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First, congratulations. What you did is commendable in that few people will ever take an account from $7k to $70k. In contrast, many will take an account from $70k to $10k. It sounds like you have the skills to regroup and take another stab at it—in 3 months or a year or more. Additionally, you are still up 50%, so you are better off than when you started, which a great place to start again. It’s even more difficult to start again with a clear head when you are in the hole.
You asked what happened? In reality, no one can answer your question because we don’t know how you made the money. $7k to $70k? That’s impressive. Have you read Fooled by Randomness? In short, most people lose the money the same way they made the money. They were skilled and lucky and then they were unlucky and foolish.
I’ll pose a couple of ideas and questions:
You Lost Your Mind: From what I gather, you fall into this category. You made decent size profits and took lots of small losses. Then, unfortunately, you lost your mind when things didn’t go your way. The market was doing one thing when you made your money. Then, the market stopped doing what it was doing, and you lost your money. Ex. I made the money in a trend. Then I started losing money, and I bet bigger and bigger. Now, I look at the chart, and I see I lost all of the money in a trading range. I kept thinking it was breaking out and it wasn’t!!
You were a Plunger: Did you make the money by plunging? If you make the money by plunging, you will certainly lose the money by plunging. Just ask Jesse Livermore.
Question: Were there at least 5-10 times as you made the money that you got in over your head, but each time things turned around? Well, each of those times was a time that you could have started the eventual process of blowing up your account, but each time, LUCK bailed you out.
You asked, “Why didn’t I stop?” By definition, a skilled trader does stop. You either stop or you don’t stop. If you don’t stop, you are still learning. Did you learn? I assure you, you would have had to learn what you learned eventually. To be clear, you could have just as easily and just as quickly blown up your account at $700k. Better to do it at $70k and learn from the mistake.
Anyone who doesn’t know that they can blow up their account will blow up their account. There are stories of people who went to Vegas and won modestly every time for 20 years and then lost everything they owned in a single night.
You asked, “Why didn’t I stop?” It was probably both thrilling and nauseating at the same time. We have to learn to never want to feel like that again. Watch Al Pacino explain it here:
I guess my first question is what does your system look like (not the methodology - as that would be giving your edge away) but the metrics? What is the win rate? What is the reward to risk ratio? I am asking because I think most blowups occur due to these metrics being forgotten, not having/sticking to your system, and not following the general rules fo successful trading that curb against your human nature - greed, fear, impulse, and revenge.
I think this because of my own experience blowing up an account. I blew up an account because I had a high win rate system that had a relatively bad reward to risk ratio for myself. Sometimes I would have a 1:1 reward to risk ratio and sometimes a .75:1. The reason I am bringing this up is because I think high win rate systems, at least for me, are detrimental for most people in the long-haul. Eventually there will be a day like you described. Where your emotions are uncontrolled and you have a bad day. In response to this 'bad day' some people, because they are so used to 'winning' from their high win rate systems will take this personally and start the following: revenge trading, taking more size than normal to recoup losses, creating more losses, then they are taking more impulsive bad trades resulting in them decimating an account. This happened to me.
From your post, it seems like you had a winning system for a short amount of time, were used to winning, and then had a bad day that got the best of you. My advice would be to go back to the drawing board. Reflect, analyze the experience, and redraw a new system that you will have to test with experience. Also, read on this forum, books, and/or ask people what rules they have in place to help them block against their destructive human nature - impulse, greed, fear, and revenge.
After my blowup, I realized a high win rate system with a low reward to risk strategy requires so much work/stress day-to-day and keeps me from inviting risk. Risk is great as long as you manage it, like what most others are saying on this post.
My current system has roughly a 50% win rate. I lose around 50% of the time, but I lose 2-3 times LESS than my profits. I only trade NQ. If my bearish conditions for NQ are met, I trade short and my system tends to get a reward to risk ratio of 3:1. If my bullish conditions for NQ are met, I go long and my system tends to have a reward to risk ratio of 2:1. So, I take great advantage of bearish conditions and a good red day. I am more cautious in bullish conditions because I know that I, myself, and my system are more profitable in/from bearish conditions and nice red days.
I illustrated some aspects of my current system above because, from my own experience, account blowups while initially unpleasant can be great. My blowup made me realize I was a shit trader without a clear system. I also didn't have rules in place to guard me against myself. Pre-blowup I was also way TOO risk adverse - which I personally think is a terrible way to go about trading. I believe it is essential to manage risk but to also not be afraid of it.
Another key lesson I have learned is that learning how to be comfortable losing is one of the key skills a trader must acquire and this is MUCH easier said than done. This is has been the hardest lesson for me and many other people. Get used to it and know that losing trades, with well defined and managed risk, are GREAT trades. Just because you take a loss doesn't mean it is a bad trade. Our human nature wants to trick us into thinking that a loss is BAD and a win is GOOD and, in my humble opinion, high win rate systems can easily push someone into this box of thinking.
Growing an account from 7k to 70k is commendable mate. Remind yourself that you can trade and do this. Just keep those emotions in check, take a break, and go back to the drawing board. Im telling you, you won't regret reflecting on this experience. Journal down what went wrong. Journal down what went right when you took your account from 7k to 70k.
Ask yourself: Is the system I am currently running really sustainable? Do I have rules to curb against my own human nature? Am I treating the market like an annuity - causing me to trade every day when there isn't necessarily good opportunities? I feel like these general questions, with honest answers about yourself, can really tell you a lot about yourself as a trader. Then, with this information, go to the drawing board and try something more concrete.
Above all, account blowups are a learning experience and usually, for the people that stick around and put in the effort, are a necessary step to make them the best trader they can be.
I think this is right and is without a doubt what I got wrong when I started trading. Unfortunately, when you start out you tend to look at trading like a "job" or a "paycheck" like somehow you can extract a certain amount of money every day/week/month by doing certain things (probably because most people had real jobs before they started ). I just dont think that's true. Trading is a very opportunistic thing and you kind of need to know what you are looking for before you do it. One of the main ways to do this is have someone show you but I get that its not always easy to do if you're trading from home/by yourself etc (I struggled with it too). Even using a forum is tough to replicate that as you dont really build those interpersonal relationships though I guess it can help. The point is that most of the time your instincts are wrong when you start out. You're taking trades and you dont really know why. Risking capital for no reason because every trade seems "pretty good" and that's exactly the problem. Every trade that you take that seems "pretty good" means that you dont have the probabilities in your favor. All you're thinking about is what you might win if it "goes right". As the guys above say, you need to know the probabilities first and if they dont make sense, then you walk. This is often very hard to do and why I say its good to have a guy sitting next to you to say "nahhh" most of the time I set myself up in a co-working space and was lucky enough to have someone with experience sit near me to tell me just that when I ran things by him. Its frustrating when someone says "nahhh" but most of the time you'll find out they're right. In the end, you'll only take the highest probability trades with the lowest risk which dont come around very often (I also tend to use options for this as its much easier to get this result ie asymmetric risk reward where you've got very little on the line for an outsize reward). Its pretty boring trading this way but unfortunately the only way (IMO) to make money...
I think one thing that goes unremarked too often is that day trading is very mentally demanding.
Seems to me that revenge trading is partially anger but also an exhaustion of the control you need to brush the anger off, or the control to properly analyse trades. Maybe working on that would help. Maybe you need a week off after working for x number of weeks? Recharge, rest your brain. Build back the control you need. I think there may be science behind this, that control (willpower for instance) is a limited rescource in the brain and needs to be recharged.
This is something a lot of people don't realize, even WHILE losing $. It doesn't even have to be a "revenge" trading scenario or 'tilt', but even just boredom or trying to force trades, or trading past when you should stop. I think having spreadsheets and trade analysis software helps a lot with this, if you can see after 11amEST you have a negative EV from your trades, at least you can now easily see this feedback.
That was one of a few things that helped bigly in my trading results.
Hi
here is a book that you may wish to read Dick Diamond has been a successful trader and the book is very practical and shows how he traded 40 years of trading insights Untitled