Creating anchor points after breaking rules.

I have talked a few more times with the trader from the weekend email.

…it was a mixture of “I know I am right” and “F.. it, I don’t care”… the paradox is that with this second trade I entered an even tighter stop than I would normally, almost as if to protect myself despite everything. Of course I got stopped out quickly again and that was when I hit the wall. I drove off, and when I came back I looked at the chart only to see that the marked had turned as if to completely ridicule my impulsive trading.

An important distinction you must make when looking at your mistakes is; did you know it while it was happening or after? They are two different problems. One is a knowledge deficiency and one is a discipline deficiency. I am worried about his comment “ridicule my impulsive trading”, that can be dangerous. It creates an anchor point.

Anchor points are not always bad but has to be based on your action and not the loss. Obviously, much easier to see a violation of your rules when you lose. This trader will remember this point, at least temporarily. Hopefully it is a reminder not to do things he wouldn’t “normally do”. He let one mistake, losing more than normal, become two, not trading how he normally would. Thinking the market is out to get you only the times you lose is a fallacy. The market is always out to get you, no matter what. Do not get caught up in an emotional battle with the market. It will win.

Once you create an anchor point in your mind, it is your responsibility to create a plan. If you do not, you will repeat it or have to make a decision instead of a reaction. This decision usually comes when you are least equipped to make it. When it appears to be the “right” action, usually in the form of a winning trade you are not in, you will have to start all over. The anchor point is subject to recency effect. You should be spending more times creating, revisiting your plan than executing it. Creating and revision is not a substitute for action, it is a necessary pre-requisite.

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