Emotional Stops: How to avoid going on tilt

Hey there. Happy Tuesday mo fo’s. So part of going on tilt can be avoided. If you think of the following, as I’ve mentioned before, every trade has two payoffs. The financial payoff and the emotional payoff. Now, when those things diverge and you don’t get the financial payoff, the emotional one can send you over the edge. So when you think about putting on trades, this can go into your position sizing algorithm because we really entries people like to talk about sniper your entries and whatever, and let me share with you folks that is f*cking bullsh*t. Entries are mildly important.

What’s really important is your position sizing. That’s really when you make or lose it. If you have a big position or a small move in the underlying and you’ve made a lot of money, that should actually be a warning sign that you got away with something. Think of the opposite. If you have a really big position and it moves sharply against you, there’s nothing you can do. You’re already done at that point. Sitting there and hoping for it to come back just means you’re going to lose more money, pull out more hair. So you have to have a position size that makes sense for you so that if there’s a sharp move for you, either way you’re balanced, don’t do trading for the action.

That’s why people trade too big is cause they want to see gigantic swings. I was working with a pretty well known guy who was trading options years and years and years ago, eventually blew up because he couldn’t stop trading too big a size. He loved to see the whipsaws and he had gotten away with it for quite some time, but then he blew up and they had to liquidate the fund because they went below the 50% puke point. Sometimes people can’t be helped.

So when you think about your position size, trade small, you could always add to your winners. And then when you choose your protective stop, it has to be at a spot when it has to be set up in a spot where you can protect your capital, but where you can also protect your emotional constitution. If you put your stop way below support and the things broken out and your up five points and the trading range was three points and you still have your original stop eight points from the current market value, what are you trying to say to yourself? Oh, I don’t want to get stopped.

Well, what happens if you give back all your gains? Can’t you adjust your stop and trail it because you’re powerless over what goes on in the marketplace? Even if you don’t want some of those outcomes to occur, it’s not up to you. It’s not up to me either. So you can avoid going on tilt if you think of your protective stops as also being emotional stops. If you get knocked out of the trade, you’ll be financially okay, but will you be emotionally okay? So in other words, if you see a big 10 point move from your entry, but you’re only keeping three bucks of it, something’s wrong there with your trading tactics. You see you’re not doing enough to protect your capital probably because you don’t want to get knocked out of the trade in the first place. But again, that that’s the difference between a pro and an amateur.

Professionals realize that you’re running effectively a system, even if you’re a discretionary trader looking at charts and even if you’re a full on, purely systematic trader, that’s still discretionary because you get to pick the rules. So you need to pick those stops that help you preserve your mental capital because the last thing you want to do is try to go do research at night when you’ve gotten seen gigantic whipsaws in your capital, very little of which you’ve actually kept for yourself in terms of realized gains. It absolutely affects your research because now you’re looking for the grand slam and the home runs and it perpetuates. It does not end well. I know – I’ve been there. Takes a lot of effort to not be an idiot.

What else happens now? You start going to the internet and looking at articles that support your position or this and that, or justify what you want to do. Even if you kind of know deep down, it’s not the right thing to do. So that’s why trading is so difficult, I think, because all of these things are running in the back of trader’s mind and you think it’s just about making money, but oftentimes it’s on a much deeper level.

That’s why in the training stuff that we do, we absolutely force you to uncover what’s going on in the subconscious because that oftentimes is what’s running the show, whether you realize it or not. Reach out via email if you’d like to know more.

Anyway, I appreciate you being here, folks. Go to MartinKronicle and get your free copy of The Inner Voice of Trading audiobook and please consider subscribing to whatever platform you’re on. I appreciate you all very much, and I will see you tomorrow.

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