I was making money for around three months and then I blew all of it in one day.
Now, I can’t trade. And I am feeling like shit. This feels like shit. The inability to trade because I just my funds by doings the damn things that have wiped my account innumerable times in history.
Well, it is not about trading today. It is about feeling shitty for not being able to do what I want to do. I loved trading. I used to wait for the next day to being so that I may continue with my experiment. Now, all of a sudden I feel like I’m lost & I don’t know what to do. I was good in trading and it feels like injustice for being punished for just one day’s mistake. But that’s how it happens. In trading, everyday matters.
The experiment started on 8th November 2011 with a capital of Rs. 45,358. I traded successfully with my new risk management rules and my equity swelled to Rs. 1,38,681.50.
The purpose of the experiment was to find out, if I could make money consistently. Which I did, until the last day, when I fell prey to my nature below up my trading account.
I lost Rs. 70,000 on the eventful day of 11th January 2023, when I got rid of all my risk management rules. My daily loss limit was 20 points max. But, on this day, I lost 350 points. All because I violated stop loss and position sizing rules. These are the only two rules that matter for a successful trading career and I got rid of both of them.
I just couldn’t gather the courage to the trade the next day, because I knew that after incurring this kind of loss, I wouldn’t be in the right state of mind to trade further.
Mostly, I didn’t want to trade, because I had lost patience. I had made that money with a lost of patience and hard work. I even had to remain awake to trade after returning from night shifts. I felt bad for myself. How could I do it? How could I not realize that getting rid of my risk management rules will ruin my trading career?
Maybe I thought, to try my old tricks one last time to recoup the losses, I made due to violating stop loss rules. The dog returns to its vomit.
Why did I violate my rules
Violating Stop Loss
I bought a put option and set a stop loss of 10 points. The option fell 10 points and then bounced back 30 points. I was stopped out. The market continued to fall again.
I thought, this market is going to fall anyhow. Why let the stop loss stop me from seizing a great bear opportunity. I entered the trade again. This time without a stop loss.
The market fell, 10 points. The bounced back 30 points. So far, all was good, because I was expecting this. But what happened next, froze me.
The market, continued to rise. I had to exit the trading after booking a loss of 106.65 points. My per trade loss limit was 10 points.
My trading fund was hit hard. I had to recoup the losses, and this desire perpetrated the next blunder.
Violating Position Sizing
As per my position sizing rules, I was not supposed to buy more than 150 shares with the remaining amount. But I wanted to recoup the losses so, I increased my position to 1100 shares. This increased my risk 7 times, but that’s not what I was thinking, because for me it meant increasing my profit potential by 7 times.
The market moved against me in full force. Had I stuck to my stop loss, I would have lost 7 times my average loss. But I lost 21 times my average loss, because, I violated stop loss rules as well.
The cumulative effect ruined me.
What I realized
I realized one thing.
I takes just one day to ruin your life. And the mistakes have a cascading effect. The first mistake sets the tone for the day and the second mistake is just the continuation of the first one. And the mistakes do not limit themselves to trading itself. They overspill into other areas of your life.
I drove my brand new expensive car into a narrow road that was surrounded by thorny bushes. By the time I came out of it, all I could see were painful scratches all over the body of my car. I couldn’t contain my ill judgment to trading itself; I got it spilled to other areas of my life.
I am still wondering why did I do it. How did I not realize that this will put an end to everything I ever wanted. This was a hugely successful experiment before becoming a disaster. It reminds me of Long Term Capital Management. It was too big to fail, but when it did, it was disastrous and it was quick. Quick enough to leave the founders in disbelief.
Right now I am questioning my ability to trade. I am doubting my ability to make a living trading the markets.
What if I make a lot of money, and then fall for one of those fits and lose all my money in just one day. I don’t trust myself anymore. Why couldn’t I stop myself from falling into the trap of my nature. Why did I not listen to reason and fall for emotions.
Or, is it that emotions generated new reasons?
Nothing of this would have happened if I had not violated stop loss rules. I had a rule to put stop losses at 10 points. But on that fateful day, I did not put one and finally had to book a loss of 106.65 points.
I am scared, what if I commit the same blunders with big money.
But, this fear, doubt and negativity is not the thing I need right now. I need a working mind that will show me a way out of it.
Maybe this was a good thing
I made the blunder with a small capital. What if, I committed the same blunder with a large capital. That would have destroyed me completely. My plans of quitting my job to trade full time would have sunk completely.
After every disaster, we have two choices.
Either, we can languish in self pity.
Or, we can learn from it and move on, promising not to fall for the same traps again.
I choose the second option.
I know that I am scared and my belief in myself is shaken to some extent. But, I can’t avail the luxury of self pity. I really, don’t have time for that kind of thing.
I know that I am good in certain things and I just suck at some. I need to remove the sucking parts from the equation.
I will have to approach all of this with an experimental mind. Emotions should have no part in any of these.
The next stage
The purpose of the experiment was not to become rich. The purpose was to remain profitable for a few months. Which I was.
I learnt how to make money & I also learnt how traders blow up. Now, its time to prepare for the second stage – How to make money with big money and not blow up.
I know, the wound is fresh and I am emotionally, not ready to execute the second stage. But, I will have to make preparations.
I will have to reenter the market. This time, with a capital of Rs. 5,00,000. And this time, I promise myself not to violate the rules of stop loss and position sizing.