to talk about a huge stock trading mistake and that’s forcing revenge because of a missed opportunity. This is one that I know I struggle with initially when you start trading and I think everyone struggles with this as an investor. If you don’t, I don’t think you have emotions maybe or you’re just too robotic in your trading to begin with. But this concept that I see all the time and honestly, I see this still in people who say they are veteran traders to some degree, but they end up forcing revenge on the market by trading things that they should not trade or position sizing themselves in a way that exposes them to more risk because they think that they are missing an opportunity or because they think they have to fight back against the market. This concept really comes from in most cases, the world of gambling or poker, however you want to think about it. But if somebody's dealt a bad hand, what you'll see somebody do is they’ll double down. This is even a common term that you hear, is “Well, you got to double down on the next one. If you lose, then you double down and basically double your investment, so that if you win the next one, you basically get back to par.” But what happens is when you do this, you end up losing again and then you have to double down even more. Then what if you lose again? Then you double down even more and then you’re just out of money. You just continuously feed this negative cycle or this negative funnel of losing value and profits because you think that you’re owed something from the market. You think that the market took something away and so, the next one has to be good for you, the next trade has to work out. We all know that doesn't happen. If we talked over drinks or just without the market there in front of us and just talked as rational human beings and rational adults, we know that that’s never the opportunity. The opportunity is a long-term probability model. That doesn't mean that you're going to win every other trade. It doesn’t even mean that you’re going to win the first five trades or the first 10 trades that you do. That's why position sizing and staying systematic and staying repetitive is so important. But when you get into this mindset of having revenge against the market, it can really, really be degrading to your trading account and to your mental spirit because you’re always seem like you’re fighting back against the market. I guess that I know that this is something that I struggle with earlier in my career because when I started trading at home and I started trying to day trade, I remember there were days where I would make a lot of money and then there were days that I’d make less money and I’d try to force trades into the market because I had to basically claw myself out of a losing trade from the last day. That’s totally the wrong mindset to get into because again, you start doing things that break your regular traditional rules. By all means, it's very, very hard, especially in an options trading system like the one that we try to teach at Option Alpha, to stay consistent and stay persistent in the face of say a losing streak that you might have. This is really hard for people to do and I’ve only learned this because I’ve been doing this now for over 10 years, so I’ve seen myself do this and I’ve recorded myself and I have all the videos to go back and review my own trading mistakes and mindsets that I often do. And so, I know this now because I have a lot more patience to just hold through and see out the math, see out the probabilities, keep the end in sight basically. Again, I think that this only comes with time and patience and hopefully mentorship or a community that you can be involved in and to have other people do it or see other people do it. It really gets you out of that mindset of forcing revenge or fighting back against the market. The one thing that I will say to end this up is that I look at the market not as somebody that I'm competing against. I think that people often look at the market as a competitor. This coined term of beating the market is often misrepresented, so that people actually think that there is something else out there that they have to beat. Like this market is this thing, this animal, this beast that they have to beat. I don't necessarily have to beat the market. I have to trade around the market. That’s how I think about it. The market is not something that I have to force revenge on. I have to follow the market, I have to understand it and I have to trade in the context of the market or around the market in different sectors. That might help out also with a little bit of mindset. But again, really try to keep it systematic, keep it mechanical. Don’t assume that every single trade that you make is going to be profitable. I know that sounds so elementary and so simple, but yet, deep down, subconsciously, I still see people doing this all the time. They get into this business, they know that they’re going to have losing trades, but then when the one actually shows up, it’s like they didn’t know that that was going to happen and they get freaked out and they start breaking rules, they start fighting back, they start increasing position size and they basically dig themselves into a deeper grave much faster than if they just would've taken a breath, chilled out, calmed down and get back to the mechanics. As always, hopefully this helps out. Until next time, happy trading!