The run of trades that brought my account down to £3500 reveals my trading deficiencies:
My first trade involved a reasonable level of risk and made a reasonable gain. The second trade was a repeat of the first. By the third trade, the original opportunity I was trying to exploit was no longer evident in the price action and I reduced my trade size to a more modest level. I made a modest gain. I put the trade on again and made a modest loss. With hindsight, this is the point where I should have stopped. Maybe, I had already gone one trade too far.
But no, I felt compelled to make good on the loss. I traded in bigger size and lost some more of the profit. Then I thought to myself that everything was still okay, that I still had a cushion of profit as a buffer and that I must try and recoup the losses of the last two trades. I traded again, but in bigger size, so the trade needed less of a price move to make my profit. I lost. I traded again. I lost again. I was back to break-even for the day. I couldn’t bear this. I had just wiped out the entire profit for the day. No, I must have something to show for the day’s efforts, I said to myself. I traded again in even bigger size. I lost a large chunk of capital. I felt nauseous. I rubbed my eyes and called it a day. My capital had shrunk to £3500.
This series of trades took place in a window of around an hour. This pattern has been repeating itself for about a year.
There are several identifiable problems with my trading. There is the feeling that I have to be in the market, tasting the action, at all times. There is the desire to exact revenge for my losing trades, where I am trying to get the market to pay up without foundation. Worst of all, there is the feeling of ‘possession’ when I start losing. At this moment I feel I have lost control and that am on a kind of auto-pilot; my mind starts going fuzzy and I lose all clarity. I am coming to realise this as a pure gambling addiction.
Over at the Traderfeed blog, Brett Steenbarger has a useful article discussing the topic of trading addiction. Brett’s comments are in italics:
The first step in dealing with any addictive pattern is identifying it–and identifying it as a problem. Here are a few questions that you might ask yourself:
* Have there been times when I told myself to stop trading, but still found myself placing trades any way? Me: Yes, just see the above example.
* Do I find myself overtrading by putting on positions with too large size or by trading during periods when nothing is happening? Me: Yes, after a period of success I keep on trading until I am down to a net loss. Only then do I stop.
* Have my trading losses created problems for me in my relationship(s), or have they caused financial problems for me? Me: Yes, definitely.
* Have people close to me told me that I need to stop trading? Me: Yes.
* Is the pain from losing more extreme than the satisfaction from winning? Me: Yes. I don’t feel any joy from winning, only shame when I lose.
* Do I find my moods fluctuating with my P/L? Me: Yes. My P/L affects my sleeping and waking life.
* Do I trade simply out of boredom sometimes? Me: Yes
* Do I find myself preoccupied with trading outside of market hours at the cost of other work and relationships? Me: Yes, its like a virus that has dulled the importance of other aspects of life. Trading is all there is.
If you answered yes to three or more of these questions, I would suggest that trading has become a problem for you. It seems I have a problem. The paradox of it all is that I don’t get any kind of rush or high from trading. It actually creates more anxiety than anything else.
Telling yourself you can manage your own addiction is itself a form of denial. But I really think I can, with the help of this blog as a mirror. But maybe I am delusional.
Do the right things:
1) Close your account.
2) Get help.
I can’t bring myself to do this. Not now. I need closure. I must either go to zero and leave the trading life, or I must trade my way out of the darkness. The risk is that I am fooling myself – that I will go to zero, become a wage slave, and continue to feed the addiction with my salary. I must tread very carefully if I am to kill this demon. Brett points out that a ‘A family history of addictive problems is one of the best predictors of risk for addiction’ and I am fully aware that my father came within a whisker of losing the family house because of a gambling problem.