The soul of the trader

22 May 2007

Cutting back during a losing streak is the single most important thing every trader must learn for his annual report card to post healthy results, says Mumbai-based investment consultant, Vijay L Bhambwani.

I was interacting with a website visitor recently and he was quite flabbergasted by the unfailing efficiency of the markets in inflicting losses on him. He was touting the conspiracy theory… everyone was out to get him… the brokers… the media… the analysts… the television anchors and even his neighbours who disturbed him every time he tried to concentrate on his trading, causing him to make errors of judgement.

In the course of a detailed discussion on his trading blueprint I pointed out to him a colossal mistake he was making — he did not learn how to scale down his trades when the markets proved him wrong. Nor did he scale up when he was on a "winning streak". He showed the streak of a losing gambler desperate to "recover his losses" in a wild shot move so he could walk away from the table.

Not long ago, he called… to thank me for the advice. He had made a psychological adjustment, not just a financial one.

Having learnt the ropes of the game in the old world style, the following tale is a fitting narration of how a trader behaves in good and bad times:

A hermit and his disciple went around a village everyday asking for food. The alms they collected had to be consumed the same day and the leftovers distributed among the needy, to overcome the hoarding instinct. The food was collected in a small cotton cloth that the hermits used to cover their heads with, which would be knotted loosely and hung on a nail on the wall of the hermitage.