The Anatomy of Re Learning to Trade

So as those who’ve followed this blog for a while know, I had a nasty surprise in January. My usual dummy shtick that I used for 2 years to make money stopped working. A number of people asked me about this and why I stopped updating results so I thought I’ll write something. It is easier for me to do that now as you’ll soon find out why. It’s a very long emotional spiel, so be warned..

At that time when it became apparent that there was some problem with my trading it looked very sudden, although now with hindsight I can see it wasn’t quite as sudden. Maybe I was deciding subconsciously to ignore the data infront of me, or maybe it really didn’t register in my brain till after the fact, I can’t tell for sure. What followed after the surprise was this: at first I thought well, the market is volatile and different than usual, I also made some mistakes and wasn’t fully focused on trading as I was traveling a lot so let’s see what happens in February. Then February came, and this time no surprise, things continued to not work. When the realization fully registered that there’s a real problem the first reaction was that of shock, that lasted for a very short time and was immediately replaced by something a lot worse, a feeling of: I’m back to square one where I was in, say around 2004. I never really was back but that’s how it felt at some point. Then fear and stress sunk in, and at the peak of it, for a very very brief moment late night just before falling asleep one day: terror and despair.

I knew I needed to do something, but at first I wasn’t completely sure what. I tried looking at what went wrong with my trades, couldn’t see anything, tried to stick and “ride” through it but just kept losing and having terrible win rate. I then thought, well this trading strategy isn’t working I need something else. So I started looking at maybe acquiring / learning / developing new edges. The “easy way” out is to try and buy something hoping it’ll solve your problems. I must admit I did buy something, a book, for a normal price (no $999 offers for me thanks :-)) which incidentally I’ve not received yet. And I did a few days trial (costing even less than the book) on some futures service. It doesn’t matter where, the only benefit I got out of it is learning (yet again) the lesson that I shouldn’t waste my time and money on those things. In the meantime while I was trading all through this period, I reduced my R size dramatically, which was a smart thing to do in retrospect. Overall I lost less than 10% of the money I made in 2007, but it felt like 50%. I then tried some new tweaks and even looking at additional trading vehicles like futures. It wasn’t so much an attempt to replace something with something new but more of a striving to know I’m trying everything I could try and leaving no stone un-turned.

On the personal side, I actually slept quite well at night I have to say but other than that every waking moment was spent thinking about my trading. I more or less shut out most distractions, and people out of my life. 98% of the time I was thinking about the research projects I was doing, my to-do lists and trying to mentally go over stuff I’ve done and planning and thinking about new things to try and do. An additional 1% of my time I was thinking, OMG I might need to get a job again! And that’s one of the things that worried me the most for various reasons. One of the interesting things I think is that the whole stress and almost panic that was creeping up on me had very little to do with money, ok, it’s trading and it’s my only job so yeah money is important but I wasn’t worried about money. For one, I made sure I was well capitalized before I went fulltime, secondly, I also made sure I had reserves outside of my trading account, and third, my cost of living is rather low (when I’m not buying fancy gadgets or going on prolonged vacations). The anxiety was around my future lifestyle and career as a trader. I love what I do and my way of life and the thought of losing it, whether justifiable or not, was tough. The remaining 1% was an island of sanity in my mind created by my gf. She was the only reason I left the screen to go for dinner or to do stuff together. Basically saving me from working myself into a zombie 18 hours a day non-stop. She’s also been very patient and supportive which I highly appreciate.

Now that brings me to why I stopped updating results on the blog. Basically for 2 main reasons: 1. it added to my stress levels and I couldn’t care less what other people thought of me stopping to update. My job and first obligation is to get back on track and be the best trader I can be. Whatever doesn’t contribute to that gets ditched fast. 2. it was also affecting various people around me who were, justifiably from their point of view, worried about me. As an illustration whereas in 2007 I got requests from a few people along the lines of: “here, take our money and make some for us too” to this in early 2008: “oh no what are you going to do and how are you going to live” and even: “are you ok? you’re not jumping out of the window right?” I’m not ridiculing these, on the contrary, I appreciate the people involved and their concern for my well-being. But that had a part in me stopping to update. I don’t think I’ll re-start updating results, there’s not much point doing it I think.

Anyway, this is turning into a super long boring post so I’ll just say that finally after quite a bit of work I managed to re-invent some of what I do. It was kind of 2 steps forward 1 step back as I had a few eureka moments and also a few frustrations along the way as I had to unlearn and eliminate old habits. Not everything needed changing of course but some parts definitely went (and are still going through) significant revision. So far it’s playing out well not just in terms of results for Feb that turn around but also in confirming my research on a daily basis, which is of course important. I can say I learned a lot from this experience. I think I matured (read: aged very fast within a short timespan :-) ) in terms of my trading career. As Brett Steenbarger quoted in his recent post, trading is a tough job. The hardest “easy” money to make :-) And it’s almost a certainty that the markets or something else in life will throw me another curved one at some point, that’s the nature of this business and life in general. But I think I’ll know how to deal with it better next time, and more importantly even if I don’t know at that point in time, I’m damn sure I’m going to find out how.

Other possibly related posts:

• Tuesday trades
• Wanted
• Worth noting today