A Dangerous Temptation

Personally speaking, some days during day trading I have this incredible urge to make a trade in the opposite direction of the trend. The thinking ( or the emotion) behind this goes like this: The market has gone up say 150 points already; how much higher can it go? So, you short the market with a very tight stop loss ( very tight because your know that if the highest point is taken out, it can go much higher). Alas, your stock loss is hit, but the market does not go zooming higher immediately, and it retraces a bit. So you think that your decision to short was right but the timing was a bit early. So you do it again. And again the trade is a loss!


Here are the actual trades - ALL SHORT sales - from May 29 ( taking into account 3pts for commission per trade) :

Bought	Sold		Profit	Loss
4453.9	4449.1			(8)
4481.85	4477			(8)
4489	4485.5			(6)
4483.35	4484.1			(2)
4467.4	4481.1		11

Notice the last trade was profitable. And it had the potential to make more money. But I closed it a bit early. Why? Because I was afraid to lose money again after four losses.

Actually, I estimate that the probability of profits from such trades ( going against a main trend ) is perhaps 1 in 20. In other words, you can lose 190 points in 19 trades ( assume that average loss is 10 points)., and you gain may be 50 points in ONE winning trade. Net loss 140 points!!!!

What is the moral? Trading against a major trend is dangerous. It is very tempting, but the temptation is likely to lead to heavy loss on that day.