Habits of a Losing Trader – Investing in Losers (18 May 2021)

Habits of a Losing Trader – Investing in Losers (18 May 2021) This TrackRecord series of podcasts focus on the days in the Life of a Trader. We hope that it will help you and maybe even entertain you as you embark on this journey to become a successful trader! To be a good trader, […]
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Habits of a Losing Trader – Overtrading (11 May 2021)

To be a good trader, it's important to recognise why some traders fail. A reason why traders fail is overtrading. There are many reasons that lead to this self-defeating habit of overtrading. Vee and Nic discuss the reasons why traders may end up overtrading and how they can avoid doing so.
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Habits of a Losing Trader – Lack of a Trading Plan (4 May 2021)

Habits of a Losing Trader – Lack of a Trading Plan (4 May 2021) This TrackRecord series of podcasts focus on the days in the Life of a Trader. We hope that it will help you and maybe even entertain you as you embark on this journey to become a successful trader! To be a […]
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Habits of a Losing Trader – Loss Aversion (27 Apr 2021)

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Habits of a Losing Trader – Loss Aversion (27 Apr 2021)

Transcript
[NIC] Hi guys, welcome to another episode of life of a trader Today, we’re going to start a new series called Habits of a Losing Trader. We’re going to talk about why loss aversion is one of the key traits that leads to trading ruin. How are you, Vee?

[VEE] Hi, Nick. Yes, let’s talk about that, right. So, we all know there are winning habits and there are losing habits and one key losing habit is the inability of traders to take losses or the reluctance to take losses, right? So, it’s loss aversion. Well, there’s a lot of research written on this and it’s a well-established fact that many people are averse to locking it in losses. For some reason, they believe that as long as they do not take the losses, it is unrealised and hence it is something that will come back around. In their mind, they think these are not real losses, these are just paper losses and eventually I have a chance to come back. So, it falls on many levels. A loss is a loss regardless of whether you cut or you don’t cut, it’s still a loss it if it’s in your trading account. Yes, there’s a number that says unrealized loss but you know, it’s essentially the value of your account.

And one of the things that prevent them from taking the losses is that they feel that once they are out of position, then there’s no chance for them to come back. What they are most afraid of is that, let’s just say they bought something at $100, now it’s at $90 and they’ve lost 10 bucks on it. They believe that if they sell at $90 now and it starts to bounce, it goes to 93, 94, goes back to a hundred, then they will be left behind and then they will miss out. They always have this of fear of missing out and that is one psychological weakness, right? It is a weakness that the trader who wants to be a winning trader need to get rid of. Because the first thing that you always learn when you start to trade, you always learn from successful traders, who have, you know, achieved consistent success before they would say, you know, the first thing is you need to do is to learn how to take your losses. And that’s very important because by taking losses, it allows you to free your capital from losing trades, from trades that have not been working – going the wrong way. Then, you have the capital to utilize on other possible trades that have better risk-reward. Of course, it’s no use trying to tell you to take losses and then don’t give you a method to how to become better right?

So, the way that I do it, say if I have a sizable position that I have a lot of conviction for and it’s going against me. (I’ve been there,  feel the pain of taking the loss.) Then, I will not have just one level to stop out a hundred percent, right? Because that is the mental hurdle – to take a big loss of a trade that you truly believe in at one time, right? So, I will break it up into several parts, maybe, say twenty five percent each at different levels. So as it trades against me, I start to take some losses and you’ll find that this psychological trick stops yourself from freezing. It stops me from freezing, from being frozen in fear or hope. One other thing that I find that when I have a position that is going against me is that I find that I’m hoping and making deals with a higher authority that it comes back – “just give me a chance to let it come my way for a little bit…. and I’ll stop/reduce my position” – Then this is the first sign that I really have no more leg to stand on, right? Since it really comes down to hope and just hoping and praying that it will start to work well. So, it’s the other thing that I console myself with is that fact that if the first trade to stop out, the first 25%, it is actually a relief. You will find that it’s always easier to then reduce further, right? And the other thing that we must always remember, is that the markets are open all the time, right? Of course, barring the closing hours of the weekend, but other than that, you have some markets even opened for 24 hours, for example, crypto markets. But the fact is the markets will be there longer than you will. It will always be there. If you stop out and then you find that it was the wrong thing to do. Because then the market starts to perform better, you still like the trade. You can always get back in. So, it’s not about crystallizing the losses and then, that’s it, right? It’s not about that. You always have to understand that losses are losses and it’s imperative to take the loss when things are going against you, right? So, what’s your take on that Nic?

[NIC] Right, I think it’s a very relevant discussion because coming of the back of the higher than usual volatility that we’ve witnessed in the past few days or last week and not only in stock markets but in crypto markets we hear a lot of stories of people getting washed out of very leveraged positions. And to us, it is just a normal dip in the eventual trend – we actually think Bitcoin is even going to 600,000, right? So, what I always believe is that you need to size your trades so that you can stay at the table long enough for your positions, to play out. But Leverage is good, right? I mean it amplifies your gains, but it also amplifies your emotions, right? So, I think that is something that we need to keep in check whenever we use leveraged trading. We have to be very cognizant of how it affects our emotional makeup. And I think that is something that I have learned over the years and something I am more cognizant of each time I use margin to do my trades.

[VEE] Yes, that’s a good point. So, that will be a topic we’ll touch on later on in the series. But of course, it’s very important to be able to take losses first before you start to do a lot of leverage trading, right? Because if you cannot take losses, cannot find yourself to be strong enough to bite the bullet and take a hit and take the loss. Then when you start to trade on leverage, you have amplified emotions and amplified losses and it could lead you to financial ruin. Okay, so to summarize, taking losses is imperative, it’s important for trading success. There’s never been a trader that did not learn how to take losses and managed to achieve great success and build a fortune for himself. Okay, thank you very much Nick with that. As always stay true to the process and profitability is eventual. Okay, just like all right cheers.

[NIC] Thanks Vee. Bye bye.

This TrackRecord series of podcasts focus on the days in the Life of a Trader. We hope that it will help you and maybe even entertain you as you embark on this journey to become a successful trader!
To be a good trader, it’s important to recognise why some traders fail. One key characteristic they have is loss aversion – the inability to close a losing position. Hence, Vee and Nic discuss how they managed to overcome this habit.
Disclaimer: The views and opinions expressed in this material do not constitute a recommendation by TrackRecord Pte. Ltd. that any particular investment, security, transaction or investment strategy is suitable for any specific person. No part of this material may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of TrackRecord Pte. Ltd.

Leverage – when not to use it? (20 Apr 2021)

Leverage – when not to use it? (20 Apr 2021) This TrackRecord series of podcasts focus on the days in the Life of a Trader. We hope that it will help you and maybe even entertain you as you embark on this journey to become a successful trader! As we all know, leverage is a […]
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Do Not be Tempted (6 Apr 2021)

Do Not be Tempted (6 Apr 2021) This TrackRecord series of podcasts focus on the days in the Life of a Trader. We hope that it will help you and maybe even entertain you as you embark on this journey to become a successful trader! In trading as in life, you will always be faced […]
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Key Trading Lessons Instrumental to Nic’s Breakout Year – Part 2 (23 Mar 2021)

Key Trading Lessons Instrumental to Nic’s Breakout Year – Part 2 (23 Mar 2021) This TrackRecord series of podcasts focus on the days in the Life of a Trader. We hope that it will help you and maybe even entertain you as you embark on this journey to become a successful trader! In trading as […]
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Key Trading Lessons Instrumental to Nic’s Breakout Year (16 Mar 2021)

In trading as in life, it is always good to learn from the success of others. For those that have been in our community long enough, we would have known that Nic's trading performance last year is astounding. Hence, in this podcast, he will share with us some insights that helped him achieve such great results.
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What to do when our core holdings undergo stress? (24 Feb 2021)

When trading, there will be times where markets are under stress thus causing the core holdings in your portfolio to perform badly. Vee and Nic discuss what to do in the face of such a scenario.
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How to get into things that have already moved? (16 Feb 2021)

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How to get into things that have already moved? (16 Feb 2021)

Transcript
[NIC] Hi guys, welcome to another episode of Life of a Trader. Today we’re going to talk about how do we get onto things that have already moved too much. I think that’s an issue for a lot of people. How do you do that, Vee?

[VEE] hi Nic. So I guess the conversation is that our Central View is that the risk assets will continue to Rally. Meaning prices continue to go up in dollar terms or in fiat currency terms. The view is based on the fact that major central banks, especially the US Federal Reserve, continues to print unlimited amounts of money and fund the US stimulus plans, which Biden wants to introduce a 1.9 trillion dollars, which he says, is just a down payment for the future, right? And Janet Yellen has repeatedly stressed that it’s the time now to go big and I think that’s very significant that it is not even addressing the domestic audience now, but she’s telling the G7 finance ministers this is not the time to stop fiscal stimulus. It’s time to go big, right? So, just keep on going until inflation appears. I think our view is also based on the fact that inflation has been consistently and persistently below their targets, and they have learned from the lessons of the past when they try to taper – meaning, they try to remove the easing measures, reduce their balance sheet and try to hike rates. What happened was markets started to react badly, asset markets came off. Inflation was trending a little bit higher and it started to come off a lot, right?

So now, they’re not going to be proactive, they are going to be reactionary. They repeatedly told us this. And the question now for many people our community is that this view is all well and good but it’s not really useful to me now because markets have moved up a lot, stocks are at all-time highs Bitcoin as of today is at all time highs too. Many of the things that we are involved in, that we truly strongly believe in are at all time highs. So question is that, how do I get on right? The train has already started moving and using the analogy of the train. Yeah, you’re getting left behind. If you have a chance to get on, it kind of depends how far the destination is right? If it’s just the next stop, we are going to get off, then, really there’s no point, right? But the risk of not getting on is that if this is just the beginning of the move (which I believe truly that it is the beginning of the next leg of their currency, devaluation and weakening of the dollar). So mentally, there’s a barrier for some guy who has not been involved, you have missed maybe 20%-30% of the move. It’s very difficult. Things are very expensive but it’s only expensive relative to the Past, right? It’s not expensive relative to next week. It’s not expensive relative to next month. So, I have friends who are very sharp investors who refused to get on because they say oh you know, I’m waiting for the next the 15, the 10 to 15 percent retracement. Sure. Of course, if you think there’s going to be a time 10-15% retracement, it could be useful. But what if there isn’t? Then there’s the next hundred percent, rally right? So what I would do if I were in their shoes, I would invest a little bit. I will get involved with a small position right now. I wanted to do a hundred dollars of it. I’m going to do $20-$25 now and hope for the 10-15 percent correction to get more in. But if it doesn’t get more in, you feel better than if it starts to trade higher (and you don’t have any positions) as you have some involvement right? You can improve your average – say I buy now, three percent higher than before, it’s okay, right? Because I bought some lower right? Of course, my average is still lower than market and psychologically that makes the difference, right? You start to be like, okay, I’m not getting in late in the game again, now you’re like okay I got in some before and now I am just adding to it.

Psychologically, it helps me and the people that I know who’s tried this before. And it’s also useful for people who are sticking to the arguments that is over value or people that are not participating in this rally and are trying to sell it. They’re getting stopped out or they are making small profits as it corrects one, two percent, right? But it’s fighting against the tide, right? It’s swimming against the tide and then you’re getting further and further from where you actually want to be, right? So, my advice is don’t fight it. Get involved a little bit first. First of all, just don’t fight it, right? Don’t fight the trend. There are many other things to do than to fight Trends, right? Stay out of the way if you cannot find yourself to get involved. If you cannot find yourself to get involved at these lofty levels, then just get involved some, look for retracements, right? And look for opportunities to get involved more. So that’s the way to get around this mental block. Because I think now, this is just a mental block, all the arguments that is there for it to not be a trend has always been there, right? And the price action, and everything else has proven that there are bigger things at play, right? And right now, it’s critical. This cycle is very important, it’s the beginning of a very big cycle and I call it a cash crash. I think when you call it asset bubble, then you find it very difficult to get involved, but it’s a cash crash – the governments are continuously going to print, they are going to devalue, they are going to give you whatever cash you need. Giving it to the consumers, they’re giving it to the unemployed. They’re printing it to lend people to take risks, to start their businesses, to subsidize their cost. And if you think about it, if you have asset that has a unlimited supply, the value is just going to go down, right? And it will go down until such a time where the unemployment situation changes, the economic performance changes and most importantly inflation appears. It has to be actual inflation and not inflation expectations anymore. Yep. So try to get around the mental block of not getting involved in big trends. I believe this is just 20% of the way of a very, very long journey. With that, as always, stay true to the process and eventually you’ll be profitable, thanks, Nick. Take Care.

This TrackRecord series of podcasts focus on the days in the Life of a Trader. We hope that it will help you and maybe even entertain you as you embark on this journey to become a successful trader!
The theme of incessant money printing has already been ongoing for a few months now and is expected to stay around longer as governments continue to need to spend more fiscally. As a result, some assets have already reached all time highs and seem like they have moved too far ahead. Getting into such assets may seem daunting for many but it’s that or be left behind completely. Hence, in this podcast, Vee and Nic discuss how to get into these assets.

Disclaimer: The views and opinions expressed in this material do not constitute a recommendation by TrackRecord Pte. Ltd. that any particular investment, security, transaction or investment strategy is suitable for any specific person. No part of this material may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of TrackRecord Pte. Ltd.