The trader behind ‘High Probability Trading‘ loses $31 thousand (around 80% of equity) over the long weekend. Warning: this video contains pretty much nothing but the f-word:
In his blog entry, the High Probability Trader says:
Good Bye………I hope you all have a nice life. I need to be to work in 2 hours, and I can’t manage this position, I have to sell out. About 40k in 2 days,,,,,,,,,,,,gone. Speechless. One bad trade, is all it takes. 2 and a half years of trading thrown down the drain on 1 trade. Who would’ve thought the Futures would tank as much as -500pts on YM with the US markets closed. I didn’t, and I never really wanted to be in this position, but I couldn’t accept the small loss.
And so it is that the High Probability Trader (HPT) gets wiped out by a low probability event.
I can relate to HPT on several levels:
– Before I started this blog, I had been trading full-time for over a year and was experiencing a peak-to-trough drawdown in the region of 85%. While I had a strong edge over this period, I simply pressed to hard and too often as a variety of psychological problems took hold.
– See how HPT shouts at the market to keep going against him? I also experienced similar feelings of self-loathing and have willed self-harm after taking positions (the market obliged). When all hope is lost we can turn on ourselves. (Remember ‘Billy’ in the film Predator? Midway in the film Billy says ‘we are all going to die’, and toward the end he stops running from the Predator and sacrifices himself on the bridge.)
– In the first few months of the recovery process, there was a very strong chance of getting completely wiped out. I also took outsized risks but I was lucky. Now, If I get hit by a tsunami that blows a hole in my equity, I feel I am psychologically ready to deal with it.
What can we learn from HPT’s experience?
The longer we stay in the trading game, the greater are the chances that we will get hit by unexpected, low probability events. Looking at the history books provides some guidance on what to expect, but history provides only the finest slither of the infinite possibilities that could have occurred. So it is that traders must tread extremely carefully, always balancing the upside with downside, appreciating that extreme, unexpected events will probably net out over the long term. Its all about navigating through these squalls and staying alive to trade another day. These days, I am more comfortable with my relationship to trading uncertainty. My risk per trade is still too high by most standards but it is much lower than it used to be. I don’t hold FX positions overnight and based on current risk taking, a 200pip gap in an exchange rate shouldn’t cost me more than 25% of my equity.
It can serve us well to imagine that the horsemen of the trading apocalypse are just behind us.
(Hat tip to Trader Eyal for pointing out this story)