How and Why I lost over 75% in 2 days and what I’ve learned

[mabenn]

Quote from Lord.Maushi:

To lose 60k you have to allow yourself and your trading to lose 60k.

Trick of this game is to cut losses as soon as they begin to bleed and deplete you. Don't let them take too much of your money. Hope in this game is fear, and fear is hope.

To do the above efficiently you must know when and how to enter, and price must react your way immediately as a sign of acting right, otherwise you bail on a tiny loss.

Evidently, you do not know how to trade that way, so you must stop until you learn. No one will teach you how to do it correctly and whoever promises you to for a small fee is full of it. You can only learn it on your own.

However, the board will likely sympathize with your post as most can identify with your situation.

When I am trading correctly and in the zone I do just what you described, be patient for the right time to enter, look for immediate follow through and bail if that doesn't happen.

Taking any trade, over trading, and over leveraged were the surface causes of the losses but not being in the zone was the underlying cause.

Thanks for your insight.

 

[NoDoji]

I posted these excerpts from Market Wizards a while back. Notice the common trait of all these superstar traders is that they know in advance where they're going to cut their losses. I'm sure you didn't plan in advance to lose as much as you did. Having an advance plan for every trade was a big turning point for me. Part of that plan is that my worst case downside scenario (my maximum reasonable stop loss) can't be more than a few ticks greater than my worst case upside scenario (minimum reasonable profit target).


Michael Marcus:

Q. Do you always pick a point where you will get out before you get in?

A. Yes, I have always done that. You have to.

Q. I would imagine in your case you can’t actually put a stop in because your orders are too large.

A. Yes, but my broker can hold it.

Bruce Kovner:

“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in.”

Richard Dennis

Q. Do you always define your maximum risk point when you get into a trade?

A. You should always have a worst case point. The only choice should be to get out quicker.

Paul Tudor Jones:

Q. Do you always know where you are getting out before you put a trade on?

A. I have a mental stop. If it hits that number, I am out no matter what.

Gary Bielfeldt:

Q. How much risk did you allow when putting on a trade?

A. Generally anywhere from ½ to 1 ½ points.

Q. So if you tried to pick a spot that looked good and it didn’t work, you would bail out and try again at another spot?

A. Right.

Ed Seykota:

Q. Do you decide where you are getting out before you get in on a trade?

A. I set protective stops at the same time I enter a trade.

Larry Hite:

Q. What makes Mint different? How have you been able to achieve return/risk ratios far above the industry average?

A. So the very first rule we live by at Mint is: Never risk more than 1 percent of total equity on any trade.

David Ryan:

Q. Since you use an extremely rigorous selection process, do you have a high percentage of winners in your stock picks?

A. No, only about 50/50, because I cut the losers very quickly. The maximum loss I allow is 7 percent, and usually I am out of a losing stock a lot quicker.

Marty Schwartz:

Q. From time to time, you have alluded to your trading rules. Can you list them?

A. That brings me to my next rule: Before taking a position, always know the amount you are willing to lose. Know your “uncle point” and honor it.

Mark Weinstein:

Q. Any final advice you have for a beginning trader?

A. You have to learn how to lose; it is more important than learning how to win. Limit losses quickly.

Tom Baldwin:

Q. Do you have to be somewhat of an egomaniac to be a good trader?

A. Actually, the best traders have no ego. You cannot let ego get in the way of a trade that is a loser; you have to swallow your pride and get out.

Tony Saliba:

Q. Do you always know the maximum risk in a position that you hold?

A. Yes…no matter what happens, I know my worst case. My loss is always limited.

 

[greedytrader]

quit trading, man, you don't sound very smart. Trading requires a lot of intelligence.

 

[mabenn]

Quote from NoDoji:

Tom Baldwin:

Q. Do you have to be somewhat of an egomaniac to be a good trader?

A. Actually, the best traders have no ego. You cannot let ego get in the way of a trade that is a loser; you have to swallow your pride and get out.
[/i] [/B]

That one hits home for me. Thanks for posting these!

 

[Visaria]

Risk 0.5% of your account on any one trade. Stop should be at where u are proven to be wrong, not where you feel like sticking one.

Of course, only applies if you have an edge.

 

[contra]

im still not sure how ego has all that much to do with cutting losses or setting the initial risk on the trade.

I've seen a guy lose 100k in FX over a week or so and this guy had not much of an ego at all. not much for brains either.

 

[mabenn]

Quote from contra:

im still not sure how ego has all that much to do with cutting losses or setting the initial risk on the trade.

I've seen a guy lose 100k in FX over a week or so and this guy had not much of an ego at all. not much for brains either.

If you think you're right you have no reason to cut a loss or set an initial risk on a trade because if you're right than there's no way for the market to go but your way.

Being Smart is helpful but the need to be right isn't.

 

[contra]

Quote from mabenn:

If you think you're right you have no reason to cut a loss or set an initial risk on a trade because if you're right than there's no way for the market to go but your way.

Being Smart is helpful but the need to be right isn't.

I'd have to chalk this kind of mentality in the little brains category and not because of ego... no offense, but posting about this loss perhaps you're asking for it if that is how you trade.

I never put on a trade where I think I am wrong... but if you have been in markets for awhile you know shit can change quick. ego or not...

sorry about the loss but I guess, let this be a lesson.

 

[mabenn]

Quote from greedytrader:

quit trading, man, you don't sound very smart. Trading requires a lot of intelligence.

Intelligence helps and is an asset yes but I've seen intelligent people blow up accounts just as easy as anyone.

The proprietor of a hedge fund I used to be the head FX trader on started to "intelligently" up his risk to 50% per trade, than 100% because he was so accurate. I told him if he keeps doing that we'll blow up on the next loss or string of losses and he laughed at me. That's when I quit. 6 months later he lost the whole years profits + the margin in the account and in addition was require to write a cheque to the broker for 600k.

The problem was that I just didn't honor my max daily stop limit. That is dumb! If I keep doing stuff like that then yes, I'm not smart and I should quit trading. If I can nip that in the butt than I'll be fine.

In fact if I capped my max risk at 1k ( just over 2% for the day) I'd be up quite a lot now.

Lessons learned!

 

[mabenn]

Quote from contra:

I'd have to chalk this kind of mentality in the little brains category and not because of ego... no offense, but posting about this loss perhaps you're asking for it if that is how you trade.

I never put on a trade where I think I am wrong... but if you have been in markets for awhile you know shit can change quick. ego or not...

sorry about the loss but I guess, let this be a lesson.

Yes, I agree I was asking for that loss or it was just a matter of time because I started blowing my max risk stops then recovering and making it back plus profit but i knew eventually I'd blow the max risk too far.

I have no problem with my stop loss placement per trade but developed a problem with keeping my max risk per day within my limits.