Anatomy of my downfall

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.

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10 responses to “Anatomy of my downfall

  1. You seem very passionate about the problems analyzed, what about the solutions?
    How about a “Road map to the come back!”, with some solutions to overcome the issues mentioned above? Wouldn’t hurt to focus only on the solutions, as things can only get better from this point.

  2. A humble road map may be just what is needed Rocko. Indeed, since writing this blog, I have become a little more solution orientated, thanks to the advice from yourself and others.

  3. good luck…it can be done

  4. Consider what Michelle B @ TraderMike.net did, she stopped trading for 3 months. I am just starting out as well and forced myself only to trade a max of 2 times and a max of 500 shares on each trade. This really helped me right from the get-go to curb the vegas in me. After a review of 3 weeks of trading, I cut my size to a max of 200 shares. This really helped me focus on finding the right setups. Trust me I still screw up a lot but I feel like there is a lot of promise in what I’m doing. I cut my losses short, sometimes way to fast, which is becoming another problem. If you focus on your setups and forget your P&L, you will enjoy winning and loosing will make you think of what you did wrong in your setup analysis. And when your setup just fail, it doesn’t bother you that much as you believe in your thought process. Sleeping and waking up has become much easier in the past 2 weeks. My suggestion for you to try figuring out what really moves you (makes you happy, nervous, sad etc.) and build your trading system around those emotions, exploit them. Though I graduated as a finance major and love the markets, I find this profession to be almost impossible. You fight yourself and other experienced traders all day. It really takes a toll on you. I feel like I’m going in the right direction but it’s so damn hard psychologically. As trader-x always says, know your sets-up inside and out and your profits will come. I’m waiting for mine but I have a looooong way to go. Keep your chin up as the light at the end of the tunnel is blinding.

  5. I had a series of winning trades followed by a couple of big losers. I ended up trading on tilt. To break that trading on tilt I put my money into 2 stocks. Basically a “long-term” hedge. It broke the cycle of recklessly trading and once I finish analyzing the mistakes I made and come up with a better gameplan I will take my money out of the ETF’s I bought/shorted. I have actually made money (not a lot) but I still feel that my account is active and it has helped me to regroup and go at the active trading again.

  6. Thanks LP, I am happy to hear things seem to be working out for you. It is indeed a tough game. My predicament is a direct consequence of knowing my set-ups but not knowing know myself. I really do appreciate the words of encouragement and your advice about trading smaller size makes sense, but I am at the point where my equity is so low that I have to take big risks if I want to recoup my capital and continue trading full-time. If I ever bring my equity back up to a reasonable level, I will employ a more conservative money-management approach, as you speak of.

    If I take a break now I risk forgetting the the pain and suffering I am going through, so I choose to work through it here and now. If I stop trading it will be because my capital has forces me out of the game. Also, I do not have the luxury to take a break even for a few weeks as my capital is running down even when my trading activities are at a stand-still.

  7. Good luck Brother! You know what the odds are. I have 2 words of advice. (1) Patience
    (2) Discipline

  8. I hear ya. I too have a father with a gambling problem. I too experienced those trading frenzies you’ve mentioned. All I want to say is that you don’t want to turn out like my father, a bum with no friends, no family, no life. Good luck. (I will need it as well).

  9. “But no, I felt compelled to make good on the loss.” – I have a question. At the moment, if you can remember, that you felt “compelled to make good on the loss” what was the “or else”? If you don’t make good on the loss, it means…(what about you)? At the moment you answer the question(s), where are you observing from – inside of your self (self-voice) or as if you were outside yourself making “judgements”? Then, get ready for some realizations about your ‘reason’ for trading. I’d suspect it’s not for the money….

  10. Don C. Your short comment speaks volumes. Good luck is literally required because the odds of success are so low and I am stacking them further against my favour by taking big risks. Even if the gods of fortune look favourably on me and I do have some ‘good luck’, if I do not exhibit patience and discipline I am as good as finished. Patience and discipline will be the cornerstones of my new trading plan, which I will publish in coming days.

    Adalfu, thanks for sharing. In my trading there is an exact point where I can say ‘I lost it’, when regardless of whether I make a profit or a loss (much more common) something in my psyche has switched to a destructive mode. It’s not an out-of-body experience so much as an out-of-mind experience. It could quite simply be the recklessness of gambler, but it creates a disgusting feeling once its all over (again, whether a profit was made or not). My father had many friends and a reasonably good life, but this aspect of his life was almost ruinous. I think I may have subconsciously separated myself from my friends because I didn’t want to hurt others with my actions, but this only deepens the isolation, maybe making the problem worse. May we both win our struggles.

    Pete, the pattern of my actions is a destructive loop: to keep trading until I make a loss, and then to keep trading until I cover the losses. It nearly always ends badly unless I can pull myself out before it’s too late. The realisation, to be frank, appears to be that it is a form of addictive self-harm, possibly stemming from a low sense of self-worth (quickly becoming a state of low monetary worth!). It is only by really looking at myself that I have been able to realise my short-comings and I am now taking small corrective steps to help put them right.

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