Dear Trader Dale,
Thank you for nibbling at the truth and getting it out to me in bits and pieces. You know my own personal sad tale of how it took me three tortured years of moaning, wailing, screaming into my pillow and just about giving up on the road to my "Ph.D. in losses" from 1994 to 1996. I will not burden you further with this, but I do encourage you to review our early conversations where we went over this (and review them over and over again), as a way for me to help you understand what not to do. Sometimes people learn from the mistakes of others, and other times they do not.
There are traders who can hear a myriad of stories like mine, shake their heads for a minute and then absolutely know that they are smarter, quicker and less emotional than the trader who lost it all. I hear repeatedly that my story is unique (it isn’t) and that it will never happen to anyone else (it does every day).
Denial is powerful, It is the rat brain’s way of dealing with a situation that seems absolutely impossible except for the person to whom it happened. It is much like watching the daily breaking news of some horrible or hideous act that occurred thousands of miles away. The Sumatran-Andaman earthquake in 2004 led to a series of devastating tsunamis that killed over 100,000 people and destroyed large parts of South and Southeast Asia. When you watch something like that on television, it is somewhat like viewing someone else’s nightmare. It happens somewhere else, but not to you. You have feelings about it and talk about it, but you never think it could strike close to you and, in an instant, wipe out everything you own. The Asian Tsunami was someone else’s ruin, not yours. Like so much of the tragedy that we see in a sterilized form on television every day, it isn’t happening to us, so everything is OK.
This is what happens time and time again in the financial markets. Large hedge funds collapse, individual traders lose everything, and horror stories abound. We hear them but do not think they could happen to us. The risk of ruin is someone else’s issue, not ours. Dale, nothing could be further from the truth.
Risk of ruin is waiting patiently for every person who enters the markets without a plan. It is like a silent and invisible shadow that the trader does not see until it’s too late. That shadow is you and is always with you. Until you feel it, live it, breathe it and trade with it, you will continue to struggle and continue to lose.
You are well aware, Dale, that I tell you the things that most will not. I speak words to you that others will not. That is my job as your coach. You may not want to hear what I have to say, and you may not listen. Despite this, my obligation is to tell you my truth, and your obligation is to choose what to do with it. Here’s the point of all of this: What if you are wrong? What if this is not the big win and ends up as the big loss?
You have already lost a significant amount of money by not adhering to your tested and proven trading strategy and plan. It was not your plan that got you to where you are today; rather, it was your inability to stick with your plan and to accept the drawdowns that come naturally with any plan. In essence, you have exhausted your risk capital at a most inopportune time. This is compounded by what you are doing now, i.e., tinkering with your plan and looking for the “big shot” to make back all the money you have lost.
Why are you doing this now? What makes you think that your present thought processes about this pie-in-the-sky “big shot” are any less fallible than the stinking-thinking that got you to where you are now? Why do you suddenly choose to throw capital preservation to the wind at a time when capital preservation should be priority number-one for you? If you take this “big shot” and it fails, what will that feel like for you? How will it impact your self-esteem and your confidence as a trader going forward?
Lest you think that I am completely negative, rather than advocating for you, please allow me to make a couple of suggestions:
I suggest that you take your new and big ideas and trade them in smaller size. If you do this, you will experience the best of all possible worlds. Assuming you get it right and nail this trade, you make money. Granted, it would not be as much money as you might have made if you bet the farm and traded huge the way you are planning at present. Nonetheless, you will make money. If the trade goes sour, the financial damage will be limited.
Either way, you will begin to regain the confidence that you once had. This is the confidence that comes from a sound and consistent adherence to risk management. If you preserve your capital, you have capital to deploy, when and if another big idea comes along. You have, in essence, saved your capital for a rainy day. You are still in the game, both from a financial and an emotional vantage point.
Please think about what I have written to you, Dale. Preservation of capital by adhering to your plan, cutting losses, managing position size and not betting the farm on one idea is the key to longevity as a trader. Always remember that the shadow of risk of ruin is standing next to you, waiting for you to make that one mistake that will throw you into the abyss.
I am always here for you, Dale.
Thanks from your coach,
Doctor Janice
