If I had traded HSI/HHI that morning with a "I could sense that it is coming" mentality, I would have avoided the big loss.
Whenever I have that feeling which to you is a losing mentality, I either do not trade at all or trade very small, focussing my thoughts on getting out, not adding. I make very little profits or none at all whenever I trade with this mentality.
I have never suffered big daily losses when I trade with a losing mentality. I usually lose a few hundred or make a few hundred.
It is when I trade wanting to win badly or confident that the market will not move excessively against my directional view, without thinking about losing, that I can get into deep trouble.
Thinking that one cannot lose big or lose all is a disrespect for the markets, now the other way round.
Last edited by JacLau; April 12th, 2015 at 09:53 PM.
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Hi Ron99, thanks for speaking up for me, but I guess I should have been wiser with my choice of words as well.
Anyway, it was out of concern for Jac that I wrote that post, so it did not come across as hateful to me, until I re-read my post a few more times.
Maybe "emotional pain" would have been a better choice of words, as that was how I felt about his post (and still feel) about my own blown-ups. Again, it was never my intention to offend Jac or spite him in any way.
Still, I should not have jumped into conclusions as Jac's subsequent posts reflect his actual thought processes.
And Yukoner and others are giving very good advice in this thread.
I'm ok being on Jac's ignore list (no offence taken).
Last edited by fourtiwinks; April 13th, 2015 at 12:53 AM.
On the subject of blowing up accounts.... I think we all need to never forget that inside of us at anytime is the ability to blow up our own account. OUR past performance is not indicative of future results.
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Why on earth are you going all in? I can see if you're going for asymmetric gains and scaling in, but you gotta be damn sure you have a high probability of being right. Even so, if you have a 80% chance of being right, what's not to say that 20% is going to hit? I forget where (maybe in the money management section) but "All In" is a gambling mentality; similar to a "go broke or go home" mentality where you are playing russian roulette with the markets.
I'm not one to tell you how to trade since I've had my share of blowups and do make mistakes often, but in reflection, all my blowups were never a slow bleeding account. They were all an "All In" moment or refusing to take a loss and averaging down losses hence, making it "all in" situation.
Nothing in life is to be feared, it is only to be understood. Now is the time that we understand more, so that we may fear less. - Marie Curie
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From the lessons learned from my past mistakes, my present trading mindset says I should go all in when I see the opportunity because:
1. it would help me make enough money to continue trading for a living,
2. it would help me avoid blowing my account as the other trader in me, for which I have no control, could take over and go all in, if I don't go all in first.
Going all in does not mean putting my entire trading account at risk. To me it is executing my trading strategy/plan with the maximum lots that I am allowed to trade, with the money that I have in my trading account.
Based on what I have left in my trading account (US$72,730), and the limits that I have set for the contracts that I trade, all in for me is 6 lots for HSI and 40 lots for NKD/NIY/SNI.
My main focus when I trade daily is the Nikkei 225 futures contract. I take HSI trades a few times a month, when I see opportunities for quick profit during the pre cash market opening trading period from 9.15 am to 9.30 am.
For the whole of last year, there is just one day that I went all in, holding 115 lots SNI (SGX Nikkei futures) short, unplanned, resulting in a S$47K loss.
I did not start the day with a plan to go all in. I liquidated all my shorts before the 10.30 am break. Holding the shorts to the 2.30 pm close would have wiped out my entire S$150K trading account.
My present Nikkei 225 trading strategy, when executed properly would cost me up to S$600 (5 ticks cut loss) on 4 lots (my usual daily position size) when I am wrong. Maximum profit potential is S$1.5K on 4 lots. Going all in with 40 lots would cost me S$6K if I execute my plan with a focus on getting out first if wrong.
If my Nikkei 225 trading strategy has a 80% chance of being right, I would attempt to go all in daily because I could make S$15K a day for 8 days and lose S$6K a day for 2 days.
My present strategy which is based on either a long or short bias for the day has a 50% chance of being right.
When I see an opportunity to take a trade or trades that has very high chances of winning, I want to go all in.
Last year there were 3 days where I see the opportunity to go all in for Nikkei 225. I went in with 20 lots, 43 lots and 12 lots and made S$6.3K, S$6K & S$4.7K respectively. In the past, when I take a large position, I have no contingency plans for getting out should I be wrong because I never thought I could be wrong on my "pay days".
Last edited by JacLau; April 18th, 2015 at 06:05 AM.
Thank you for providing that bit of info. In Reminiscences he already realised his own weaknesses and set up a trust to protect himself well, from himself. After the crash his net worth was apparently $100 million (thus we are assuming cash is worth 10x more today than in 1929). At the time of his death, the trusts and cash reportedly were worth $5 million (Jesse Lauriston Livermore - Wikipedia, the free encyclopedia - refer to the suicide section) which is $50 million today based on the previous assumption.
According to Paul Livermore (in Richard Smitten's book), Jesse's then wife Harriet, was packing suitcases full of cash and jewelry on the night of JL's death. Perhaps there was another million or so in there, putting his worth at $50 to perhaps $60 million. So even though he lost a lot in the markets, his way of life was not at risk.
Jesse Livermore also liked going all in, although he called it plunging. Even though he was bankrupt more than once, he is still regarded as one of the best traders, if not the best, of his era. Taking into consideration his skill and experience, don't you consider it scary that he declared bankruptcy as often as he did? Every trader should ask themselves what can be done to avoid a similar fate. Unfortunately the only real answer is trading smaller.
Several Market Wizards also lost big or declared bankruptcy.
Michael Marcus - squandered most of his earnings outside of trading;
Ed Seykota - declared bankruptcy after receiving bad tax advice and being in a deep drawdown;
Richard Dennis - flagship fund was closed in 1988 and his second fund was started in the 1990s and quickly closed;
Gary Bielfeldt - seems his trading method no longer worked;
Tom Baldwin - not sure how much of it was trading related and how much outside of trading.
When you see recognise that these are some of the best traders of their era, it should be rather scary. All of these traders, (except for maybe Bielfeldt - I can't recall) traded with huge leverage. Perhaps there is something to be learnt from that.
Besides trading with insane leverage and not abiding by reasonable stops, what other wisdom have you got from your own experience, to invite getting whacked?
Last edited by grausch; April 18th, 2015 at 04:42 PM.
Reason: fixed typos
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From my own experience, traders can "invite getting whacked" if they use maximum leverage to park working orders to scalp futures contract.
I used to park 8 or 16 lots at every bid and offer price to scalp "counter trend" for 1 tick profit on the SGX Nikkei 225 futures contract. I stayed awake until 2 am every trading day, to key in GTC orders right before the close to get in front of the queue.
I have stop using this scalping method to earn a living since early 2012 as it "invite getting whacked".
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You know, JacLau, this is always a tough one. The fact that you have been earning a living from your account is commendable. Should you change to a lower risk approach, then you run the risk of not making enough on the account to fund your lifestyle. Should you continue trading with high leverage, you run the risk of facing a larger than expected loss. It really is a tough situation to be in.
Should you wish, you could always read up on Mark Minervini. He achieved gains of 220% p.a. from 1995 to 1999. During that period, his worst quarter was just under -1%. If you read his interview in Stock Market Wizards, you will find he is extremely risk adverse, and yet in absolute terms, he still outperformed most traders I know of. Best of all, all those returns were accomplished while never placing his account at excessive risk. You may not wish to adopt his style of trading, but perhaps there are some insights that you could find useful.
I find that if I spend less time digging my account out of holes, then I can spend more time close to new equity highs. There is a table showing that if you lose 10%, you need to make 11% to get back to break-even. If you lose 50%, you need to make 100% to get back to break-even. Thus, the larger the loss, the tougher it becomes to recoup that.
Last edited by grausch; April 20th, 2015 at 05:37 AM.
Reason: fixed error
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