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What a pleasant surprise - Discovering The WHYS of Losing
Budget day - historically the most volatile day in the stock market.
Trader Joe feels thrilled with the prospect of news trading. He is already doing quite well - he thinks he is objective and 'in control' and he will add to his already profitable endeavour.
He 'knows' that he will not lose much even though it is a BIG news day because he always uses bracket orders which prevent outsized losses.
Tip
TIP: 'Knows' is a loaded word in trading. Beware when a person shows up as a trader and says he 'knows'.
Back to the point - so Trader Joe take a small position - merely a one lot short expecting outsized volatility. All is well, he has wide stops which are technical and do not get hit.
He is prudent to take small profits at logical points, and that is good, because on news days there is a 100% certainity of trend direction changing at the drop of a hat.
By lunch time he has made a minuscule amount by budget day standards.
Tip
TIP: 'Minuscule' is a trigger word for a trader - it evokes the greed demon ('Bulls make money, Bears made money, Pigs get slaughtered...')
A concoction happens and the trader finds himself 'pretend logical' - but an amygdala hijacking is suddenly happening. Trader Joe is stingy - he likes to take the last squeeze out of the market before it reverses - therein is a habit that causes trouble for him.
Tip
TIP: Trading futures is mostly about picking up pennies in front of a steamroller. If stops don't get you flat the steamroller will.
Trader Joe notices a setup that signals that the down move may be over and gets out, slightly unhappy at his minuscule returns on a day where he is sure that everybody else is killing it.
Tip
TIP: Comparisons are a surefire way of getting out of The Zone. In fact any thinking puts one at risk of getting out of the Zone.
SO WHAT WENT WRONG?
Trader Joe was profitable at the beginning of the day.
He made two mistakes:
He became angry that he was getting such a small profit (let's call it x) from such a big day. (trigger)
He had his stops planned out - when the reversal signal came it was actually managed it well - but getting his stop get hit triggered a 'pain' - his ego was suddenly on the line and the comparisons started, then the second set of mistakes happened where he abandoned his trading plan and hinged himself that he 'knows' that the market will have a sharp sharp drop sooner than later so why not just double up on every upmove as it was a 'pullback' anyway?
THE MISTAKE: In the next two hours Trader Joe proceeded to short the upmove - which had turned into a giant size upmove dwarfing all previous days - he was eight lots short as the market kept trending higher.
He had cancelled all stops.
By the closing bell he had lost 40x.
WHAT CAN BE DONE BY HIM TO IMPROVE?
Tip
TIP: When the mind freezes with the startling realization that it cannot act now because it is confronted with a loss of such huge proportions things have already been out of control. If the initial stages can be controlled these later stages would not manifest.
Fluidity in technique is fine but abandoning the plan smacks of deeper issues within the self that need to be resolved - or in a more professional sense - issue resolution comes later and be separate, and trading should not be used for pseudo self-help - a rising equity curve should not act as your current anti-depressant.
Trading does not involve thrill seeking.
Trading does not involve applying the balm of profits to an aching soul.
I switched to third person, as this can get interesting, and with the 'I' it could get overwhelming.
Since he will have to slog away at the screen for the next two months to make back such a big loss, some hard decisions need to be taken.
Such as quardrupling the normal position size of two lots. Perhaps even doubling that and going all-in eight-fold.
Tip
TIP: You see where this is leading...
Trader Joe decides to go ahead and place the orders without stops or targets. The strategy that taketh away giveth back - wasn't this what took away his wealth... the same thing will now fill back the empty pockets.
Tip
TIP: You see where this is leading...
Perhaps if he had journaled... but then that is true with everything in life - just a bit of discipline makes all the difference. Sometimes good habit forming is the easy road even though it looks hard to walk on.
So Joe gets short at the open. Eight-fold, no less. His confidence soars as the market goes his way. By lunch hour he has made half of what he lost back!
Tip
TIP: When the market hands out outsized gains TAKE them or ENSURE that you plan gives you at least a major chunk of that windfall if and when the market direction changes.
Raconteurs Rambling - usually the market participants who form the herd become profitable all at once and the ensuing profit taking stampede erases those gains, but all this is yadda yadda, the retail folks really won't know. Another reason NOT to have these thoughts is 1.it makes him look like a big shot participant (when he is not) 2. it stokes his ego which then is unwilling to trip on any contrary data.
Ok, that was two reasons and the second bore fruition in such a rapid manner and at almost the same time of lunch hour that not only the half he had theoretically made back vanished, but the powerful upmove made him lose another 20x.
Tip
TIP: No stops at the beginning, no stops to protect the moment of 'victory', no targets. Doesn't sound like a plan.
In January Trader Joe would have happily taken what the market gave him, but he had a score to settle with the market and wanted ALL of his capital that the market had taken. Half would-not-do. And then he got none (plus lost exactly the 20x dollar amount with the + changed to -).
TIP: Tip your stops in the direction of profit, AS DICTATED BY YOUR PLAN. (Corollary: Have that detailed plan.)
And importantly, Trader Joe needs to learn to reset himself by staying snugly in TODAY's bogie instead of trailing back and using today to extinguish yesterday's sad memories. And remember simply to not use the market as a balm to soothe his hurt ego.
Trader Joe whirled around with joy as his eight-fold position. It was working out in his favor! No capital left for a martingale sixteen-fold one, thank his stars - but the real irony was that he had been due to withdraw 80% of his capital on the 31st of January, which would have allowed him to continue his one lot ways and would have naturally prevented the eight-lot idiocy for which he had not been mentally ready. It never materialized - he forgot. The rest, unfortunately, is history.
The same story of greed and making the market pay repeated itself today. He went short, the market dropped, he was green. The joy evaporated and the 10x profit he had made turned into vapor YET AGAIN. And he had postured YET AGAIN about preserving profits and keeping tight trailing stops, but YET AGAIN there was that fear that the market would have a teeny weeny pullback that would take out his stops and leave him positionless and then proceed to fall a million points.
Thus, yet again he lost slightly less than 10x - the third consecutive loss.
Trader Joe was numb and depressed, however he still seemed to have his wits about. Wits without the power of action. He was confident that the market was pointing at another upmove.
However... and that is a big however - he could not execute!! He was unable to carry a two lot overnight long position - the memory of losses without stops was so strong that he was fearful - the market open seemed like a monster that would swallow his remaining capital in one gulp. He was at the end of his reason. His index finger refused to depress the mouse button as the cursor hovered over BUY.
Not really - it was his ego preventing him now. It was so firmly entrenched in the idea that the market HAS TO fall now and it supplied unreasonable arguments - in the face of things which were laughable - but its siren call never allowed him to press the buy button.
Tip
TIP: For the ego, annihilation is just around the corner; for the objective trader, there is no corner that he has not unearthed, no stone that he has left unturned in preparation and practice.
x was now a distant unrelated cousin. The new kid on the block would always have to be the big unnatural hulk 10x.
Superbly written describing the reality and explaining part psychology that at one time all serious trades have experienced.
So true that given enough discomfort all reason flys out the window to even the best.
Imo this is the trick to never venture down that path in the first place. It always points to one of the basic laws of trading.
"never risk more than you want to lose on any trade" or trades for the day a max loss / day etc. "RULZ"
Easier said than done to the individual that has a stubborn ego. I guess a test is that if your all anxious or stresssed after taking a position then it's too big in the first place.
Consistency comes to those that trade small untill many months have passsed of being in the black, being in a hurry to make money in this game is a sure recipe for disaster.
Trader Joe was in a black mood all through the weekend.
The Saturday proceeded without so much as a squeak from him – all the air had gone out of him. He lay listless in his bed wondering if there was any point in getting up at all. Day one had taken 10x away. Days 2 and 3 were willing to give back 5x and 2x respectively which would have left him with a small hole, but up anyways. Instead he had chosen to nurse his wounds and bathe in self-pity – what a waste of his real deep talent and practiced skills that he had so painstakingly cultivated!
Feeding the ego instead of being a simple man with a simple plan - That was what was wrong with him. He KNEW the deficiencies, but KNOWING had not translated to ACTING.
Tip
Tip: Now that his new size was 10x it was now many times more difficult for him to follow his simple plan. The Hijack was still on even when the markets were closed!! Position sizing - a golden key to great trading!!
However the good thing was that he was still hopeful – still SURE of himself instead of abandoning method and switching to reckless gambling, he was still following his plan. The market was trickier that many of the easier preceding days, and he still TOOK the responsibility and was aware of the fact that this was the combined cause of failure, mainly having no stops.
On Sunday Trader Joe was suddenly struck with how free and light he felt. The rising equity curve, the constant self-demands on himself for continuing his fruitful journey (which was making life easier) were internally sapping him. Actually there was a little hurt child inside him still, who wanted to leave the Alpha male role this trading required and slip into being coddled and (perhaps pitied!). But now – WHAT A RELIEF!
The burden had been taken from him. He could appreciate the birds chirping and the sunshine falling on the manicured lawns. There were no stresses – atleast not today.
The whole reaction was startling for him. So all of this had suddenly burst out in his successful thus far trading career and he was actually feeling stress-free. Always busy - time was a rare commodity when the tyrant of Mr.Market was supervising over him, even on weekends. No time for children for whom he was doing this; no time to spend with his spouse – the market was soul-sucking though he loved the freedom and he also loved doing his work well, the soul-sucking aspect was still a major thing.
Something to watch out for and add to his list of self-awareness items, he decided.
And then he proceeded to spend the Sunday like a Sunday after a very very long time!
Note: He would suddenly burst into flames by losing temper over small things, AND he had not told his spouse of his losses yet, so things were not on a typical Sunday level yet, and he was no longer going to be on best behavior.
Tip
Tip: Whether there is a profit or loss, it helps to SHARE the news with someone at the end of the day. Someone uncritical and who simply listens!
The most problematic emotion for Trader Joe is BECOMING FULL OF VENGEANCE.
In this mode he doubles up and does AGAINST the trend to try to smoothen out a SMALL loss AND to stoke his ego which then takes over 9amygdala hijacking).
THIS IS WHERE LOSSES OF MOST MAGNITUDE HAPPEN.
Also, these happen on MONDAYS when the amygdala is back from the refreshing weekend - the freshness carries over into the market workplace with disastrous consequences.
Secondly they happen on FRIDAYS where there is a reproachfulness that little money was made on big moves.
In short, everything points to the fact that Trader Joe thinks he is TOO BIG NOW - actually there is no story-telling in the market except for being in the now. Hence HE BECOMES THE STORY. He knows he is a small guy and hence dramatizes his life through his losses.
ACTION PLAN: Trader Joe needs to simply work on DEVELOPING GOOD HABITS.
