This content was created by Alberto Costa. This content was uploaded by Alberto Costa. This is a YouTube video titled "What goes up..." created on April 1, 2019, discussing the impact of emotions on trading decisions, using an example of an ETF in Palladium to illustrate how deviating from a trading system can lead to significant losses.
What goes up must come down. That's the topic of this video. Hi, welcome again. And today I want to show you a very interesting example in my opinion, of how emotions may affect our trading and how we may end up taking decisions that are not really following our system. The chart you are seeing here is an ETF struck in Palladium. And if you look here at the chart you will see that there was a very nice uptrend starting last year in August, September and then it was going up, up, up, up. Now if you are a trend following trader, you may buy here when, when there is a dip on the uptrend. And of course you need to use your position sizing and follow your system. But what many people will do looking at a chart like that would be something like this. The price is going up so much, people are making a lot of money. I should enter now. That's the kind of reasoning that many people may do. And if you go back, say that you are here and then you see the price going up like that and then you say okay, but my system is not telling me to enter now. And you wait and then you see that the price is going even higher and then you start to wonder maybe I should have entered. And then you wait a little more and you see the price going even higher. And then at this point when the price is very high, what is going to happen? You will say okay, you know what, I don't care about my system. I don't care about what I should do. I want to enter because if I did when I look at the chart before, I would have made money. And I think many of us had this kind of reasoning at some point. Now what is the problem? Sometimes you may be lucky and it may go well, sometimes no. And what I want to show you with this ETF is what happened after this high. So suppose you enter here, you don't care about your system, position sizing, nothing at all. You just enter because you feel it will go up forever. But as we say at the beginning, what goes up must come down. And sure enough, what happened after another high was this big drop that is quite scary from this high of around 152 in how many 1, 2, 3, 4, 5 trading days the price end up at under 26. And we can check, we can check here with this tool I'm using the TradingView platform that is free. We can check. Yes, you see here it was a 17 more than 17% drop in five days. So imagine you enter around here or around here when the price was very high when the price was overextended and you didn't follow your system and then what happened? You go the price will go down and you lose a lot of money. So what's the key lesson here? I would say the main message to take from this experience is the following. You should not enter a trade just because you feel the price is going up just because you're afraid of missing an opportunity. Even if you miss an opportunity it's fine tomorrow there may be others but you should also remember this what you may miss in terms of gain is only one side of the coin because you have also to consider what you may lose if things are not going well like in this case. So remember, always follow your system because it's very easy to let emotion affect our trading and as a consequence the performance will be affected. And with that I would like to thank you for watching. And remember again what goes up must come down.
