What I Gained From This One-Day $60,000 loss
When you trade from abundance, you let winning trades run longer because you are
not worried about giving up profits as well as cutting losses faster as you
realize there are better opportunities out there. When I have traded from
scarcity, I have pressed and have lost my objectivity. I focus on what I am down
and how I need to make it back and become very myopic.
The most striking of the aforementioned dynamic occurred on March 17, 2003.
This is the day that forced me to challenge everything I did as a trader. I had
done quite well from the previous downfall in the market over the previous three
years and had been short the NASDAQ. I was growing increasingly frustrated with
how the S&P 500 had been selling down but the NASDAQ was just really whippy. As
a result, the profits from the previous down move had not been nearly high
enough. I came into the day short and the big news leading into the weekend was
that the peace talks broke down over the weekend and that we would be going to
war. I was playing for a retest of the lows on the S&P as I had now given up
being short on the NASDAQ and went after the S&P. I was confident that there
would be a big move and I would let my method guide me based on how intraday
price action was setting up. The markets opened up that ominous Monday very weak
and my short positions at the open had quickly picked up in profits. I added to
them in a really bad spot and I had gotten into a 50 lot of the mini’s, which
for my account was too big. The market immediately reversed and started rallying
hard. My profits had turned to losses immediately. My indicators were now
telling me to buy the dips and to cut my losses. I didn’t want to take the loss
though, so I held on for a little bit longer as the market pulled back and that
recent pivot high became my stop. We took out that level in less than a minute
and I honored my stop and got out. I went from being up $5,000 to being down
$14,000, which in the grand scheme of things, wasn’t that bad as I was still up
about $40,000 on the year and could manage it.
However, instead of taking a step back, a news release hit with Colin Powell
speaking saying we were ready to attack and the market rallied even more. I was
overcome with this gamblers rush and now I wanted to be in the action and get my
money back. I faded the move for a 50 lot and wiped my $14k loss down to 6k.
Normally, I am gone, but I wanted to get it all back and was not trading from
abundance. Before I could blink, the 8k I was up on the trade was gone and I was
now down $33,000. I was getting more desperate and realized the volatility could
swing both ways. I went short one more time and cut the losses back down to
$17,000 as I got in another 80 lot. However, instead of taking that $15,000, I
was playing for it all and before I knew it I was now down $42,000. I knew the
volatility was there and instead of taking step back and cutting my losses. I
felt like I had to make a stand. I was tired, angry, frustrated and coming from
a place of total scarcity. My intuition about a huge move being right only
compounded all of these emotions. I got into one last trade and took a $15,000
loss and took my total up to around $60,000 after commissions. I stared at the
screen at the end of the day completely dumbfounded with a horrible rot-gut
feeling inside of me. Wondering how I was going to recover? How could I be so
stupid? How could I allow myself to go on tilt? My eyes were bloodshot and my
head was throbbing. It was a slaughter and the $40,000 on the year that I was up
turned into a $20,000 loss. That sucked but it was a great reminder of how
important it is to trade from abundance.
This was the single most important trading day in my career. It shed a great
deal of light on not only how powerful my intuition is, but how to recognize
when I am trading from scarcity. I have used these tools to identify times when
trading isn’t going well and to step away. At times, we as traders are going to
be tested. Understanding that and knowing how to deal with it is critical. I
have profited greatly from really trusting and acting on my “Spidy sense” in
both the trading world and personal life when the correct course of action may
not have been clear. As painful as it is sometimes to look back on these trades,
the lessons learned from them are invaluable to making it to the next level. I
would not be nearly as adept today if it wasn’t for this experience and am
thankful for it.