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Sage Advice to Overcome a Crippling Behavioural Bias

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In the snapshot below you will see the trading performance of my testing account. The account is more than a year old and until May this year I had traded it pretty sensibly, albeit unprofitably. Then things started getting a bit hairy.

My drawdowns have grown along with my position sizing, PsyQuation has done everything it is meant to do, short of telling me to stop trading. As one of the chief architects of this alert system and someone who knows a bit about trader psychology and money management I have found myself stuck and irrationally continuing to trade recklessly. It has been bothering me that I am seemingly powerless to stop my bad trading behaviour.

In a webinar I have given a number of times I speak about Sage Advice I give to people whose account is in large drawdown. I realise now that the Sage Advice is incomplete.

Sage Advice Ver.01  = Start A New Account

I felt pretty damn smug with this advice as its so obvious. Instead of confronting your failings every time you open your account and invoking all the psychological defences we have been blessed with. Start a new account and wipe the slate clean. This way you have an opportunity learn from your mistakes instead of living by your mistakes.

This week I decided to really think through why I am consistently ignoring my own sage advice. The reason lies within our psychological makeup. When experiencing cognitive dissonance we often don’t have the energy to take action that requires a little bit of effort.

For me personally, I don’t really want to go through the effort of opening a new account, it seems like a major effort even if it isn’t really. So I am about to provide you with an updated version of my Sage Advice.

Sage Advice Ver.02  = Let PsyQuation Reset Your Account Start Date

So how is this going to work?

We have an alert called “Trade Size – Alert” which identifies when your position sizing behaviour drifts from when in normal drawdown limits. What will now happen is you will get offered the option for your PsyQuation account start date to be reset giving you a fresh start.

Of course you will loose your account performance history which is small price to pay if your trading performance going forward improves. Here is my amateur version of explaining this in a video blog.

 

 

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