The Kiasu Trader

Traders always want to be the first to enter a rally and the first to exit a plunge. How many can accurately detect the peaks and troughs? How many tried and failed miserably? Lets take a look at the typical Kiasu Trader.

Kiasu Traders do intensive research trying to predict the future. After reading and hearing so many recommandations, they hastily take a big position in a prospective counter. Greedy ones will put all their savings into that counter, thinking "if i am going to make a profit, why not make it a big one?". After entering, they sit and wait anxiously for the rally to appear. Days passed, many other counters rallied as good news appear. This is the time when smart traders appear, entering and taking profit within the waves. Kiasu Traders can only stare blankly as all their funds are locked.

After a long wait, Kiasu's counter really rallied. It was a BIG wave. He got excited at the huge inflow and expected more to come. Week by week, the counter reached new highs. Mr Kiasu got emotional and greed took control. 6 months later, he becamed a millionair with no realised profits but only paper gains. He started borrowing funds and added on to his position to create a leveraged effect.

1 month later, bad news caught him by surprise. The counter plunged. He refuses to cut loss thinking a rebound will follow up tomorrow. Day by day, the price fell lower. This is called the incremental effect. It makes a trader perceive his losses as incremental amounts instead of total losses since the plunge. By end of the month, the counter reached a 1 year low. Only then did Mr Kiasu realised the loss is eating into his initial capital. He is losing his savings and those borrowed funds are disappearing quickly. Stunned by fear and the sudden change in position from a millionair to a near bankrupt person, he did not know what to do. He lived every second with extreme emotional distress. Finally, he accepted the fact and sold off all positions in the counter.
He had to sell off his car and downgrade from a condominium to a 3 room HDB appartment in order to repay his debts.

Traders tend to be irrational when they get emotionally involved. Worst is when they become greedy. Always set aside rules to follow to prevent such disaster from occuring. Some symtoms of emotional disturbances are over-confidence, over-leveraging, reluctant to cut loss and anchoring to past perceptions. Be disciplined and enjoy your journey.