BarroMetrics Views: ‘Ebb Phase: Effects and Strategies’
It’s happening - my mail box devoted mainly to advertisements, is full of ads for infallible systems! The ads are getting better - they no longer just talk about win rates and profits; they also talk about loss rates and losses. Now what can be fairer, right? An ‘iron clad guarantee, and the data to determine the expectancy return - it’s gotta be kosher, right?’
Hmm…
I have to say there are times when I allow the ads to get under the skin - usually when I have just witnessed some trader blow his account following the ’system’ or when I am in an ‘ebb stage’ and subconsciously wishing my troubles could be bought off ‘if only I had the right method’.
Sometimes the purveyors of the rubbish are genuine souls who just don’t know any better; other times they are just amoral - like the Singapore educator who believed it was OK to hold himself out having attained a PhD when all he did was buy the degree.
When asked by the press why he did that, he replied it helped him sell courses. He reminds of an Australian educator of yesteryear that took the view that since the student would lose money to the markets anyway, he may as well lose it to the educator.
But whether you buy from a ‘genuine, naive soul’ or buy from ‘an amoral vendor’, the results will be the same - you lose your hard-earned money. For, no matter how good the system is, at some point they fail - at least for a time and sometimes for a long time, even if the duration is only a matter of our perception. Do you notice how time seems to slow down when in a drawdown?
The fact is unless you have prepared for it, an ebb stage has the capacity to do untold damage to our psychological, emotional and financial capital:
- Psychologically we begin to doubt ourselves.
- Our emotions, instead of being the partner of our reason to better decisions, become the enemy: fear or flight (hesitation) lead us and as a result…..
- …..an already difficult financial position becomes a threatening one.
Hence the need to prepare. Be ready, over-learn the process so that when it does occur, you react automatically. Like when I played A grade squash, I prepared for those days when my normally attacking style would be off enough so that I’d lose points rather than win them. I shifted to a defensive game: wall-hugging rallies until I got into the rhythm. Sometimes the change in style alone turned the game.
So too with your trading, shift into a defensive mode. In this regard, there are a number of things we can do:
- The most important is to accept that we are in an ebb stage and that we may be in one for some time.
- We can forget about the markets for a day or two, more if need be.
- We can reduce our position size - resist that little voice that says ‘once you do that, your profits will return’. Wait for clear evidence that the corner has turned before restoring to our normal size.
- Continue doing the simple things that brought us success:
- Maintain our journals
- Perform our analysis
- Visualize the trade’s tactics before putting on the trade
- Consider our stop, target and position size for the trade etc…
What tends to happen in an ebb stage is we add to our woes by letting our discipline slip; and we let it slip at a time when it is most needed. Remember that while it may not feel good, the ebb phase too shall pass; in so doing, it will be replaced eventually by the flow stage. Just as we could do little right in the ebb phase, in the flow stage, we can do no wrong. We only need survive the ebb to reap the benefits of the flow.
Refer this blog post to a friend or colleague…
