Trade Calm · Chapter 4
The Twelve Saboteurs
The twelve cognitive biases that quietly damage trading accounts, drawn as named characters so they are easier to catch in real time. The chapter covers distortions like confirmation, recency, loss aversion, and sunk cost, and shows how naming a saboteur as it appears is the first step to disarming it.
From the chapter
Cognitive biases as people you've been letting trade your account. Meet them, name them, fire the worst ones.
A trader I'll call Priya, who has agreed to let me describe her Tuesday afternoon if I change the ticker, sat down for the second session of her trading day at 1:00 PM Eastern. She'd had a flat morning. One small winner, one small loser, a net result of plus eleven dollars after fees. She was, by her own honest admission, bored.
At 1:14 PM, she opened the chart for a stock she'd traded successfully twice the previous week. The first thing she noticed was the price: $84.20. Her brain went, immediately, to the level it had bought at the previous Friday: $82.15. That was a great entry, her brain said. I should have held longer.
This was Saboteur #1, and it took less than a second.
At 1:18 PM, the stock pulled back to $83.90. Priya started building a case for going long. She noticed: a slight uptick in volume on the pullback (bullish, she thought), the stock holding above its morning VWAP (bullish), her own previous success on the name (bullish), and a comment from a trader she follows on Twitter from earlier in the day saying he liked it (bullish). She did not notice: the broader market was rolling over, the stock had already run 6% in the morning, the volume profile showed selling into strength, and her own trading plan for the day did not include this ticker.
This was Saboteur #2.
At 1:22 PM, she took the trade. Long 200 shares at $84.05. Stop at $83.40. Target $85.00. As she clicked, she felt a small surge of confidence, the kind that is indistinguishable from the surge she felt before her two winners on this name the previous week. I've got this stock figured out, she thought.
This was Saboteur #3.
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