Traders Ask: How Do You Detect Overconfidence?
SMBtraining.com/blog
Hi guys
After a rotten 12 months I’ve had a cracker of a month not just with the recent bull run but with the preceding drop also. This has occurred after stepping back, refining a trading entry methodology based around volume (exit and money management are already in place) and focusing on this play. Obviously I’m proud of myself, but pride comes before a fall as they say.
Past success runs have often been burnt with a bad run straight after. Can you tell me what techniques you offer your traders to identify signs of overconfidence and over-trading and to keep it (especially overconfidence) in check?
Bella
Great job asking the right questions. Terrific work recognizing a pattern in your past that needs work.
Volatile swings in your P&L can be a danger signal of trading overconfidence. Going from down much more than normal to flat is a very dangerous signal. A big rip is likely coming.
Starting your pre-game preparation later than normal is something to watch. I am doing well I do not need to get in early. There is a fine line between doing very well and underperforming. A slight change in your start time can start a downtrend.
What are some warning signs for you that indicate overconfidence?
Mike Bellafiore
Author, One Good Trade
National Inflation Association
National Inflation Association - 12 Warning Signs of U.S. Hyperinflation
Where I went wrong placing my stop in $APC
I had my stop placed 2pts. from my entry at 83.17, at 81.17. However, after looking closer at my 30 min chart, I should've had it in two spots. Either on a break of the 50ma at 82.35 or a little below 81.00. That's not to say this trade is going to work or not. I just felt I was stopped out prematurely.
$COP - remaining strong
COP has remained strong, bounced back to highs off of 50d pretty quickly. Worth watching here.
$PNRA - Setting up here
PNRA is some what thinly traded but setting up to make a move higher. Held up well today as the market closed on lows.
Current Watch List $$
APA
APC
EOG
WLT
DO
BHI
HOC
LULU
FOSL
EL
RL
UA
OPEN
BIDU
SOHU
SINA
APKT
TZOO
PPO
GPOR
MELI
SLW
SLV
GLD
APC
EOG
WLT
DO
BHI
HOC
LULU
FOSL
EL
RL
UA
OPEN
BIDU
SOHU
SINA
APKT
TZOO
PPO
GPOR
MELI
SLW
SLV
GLD
$APC Break Out couldn't hold today
I started a small position in APC today at 83.17. Stops are at 81ish.
Of course the same things happen in all speculative markets. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. But people never take the trouble to ask questions, leave alone seeking answers. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a
medium-priced automobile.
-J.L.
medium-priced automobile.
-J.L.
I believe that having the discipline to follow your rules is essential. Without specific, clear, and tested rules, speculators do not have any real chance of success. Why? Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan. Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until they are defeated.
-J.L.
-J.L.
First, do not be invested in the market all the time. There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move....Second, it is the change in the major trend that hurts most speculators.
-J.L.
-J.L.