Tuesday, January 11, 2011

To the pain

Position trading is a test of how much pain you can tolerate.  No mater what your time frame for your trades there will be tests of your resolve. Even when you have a considerable lead, the market will retrace at some point.  I have found that the markets go to your pain spots.

I believe that the markets job is to screw people out of there money.  One of my favorite movies is the Princess Bride and there is a line in that movie that sums up my feelings on this issue.

Humperdinck: First things first, to the death.
Westley: No. To the pain.
Humperdinck: I don't think I'm quite familiar with that phrase.
Westley: I'll explain and I'll use small words so that you'll be sure to understand, you warthog-faced buffoon.
Humperdinck: That may be the first time in my life a man has dared insult me.
Westley: It won't be the last. "To the pain" means the first thing you lose will be your feet, below the ankles, then your hands at the wrists. Next, your nose.
Humperdinck: [losing his patience] And then my tongue, I suppose. I killed you too quickly the last time, a mistake I don't mean to duplicate tonight.
Westley: I wasn't finished! The next thing you lose will be your left eye, followed by your right —
Humperdinck: [exasperated] And then my ears. I understand! Let's get on with it —
Westley: WRONG! Your ears you keep, and I'll tell you why. So that every shriek of every child at seeing your hideousness will be yours to cherish. Every babe that weeps at your approach, every woman who cries out, "Dear God, what is that thing?" will echo in your perfect ears. That is what "to the pain" means. It means I leave you in anguish, wallowing in freakish misery forever.
Humperdinck: I think you're bluffing.
Westley: It's possible, Pig, I might be bluffing. It's conceivable, you miserable, vomitous mass, that I'm only lying here because I lack the strength to stand. But, then again... perhaps I have the strength after all.
For all the trades I have made in my career, there is a point in each one where I question my thesis. Its this pain that forces traders to except losses in order to save themselves from larger losses.  Its the I can't take it any longer moments that present the best opportunities for trades.  However if you are sitting with either a loss on the original trade or a lesser profit, most people myself included can't participate at that point.  I  am currently experiencing one of those today in the Euro currency.  I initiated a trade on the short side today at 129.19 with a profit target considerably lower but the second I put on the trade on I was presented with a to the pain moment. The market reversed all the way up to my pain spot around 130.
Time will tell if my thesis is correct but those lingering emotions of pain are not enjoyable to say the least.

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