We broke a lot of rules on the TVIX trade. Rule number 1: Don't ever "paint" yourself into the ultimate trader's mistake - "The Intellectual Trap". We will get back to the mistakes that led us into this death trap.
An "Intellectual Trap" defined: Trader's by definition fall into the group of highly competetive individuals who consider themselves (right or wrong) extremely intelligent. An "Intellectual Trap" develops when the trader thinks him/her-self far superior than the market. They just "know" that they are right and everyone else is wrong. They can't believe how dumb the market is! They get angry when their trade is losing. Wrong way Charlie! An excellent trader knows that it is not how smart they are; it is the ability to read when the crowd will see what they see. They may be spot on; however, being early can kill your capital. This is why trading the markets has caused many very smart traders everything. It drove them mad. The "Trap" comes when you are so convinced that you are right and your theory is so brilliant that you are subconciously willing to go down with the ship (and so does your capital)!
The Rules:
1. Never go down with the ship! Who cares if you were wrong. The goal is not to be the smartest person in the room; the goal is to make the most money. Socrates said: All that I know, is that I know nothing. A smart man. Surrender the ego.
2. Always use stop losses. These protecd you from yourself.
3. Just when you think you have it all figured out is when you are the most vulnerable.
4. Never, Ever....paint yourslef into a corner.
More to follow..........
