Saturday, October 31, 2009

The Dangers of Going on Tilt

One of the most self-defeating attitudes I've found among some traders is that it is somehow competitive and even desirable to "go on tilt". My experience is that traders on tilt are frustrated; they fight market movement and overtrade out of emotions. In fact, I can't think of a time when I've seen a trader on tilt actually trade well and make significant money. It always ends badly.

That is very different from being motivated and psyched up. The motivated trader is responding to anticipation: the expectation that comes from seeing markets well and looking forward to taking advantage of that vision. The trader on tilt is simply frustrated by prior events. Tilt is the epitome of being reactive, not proactive in outlook.

If you doubt that tilt is an undesirable state, imagine yourself as a patient in an operating room. Your surgeon has begun the prep for your surgery. With each successful step, he pumps his fist and yells out. When a portion of the preparation doesn't go well, he loudly curses, throws his surgical instruments, and yells at the OR staff.

Is that the surgeon you want for your procedure?

You get the point: consummate professionals don't go on tilt. Ever. Not in the operating room. Not in the cockpit of a plane. Not on the battlefield leading troops. Not anywhere there is significant risk. Professionalism means staying task focused and dealing with powerful emotional responses later.

After all, would you turn your money over to a money manager who swung high and low, hot and cold, with each gain and loss in your portfolio? So why manage your own money that way?