The Bohica Effect

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My good friend Jim had been a Globex trader for about 18 months before I met him. He lives in the US and had been employed as a senior ranking officer in the US Marines for many years. He gave active service during a couple of internationally famous wars and had been right in the middle of heavy fighting and loss of life. He had personally seen the worst of war and had come through some very difficult missions unscathed and emotionally and mentally intact, given the circumstances.

Jim had been married for eight years, had three boys and lived with his family in a comfortable area of the US. For whatever reason, his wife started seeing someone else and Jim was quite understandably devastated by the circumstances. Being a generous and kindly person he attempted to work through the divorce as amiably as possible giving his children the type of stability that he knew they deserved. On the proceeds from the divorce he opened up a small factory and supervised a number of staff. Though Jim was excellent at managing the soldiers under his command (I gained the impression that he was popular with them), he had difficulties in the business environment. It was clear to me that he did not like managing staff and that there were problems though he did not reveal the nature of the difficulties. He decided to sell the business and did so at a small profit to the original purchase. He used the capital to commence his trading business.

Jim was committed to learning to trade and attended numerous courses, which is where we met. His wry comments and sense of humour endeared him to everyone and, moreover, he was good company. Under the humorous, compassionate, and intelligent facade was a lonely and unhappy person. He had been prescribed antidepressants (Prozac) for about 10 months and it became obvious that the divorce had taken its toll. His loss of self-esteem regarding his wife and another man and pain of separation from his children had not dampened his perspicacious humour. He described the BOHICA effect to me. Whenever senior officers in the Marines gave an unpleasant order or had made a decision that would place Jim and his men under some duress or potential risk, they had their secret code. They simply said "BOHICA" to each other which meant "bend over here it comes again".

Jim described BOHICA to me within the context of stock index futures trading and kept on saying that he could not understand how it was that traders could make money at this "game". He had a couple of friends who were competent traders and he was on the phone to them regularly, but for some reason he could not replicate their success. He lived in a comfortable house, in a pleasant area, but he was on his own and I could tell that the solitude of trading was at odds with his previous experience of managing staff and commanding soldiers. One year I flew over to spend a week with him trading to see if we could share and exchange any mutual ideas. At that time he was more experienced than me and he was always willing to give good advice on technical analysis. Jim found it very difficult to accept losses as part of successful trading and I found this somewhat surprising given the action he had seen in a recent war. He was risk aversive in the realm of profits, exhibiting hesitancy in entry, early profit taking, and placing stops which in my opinion were too tight. With other aspects of his life being less than optimal, it appeared to me that his continuous losses had to do with fear of loss, so to prevent loss he closed losing and winning positions prematurely, which had the effect of increasing his loss. The loss cycle was complete - he had attracted into his life what he feared most.

We discussed Martin Seligman and the model of learned helplessness and Jim identified strongly with some of the cases I described to him. Having returned to England I kept in touch by email and telephone and was glad to hear that Jim had made a decision about his trading. He had decided that futures day trading was not for him and that a full-time job where he could be involved with people on a regular basis was more appropriate. Jim is currently studying and will take exams to become a commodity trading adviser (CTA). Following two years of day trading he tells me he has not seen concrete evidence of anybody making money day trading and admitted that he had lost many thousands which he probably would never recover. In his usual ebullient and inimitable style he told me that he was going to recommend to each of his clients that they steer clear of day trading. As a CTA he intended to advise them to take $50000 in $1 notes up to the roof of a tall building and start throwing handfuls out to the public below. He stated that the activity would be much more fun than trading and "hell, who knows, you might even make a few friends!" I admire Jim greatly because he tried to do something different with his life and was not prepared to live a life of quiet desperation.

It is clear to me that the reason for Jim's lack of success in trading was directly as a result of self-sabotage. He did not have a written trading plan, or a trading diary to enable him to spot patterns of behaviour that recurred. In addition, his understanding of risk made him overcautious thereby cutting both his winners and losers short.

I am convinced that structure and planning in the way that I have outlined in Chapter 8 would have helped Jim tremendously though of course nothing can guarantee success in trading.

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