A trader I met approached me with the following problem. He was having an exceptionally good day, an excellent day in fact. As luck would have it, he entered a large position at the beginning of the day (day trader) and due to the terrorist attack the market fell dramatically.
There are only three or four days a year with such huge movements.
He had a position for a few minutes when suddenly the market took off and within a short time he was several hundred pips in profit. The typical trade he had was usually 8-10 pips. That day he made well over a thousand.
His personal account, already quite large (for him), increased several times. He was shocked. He had never experienced anything like this before. However, the next day a problem arose. The problem became very serious. My colleague could not enter the market at all! He was simply not able to. It did not help to reduce the position to the minimum allowed by the broker. A position several hundred times smaller than usual caused a lot of stress. After a few days of such an ordeal he came to me.
Then I saw for the first time that not only a big loss can destabilize the psyche, but a large, surprising, unexpected profit can have a similar effect. My colleague admitted that when he saw what was happening on the market he was shocked, he could not understand the situation for a long time, he thought it was some kind of mistake. Only after reading the news did he realize that it was not.
Trauma can be caused by a very strong, unexpected experience like a huge loss or… profit.
Trauma is not an option, even the toughest and most experienced traders are exposed to this risk. Even if they secretly wish for such an event, when it comes the effects can be very far from expected.
My colleague lost his confidence, the certainty of market behavior disappeared, what happened far exceeded his emotional capacity.
Some time later I found a similar story (surely there are more), described by a well-known coach. Another trader (super-trader) made close to a billion in one day, after which he didn’t even go near his office for months, unable to cross the threshold.
What I described are extreme cases. I also wrote that the best are free from this. This is not entirely true, as evidenced by the example of the billionaire trader. The best traders in the City are certainly free from a slightly different effect - profits and losses do not influence their subsequent decisions. This is called in the industry “path independence” which means that regardless of whether they followed the path of profits or losses - their decision-making process is always the same.
This is a colossally important issue, most traders are not able to shake off, calm down and get rid of the influence of previous profits and losses on their decision making process.
Both of the stories I described above have a happy ending. The billionaire is still in the market, I was dedicated to helping my colleague and within two days all negative effects disappeared never to return (I checked every month thereafter).
Cheers from sunny London!