In Greek Mythology Icarus is the son of the master craftsman Daedalus. Icarus and his father attempt to escape from Crete by means of wings that his father constructed from feathers and wax. Icarus’ father warns him first of complacency and then of Hubris (extreme pride, over confidence…being out of touch with reality) asking that he fly neither too low nor too high, because the sea’s dampness would clog his wings or the sun’s heat would melt his wings.
Icarus ignored these instructions not to fly too close to the sun, and the melting wax caused him to fall into the sea where he drowned.
So how is the Icarus story relevant to trading? Complacency, over confidence and being out of touch with reality is common in the retail trading world. This can manifest itself in the form of over trading (among other things), which will kill your trading account or put it on life support.
- Chasing losses (hurt pride & ego)
Many traders can’t take their medicine when a trade goes wrong. They are overwhelmed with hurt pride and a damaged ego. It’s called going on TILT in the poker world. Discipline is lost; revenge against the market kicks in and reckless behavior follows. Chasing losses never turns out well.
Remember, the top traders in the world have some bad trades. The difference is they don’t flip their lids and force their trading after taking a hit. They understand that this is part of the game. They don’t get emotional about these losing trades (or about the winners either) but take it on the chin and use their patience and discipline to wait for the next high probability trade set up before taking further action.
- Boredom trading (complacency)
Many full time traders stare at the screens for over 10 hours a day and get it into their heads that if they are not clicking buttons and opening and closing positions they are not working. They start over trading: opening positions which are more on a par with coin flipping rather than holding fire and waiting for the high probability trade set-ups to develop.
Pro’s trade far less than most retail traders and don’t do a huge amount of screen time. If your bored, walk the dog, do some trade research or get a new hobby but don’t trade in random market conditions. Coin flipping is not a strategy. The Top Pros I know do 10-15 trades max per week. That’s it. They are not fixated on the screens. If you are a part timer you want to be looking at about 2-3 per week.
- Setting unrealistic targets (being out of touch with reality)
George Soros, considered one of the greatest investors/traders in the world generated a 22% annual return for investors in 2013. Some traders aim to achieve the Soros return on a weekly basis. Setting unrealistic targets will encourage you to over trade and make poor trading decisions.
A day trader making 20%-40% per annum on a consistent basis is one to be applauded if their risk is tightly control in achieving these types of returns.
Pros don’t set unrealistic targets. They make good trading decisions win or lose, have a solid risk management strategy and let the profits look after themselves.
If you want to succeed in this game be the steady, safe, disciplined trader. If you get complacent, let you ego run riot and set the bar too high you will fly too close to the sun and kill your trading account in the process. Don’t be an Icarus Trader!