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Posts Tagged ‘ treasuries ’

I’m not perfect, but then you’ve probably already deduced that. I thought I’d share some experiences with you to show how when people abandon their plan it can be demonstrative of the worst kind of psychological trading problems. These are exactly the kind of things that kill you when you’re making a trade — You enter into your position with a plan and then you decide something has “changed things,” so you abort the plan. In the end you always pay the price for this kind of behavior.

2009 has gotten me this way a couple of times. The problem is that I genuinely believe we’re in circumstances unlike any we’ve seen before.  This causes me to “rethink” things far too often for my own good.  Here’s a typical example of what I’ve done a couple of times.  I decided at one point to go long TLT (Long Term Treasuries) as a hedge against some other positions.  I sold a call off the position as well to limit my downside.  The plan was if the trade moved the other way I would double up the position to increase my exposure and even out the hedge.

So of course TLT has a huge downward move, much larger than I expected.  I start thinking about the economy and I get worried and I decide just to let my current position ride instead of doubling up.  Of course TLT recovers part of the way.  Had I doubled up my position as I had planned when I entered the position, that trade would have become a neutral one.  Instead it was quite a loser and offset the gain in the position it was hedging.
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