Saturday, December 15, 2012


I suspect that this picture may represent how traders especially beginners feel at times. There is something that you have to keep in mind that most people do not, trading is like any other business. If you are in sales you have losses. There are transactions you are sure you are going to get and something goes wrong and you lose them to a competitor. If you are an athlete you lose games. If you are a fashion designer you launch new designs that don't catch on. If you are an accountant you lose clients to other accountants.

There are no guarantees in life except losing trades, death and especially now taxes. A losing trade is just like any of these other events. We KNOW they are going to happen IT IS A GUARANTEE.


I am going to describe a real life event that everyone is familiar with, what I did and how I handled it. The FLASH CRASH week was a time that anyone who trades won't likely ever forget especially because we are going to have another one of those and it will rekindle memories.

The good news is that I made over $100,000 during this week and was positioned perfectly just prior to this thing falling off the cliff. The bad news, I botched this trade. I was short with both hands prior to the infamous day, I was in the ES and a bunch of individual stocks as well. I was probably way too leveraged in one direction but I felt the setup was pretty good for a decline. I had no idea it would be like this but you never can call these perfectly in advance, regardless of what all these phonies represent after the fact.

I left my house to go play in a golf tournament and had my lap top in my passenger seat like always keeping an eye on things. We were down when I left a couple hundred Dow points but there was nothing to indicate what was about to happen. I lost my Internet connection of course and once it came back up we were down quite a bit and just falling off a cliff. I had some targets in mind and we had gone past them already, I had arrived in the parking lot at the golf course and knew I had made a killing. I spent 5 minutes clicking the mouse and exiting all the trades at the levels indicated on the chart. I was going to be out of pocket for awhile and drinking most likely, so I just wanted this out of my mind. However, in the back of my mind I knew I did the wrong thing and came up with a BS justification for doing so.

Had I held it like I should have I would have exited everything on the next close for reasons I won't get into in the post, but that pattern is a short term buy pattern so I would have exited all shorts when it formed. I never bothered to calculate this but I am fairly sure I left another 100k + on the table with this blunder. The reason I am using this as an example is to illustrate how frustrating this business can be. This was the single biggest trade I ever made and yet I blew it!

You have to learn to let whatever you just did go and move on.  Even in this scenario I made mistakes. We can never be perfect so don't try to be. These are big words coming from someone who is as much of a perfectionist as you will ever meet. We just can't be perfect and very few things in life will make us more acutely aware of how imperfect we are than trading stocks and futures. You do not have to get on a couch with a professional or read a bunch of psycho babble about how to handle this. You have to simply accept that this is part of life. I can't stand it when some arm chair quarterback starts trying to tell people what to do when they themselves cannot do it. A book written by someone who has never made a bunch of money trading is of no value. This is true whether it be the psychological aspects or the techniques of actually trading. Burn those things.

At some point in life you just have to suck it up. If you sat in my chair and not only took a loss but knew that subscribers took one also some of which probably have no business trading due to being under capitalized, you would realize you have to let things go. I cannot think of too many things in life where being too emotional about them is the correct way to handle them.

We took two consecutive losses in the Bond system recently and in spite of my telling everyone this would happen at some point, there seems to be some surprise element to this. This is a mechanical trading system, does anyone really think it is never going to lose? I had a few people cancel after the two losses which is fine you are free to come and go as you please, but here is what will happen time and time again and it did in this case. The system will rebound, it had a nice trade Friday for everyone and those who bailed out just missed it. Also in talking to a couple of people I found out they did not take all the trades. Why would you subscribe to a system and not take all the trades? Either subscribe or do not but if you do follow the rules for god sakes. Those who got emotional just lost out and it will always be that way in trading. I even had someone who was one of the original group members leave and that person should have still been up over $10,000 per contract had all the trades been done even with the two recent losses. I would bet my life that person did not take them all, cherry picked some picked the wrong ones and botched the whole thing.

It may sound like I am picking on them but I am trying to drive home a point. Fear and emotion is not something that is going to help you succeed trading. I have made all of the mistakes myself that I am talking about so I know exactly how this feels. The take away from this post should be this. You do not need to read a bunch of books on psychology and get overly analytical about how to "handle" losses. You need to just realize this is no different than anything else in life, things do not always work out the way you plan. You need to learn from your mistakes and try not to repeat them. Part of what makes life great is these challenges and if you did not feel conflicted emotionally at times would it even be worth living?

I had a very good week trading this week and I feel no different that I did the prior week. It was nothing  more than a series of transactions and next week will bring another series. It really is that simple. I think reading about what you should or not being trying to do in order to train your emotions just makes you think more about them, which in turn makes dealing with them more challenging. Man up!

Sorry to the penis enlargement spammer I might have been tempted if you had thrown in a free golf lesson or something.

Good Trading


Vikas said...

Think thats the mistake I'm making. When I take losing trades, I already know what I did wrong obviously, but I'm spending way too much time looking back at that loss and let it affect my future trades. Hell I even took a trading psychology questionaire to find out what was wrong with me since I had a losing streak a few weeks ago! Thanks Chris for being a calm voice of reason!

Anonymous said...

I also think that keeping emotion in check and follow a pre-defined plan in face of profit/loss is one of the hardest thing in trading. Novice traders probably don't have this mental maturity. As in the flash crash example, with tens of years of trading experience, Chris would still be better off if he had sticked to his original plan instead of exiting a bit early...


Irina said...

Great post, Chris.
Thank you.

Anonymous said...

Flash Crash is an exceptional case. I still believe Chris did a fantastic job in locking in huge profits. Money Management wise, that is an exceptional profit and better to lock in before reversing and loosing too much. I think Chris controlled his GREED and very well locked in his profits.