“Trader Tilt” – it can strike when you least expect!

by Forex Trading-Pips

“Trader Tilt” – it can strike when you least expect! Update by Abby Tsype of eToro: 

As we say time and time again, keeping your emotions in check is probably the number one key requirement for successful financial trading. However, as you probably already know, it’s also the hardest one to accomplish on a daily basis.

Having a good strategy is sufficient when the markets turn in your favor, but when they turn against you, no good strategy will hold up unless you have the nerves of steel necessary to stick to it.

It is when your emotions take over that you stray from your strategy line and start making impulsive decisions which will inevitably drive a good portion of your account into the ground.

This is what is known as “Trader Tilt”. 

Flying businessman

Tilt is originally a term derived from the game of pinball, in reference to when the players shake the pinball table too hard which makes the flippers lock up and the player therefore no longer has any control of the ball.

It has been used extensively in Poker to describe a state in which the poker player, exasperated by bad cards and bad luck, starts making rash and excessive bets and eventually loses everything. You can see how this applies to financial traders as well.

How do you know when you’re on tilt?

In trading, tilt usually occurs when the investor isn’t willing to accept that the trend has turned against him/her. The trader will rationalize that the change in market direction is only a minor retracement, which then leads him/her to double up on the initial bad investment by opening even larger and higher risk trades in the same direction in order to make up for losses and gain even more when the trend eventually corrects itself.

Of course, the trend has no obligation to obey your initial predictions, and most of the time you will find yourself trading aggressively against the trend. If you’re using high leverage, these kinds of trades can wipe out your account in no time.

How to avoid going on tilt?

As with most things in life, the most important step towards solving the problem is recognizing that there is a problem. If you learn to recognize that you’re on tilt you will know that it’s time to check your emotions and avoid making any rash decisions.

Once you catch yourself going into tilt behavior patterns, probably the best thing you can possibly do is simply step away from the computer or your mobile device and avoid trading all together.

Consider closing your initial losing trade in order to avoid further losses, or setting a stop loss really close to the current rate. Sometimes it’s better to absorb that minor loss and avoid going on tilt, than continue to invest against the market direction.

Is there such a thing as “Social Trader Tilt”?

Absolutely. Just because your money is invested in other traders as opposed to traditional market instruments, doesn’t mean that you can monitor your investments without emotion. For one thing, many traders are tempted to duplicate copied trades with bigger investment amounts and/or higher risk.

This is a big no no, as it skews the risk reward ratio initially calculated by the trader you’re copying. You can read more about the consequences of this kind of strategy in this blog post.

Another thing you can do to avoid social trader tilt is to look out for tilting behavior among your copied traders. The beauty of the CopyTrader system is that you can benefit from others’ insights, but you also retain the control to correct their mistakes. Even the most successful or popular investors on the eToro network aren’t infallible and it’s up to you to catch their mistakes.

So if you see a trader you’re copying frantically doubling up on investments against the trend, consider disconnecting these trades by setting their stop loss rather close to the current rate. If the trend turns you will still make profits, if the trend continues against these positions you will minimize your losses.

If you see a trader going on tilt, you should seriously consider stopping copying them to avoid the risk.

I wish you a successful and tilt-free trading week!

If you have trader tilt stories you’d like to share, this is the time and place to do it! Share your experiences in the comments.