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Overconfidence

When traders are "hot" and seemingly cannot lose, when they make several trades that perform exceedingly well, there is a surge of human pride. They feel like the pitcher who strikes out the other side for all nine innings of baseball. They feel invincible, brilliant, and like "master traders," to say the least. When a trader feels like that, he thinks he can do no wrong and make no mistakes. He comes to believe, and to even say to himself, "Risk, I can handle it! I make such insightful decisions I'm not even worried about risk." 

The brilliant trader feels he is invulnerable. The truth is at that very moment the trader is extremely vulnerable. He could be headed for a fall. He forgets that most performances eventually revert to the average. If you chart the equity in your trading account, and it shows your equity going up parabolically, look out below!


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Sunday, 21 April 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.