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Friday, December 28, 2007

Trading with Grudge

People trade for a variety of reasons. Some trade, because of the urge and excitement, while others do to make a living. There are many more who trade because they want to probably get a better return as opposed to their deposits with bank accounts. But there is a very dark side to Trading. Trading with a Grudge.

A small story of a individual whom i knew very closely would give you an idea of what overtrading is all about.

This gentleman, let us call him Jack, started his trading as any other novice trader by getting a tip from one of his friends who was an investment banker. Jack placed all his money into this One single trade. Since it was a Bull market, Jack made good profit out of his first investment. He then called upon another friend of his, who suggested a few more stocks to invest in. Jack followed the advise without even blinking his eyes. And again he made some more money. Jack was at an all time high. He now started to believe that he now has a knack of picking stocks and investing in them.

The bull run headed for a small correction, at least that's how it looked like initially. Jack placed all his bets getting a tip from a message board. Since market turned south, jack started to loose money. The first trade that he lost on is worth mentioning. This is what a typical trader goes through in his/her early days. Jack bought stock ABC at $20. He saw that immediately after he bought the stock, it went up. He was on an all time high again. Next day the market was weak, ABC ended the day at 19.20. Jack thought, ah, this is one of those days. Hopefully it will go back up the following day. To Jack's dismay, the next and the next days were nothing more than painful. The stock kept going down. Jack was already at a loss of over $3 now. He thought to himself, there is No point in selling it now since i am already at a loss. Let me wait and see if the market turns back up and i can at least recoup some of the losses.

Unfortunately, ABC ended the day a few days later at $14.50. Jack lost his patience and sold off all of his position at a whopping loss of over $5. He thought to himself, i will never trade again. He was so angry at himself, because he lost his money. To add to his already unfortunate story, ABC traded at around $17 in a couple of days after Jack sold his position. Jack was furious. He thought let me take Revenge on the market and he started to place bets recklessly. He kept loosing money and was unable to control his anger and wanted to a) Take revenge and get back all of his lost money b) Make money as he used to do earlier. Sadly, Jack, realized that you cannot beat the market and that your anger destroys none but only you.

Morale of this story that i got from it was that One should always remember that you can win Only if you participate in the market. If you place your bets with an attitude to beat the market or with a grudge/anger, the only person who looses is, you. If you are in such a situation, then it is Strongly advisable to "Stop trading" for a while. Take a break. And come back with a relaxed attitude. Do Not let your previous bad experiences haunt you.

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