Burnout

There's a video game called 'Burnout' where the object is to race at incredible speed around a track, smash into as many other cars from the rear as possible, avoid crashes but smash up other players, but generally avoid going up in smoke yourself as much as possible.

At the end of last week Flash sat down and did a fairly systematic analysis of all of his recent trades. He made the following observations:

- a tendency to panic when the market gets really volatile and cut or destroy even the winning positions
- a tendency to get very nervous when he hits a negative balance or things appear not to be working, even when the longer term logic of the trade remains intact
- a tendency to take profits way too soon and not to let really winning positions run their course
- some really shrewd trades which because of anxiety, nervousness and neurosis he didn't get anything like the maximum value from.

All perfectly usual behaviours for the novice trader. And at least he hasn't completely imploded.

Now it strikes Flash Rabbit that much of his recent trading has been a bit like the video game 'Burnout'. He's been dodging in and out of positions, racing round, switching in and out of different markets, sectors and indices very fast, and generally overdoing all of the trading. In some ways he shouldn't be complaining. He's way up - he's tripled his initial capital - but the burnout syndrome has meant that he's also destroyed perfectly good positions when he's hit greasy patches of volatility. He's also burned up quite a bit of money on the way - for example, early this morning he cut half his dow longs for smallish losses, waited ten minutes, then changed his mind and put them back on again, only to return to find them destroyed when he got home. Had he left everything alone - the stops, set in the upper 13000s, were perfectly wide enough - he would be several hundred pounds richer. As for the gold trade - he's done really well on that but if he'd just left most of the shorts alone he would have been up fivefold by now.

So for the next few weeks he's going to try a different approach. He's kept everything in place but has widened the margin on as many of his positions as he can afford. He is going to run this set-up without chopping in and out, unless there is some almighty catastrophe that causes him to revise his view. He may add a little more risk if he feels the market is moving in a direction he likes, but basically he's going to keep everything calm and simple. This is partly expediency - he's back at work full time and doesn't have time to watch the screen - but it's partly also a result of experience. And - extending the automotive theme a little - he's put a couple of tiddling long positions on General Motors and Ford.

And Crocs went up by 15% today, Woolworths by 10%. Now that's not bad.