A couple of weeks ago I posted about my intentions to finish the first year of “small-time” trading in the black and that I wouldn’t let the current drawdown drag me into the red. The interesting thing about narrowing down the focus to six trades is that it pushed me back to be more disciplined, which is the #1 struggle even for experienced discretionary traders.
The six trades were positive overall. I pushed the balance of the account from $13,000 back up to $14,200 with intraday peaks around $15,000. Then the mind relaxed again and sought shortcuts, namely gambles instead of trades. Short-term thinking, with the odds decidedly against me. Quickly the balance dwindled back to $13,000, then $12,000. This morning, after a couple of good trades (well-executed according to plan) that lost money, I find the account at $10,700. There is little room left between here and $10,000, enough for only a couple of trades.
It’s a strange feeling, the one I have right now. I’ve been here twice before. There is a switch in the brain that goes from executing a plan, to hoping for the best. When enough trades don’t work out, you start doubting your plan, so you second-guess every trade. Then you just want to stop losing money. Then you want to stop the bleeding by just hoping that one trade works out. Sometimes the trade that works out was a gamble, which then reinforces the gambling part of your brain and not the disciplined executive part of the brain. It’s a trading death spiral.
It’s very similar to the feeling of helplessness you have when you are losing a game to a better opponent. You want to come up with something that will just stop the beating. You move away from the game plan in hope of creating chaos for the opponent. You start shooting 3’s from long distance. You take crazy shots. Maybe, just maybe something good happens. The problem is, something good sometimes does happen, you may win that game. But you just got lucky, and yet your brain starts thinking that’s a strategy. You took one step away from a trusted plan and one step closer to random, indeed chaotic execution. That’s a recipe for destruction.
Best thing to do is to stop while there are still some chips on the table.
Next time I’ll tell you how I got out of that spiral the first two times, which, peak to trough, had cost $100,000 and $850,000 respectively!
I’d love to hear your story of spiraling decisions… After all, we are all trading. Something. For something.