Today, my equity line has crashed back down earth with a resounding thud. By the end of the trading session, I had experienced a drawdown of 33%, reducing my net balance to £8000. It is bad but it’s not quite as bad as it seems because I was forced to withdraw around £2000 to place in my ‘general expenditures’ account; I can see quite a few lumpy, non-trading related costs on the horizon and I need to start making provisions. I know it’s a little strange to build living expenses in to one’s trading results, but I treat my expenses as part of the trading game.
The remaining -£2000 (-20% off the account high) is a pure trading loss. In last week’s trading review I said ‘I aim to be a little more cautious in my trading’ and while this 20% loss speaks of failure, I have actually tried to be more conservative in my risk taking. Regular readers will know my trading approach is at the aggressive end of the spectrum and up until the start of this week a complete trade failure could have wiped 50% or more from my account in a single trading session. Today, I experienced a maximum-loss trade for the first time but my more conservative stance meant that I only got hit for 20%. This is the problem with my approach: lurking out there, in the low probability end of the tail of possible outcomes, lie trades such as this. After I hit the 20% loss level, I stopped trading and went to the gym to clear my head. I figure this is as ugly as it gets, but it is no reason to give up. I shall accept it and move on. I am sad that it happened, but I am glad I am still in the game. The worst part of it is the uncertainty of not knowing the probability of striking out like this again in the weeks ahead, but that is trading. It is an uncertainty almost all trader’s have to live with.
On previous occasions, after a big intra-week loss, I would ramp up my risk and try and claw back the losses. It was not the most sensible approach but this was when I had greater faith in my approach, and it actually worked a treat every time. Alas, times have changed. These days I have less faith in the consistency of my approach, so I will not be loading up on risk. Instead, I will maintain my more conservative stance. The implication is that my account can’t visit it’s old high for a long while, but at least it significantly reduces the chance of a total blow-out, so I think it’s worth doing. To quote Rocky Balboa: ‘it ain’t about how hard you hit, it is about how hard you can get hit and keep moving forward, how much can you take and keep moving forward. That’s how winning is done!’