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November 17, 2011 at 10:20 am | | Comments 8

Don’t Be a Monkey

Ever seen those monkey traps where they put some bait in a trap, a monkey comes along, sticks its hand through the hole to get the bait, but when making a fist, can’t remove its hand from the trap?

They have to drop the bait in order to escape the trap, but their greed and ignorance prevents them from letting go?

I’ve made some trades in that same manner, and I’m guessing you have too. The ones where I just refused to let go in time because I wanted it to work so badly, and ultimately they proved extra costly.

Dropping the “bait” in those cases would have freed me to go in search of many other, better opportunities, but my short-sightedness prevented it.

Monkey Brained

And while every single one of us has been there at some point in our trading, what’s curious is that it originates not with the setup or a poor strategy or a flawed technique for entering or exiting. It starts with not having a properly prepared mind.

It’s a flaw with our pattern of thinking.

At times it’s based on a fear of scarcity, whereby we stay with a mediocre or poor trade because there’s nothing else on the radar.  In effect, we’re bored, in which case we shouldn’t be trading anyway.  Listen to the charts!

Other times it’s that our pride is too much on the line and we’re more interested in defending that than our capital.  That prevents us from moving on to a truly worthwhile trade, thus keeping us trapped.

Remember the Goal

I’ve talked at length previously about trading as a numbers game, but it’s such a fundamental viewpoint to have as a trader – something we just can’t lose sight of.

Over time, we want lots of at-bats to let our edge play out. When sifting through setups we select actual trades based on probabilities. That’s the aim.

And on any given trade, if we’re keeping that in mind, we’re willing to let go when the feedback we’re getting doesn’t support our original expectation for the play. The price action is weak, a key level fails to hold, or a reversal of direction has begun and the charts are telling you to shut it down – yet you aren’t listening.

Stay on track.  Keep the bigger picture in mind.  Be willing to lose in this one trade if you need to, so that over the next dozen or hundred or thousand trades you can be profitable.

… In other words, Trade Like A Bandit – not a monkey!

Jeff White
Producer of The Bandit Broadcast

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  • Mark

    Good reminder. Thanks. I just had to cut out of a trade this morning that didn’t work as expected. Love your posts.

  • Arthuredayjr

    This definitely is the hardest thing to do. Not only letting go BUT not going back for another go at it. Every time I let go and go back, I lose again. Hard to let go. We are at a mindset we waited so long and as soon as we cut loose, it is going to finally go.

  • Anonymous

    I appreciate that Mark, thanks for reading and for your comment. Sounds like you exercised good discipline – keep that up!

  • Anonymous

    Hey Art, you bring up a good point here which is commonly referred to as the ‘revenge trade.’ You’re exactly right, if the stock isn’t acting like you’re expecting, it ought to be avoided – too many other fish in the sea! Trading is a real battle, mostly internal. Thanks for your comments.

  • Eric

    Jeff, you speak a fresh truth. Learn to love loss, and you are on your way !

  • Anonymous

    Well…maybe not LOVE loss, but accept quickly :) Thanks Eric!

  • Jean

    Made a index card using this info to read before the market opens and cut out the little monkey image and taped it to the monitor as a reminder. Very useful. Thanks

  • Anonymous

    Thank you Jean, I appreciate the feedback! Will do my best to keep putting up tape-to-the-monitor-worthy material :)