Losing $30k on one trade, and filming it.
This trader posted a video of him losing almost $30,000 on a Russell trade that went against him. The video actually shows his emotions and brokerage screen while the trade is running. I can only assume he chose to post it to help others avoid the same mistake….
So what can we learn from his video?
- ALWAYS Use A Stop Loss And Manage Your Risk – I cannot emphasis enough how important risk management is in trading. It’s the easiest thing in the world to put a stop loss in. Even if you only use a catastrophe stop for a worst case scenario situation. It’s free to do, it takes no time and can save you a fortune. Get into the habit of doing it.
- Act Quickly – If you find yourself in a situation where you haven’t used a stop (or for that matter making any trading mistake), don’t hesitate, don’t beat yourself up. Just close the trade, get the risk off the table and then you can assess. You need to act quickly and not get caught like a deer in the headlights. You’ve made a mistake, acknowledge it and deal with it like a professional. If this guy had cut the trade even at the start of the video he’d have saved himself $2,000. I suspect he realised what he was doing was wrong long before that.
- Understand Your Trade Exposure – Don’t hold overnight if you cannot accept the risk of an unusual event occurring. By holding over the weekend you have lost complete control of your position in exchange for the opportunity to profit from a gap. But you are at the mercy of any news, accept this and if you choose to hold overnight use a size which allows you to face a black swan / fat tail. Either that or hedge yourself using a pair strategy or options play. This trader actually acknowledged that his worse case scenario was a 300pt gap down on the DOW, but he assumed it wouldn’t happen. Assuming anything in the market is a dangerous game.
- Stop The Damaging Negative Self Talk – Just listen as this guy spends at least 6 minutes telling himself how useless and stupid he is, what an idiot he’s been, he even PUNCHES himself in the stomach at one point, reinforcing a negative mindset. We are our worst critics, if a trader working for you on a desk made a mistake would you punch him in the stomach?! The damage is done, you can’t turn back time. As difficult at it is try to take something positive from it and focus on your comeback.
- Take Responsibility For Your Trades– Ok to be fair this guy realises pretty quickly after making that statement that he only has himself to blame. But he initially blames the market for losing, and then blames short sellers. You and only you have control over your trades, accept the responsibility that being a trader gives you.
As a professional trader you should not be getting yourself in this position, it’s very simple to manage risk. Not managing risk is like driving through a crossroads without stopping or looking every day. You might get away with it for years, but the day you don’t is the day you lose everything……..
Here’s the video
(**NOTE: As you might expect from a trader who has just lost his ‘life savings’. The language contains a lot of swearing**)
Thanks to the anonymous trader for having the courage to post this helping others avoid the same mistakes.