I just saw this video by John at the High Probability Trading blog (also embedded below... be warned, there's a lot of profanity in it). It's painful for me to watch. I've certainly had my bad days in the market but never anything like this:
I hope he gets through this OK. Perhaps the post Dr. Brett made in response to this video will help him out -- or anybody else in a similar situation.
Remember that preservation of capital is key. We should be more concerned with return OF capital than return ON capital. Proper position sizing and, I think, risk management (was this originally meant to be an over-night hold?) would have saved John's account from this disaster.
Things are looking real ugly for the open tomorrow. As I write this the S&P 500 futures are down 4.75%! This is the kind of open many traders have been waiting for. You can bet the gap-fade crew, myself included, will be in full effect tomorrow. But that's no guarantee of a bottom. There will be a lot of forces at work tomorrow -- not the least of which will be the margin clerks.
Be careful out there. Plan your trades and trade your plans.
Update:
This is from a more recent post on the HPT blog (emphasis is mine):
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.
I always tell people that traders typically don't blow up their accounts in an instant. It's usually the case that there was a point where, if the trader followed his original plan, he would have taken a small loss and been able to recover. When that goes wrong it's generally because he couldn't take the small loss. I've certainly been there before.
As for the "who would've thunk it part", I think a reading of one of Taleb's books ("Black Swan" or "Fooled by Randomness") and/or "Trading in the Zone" is in order.
I'm curious what your strategy is for today, it's not really clear. If there is a pullback will you be shorting or going long?
I'd love to watch the opening but unfortunately today is one of my 2 days that I have to work at the client's office.
When I dedicated 2008 as the year of Taleb...I had no idea just how intensely appropriate that designation would be! Wow...
Michael,
My plan WAS to buy the huge gap down opening. Now, after the surprise Fed rate cut I'm not sure what I'm gonna do.
I had a group of Swing shorts lined up as well. Think I'll sit on my hands for the first 20 minutes. Not sure what I'll do after that.
Oh and that video is a bit too painful to watch. Brings back my own memories of a gap against me. Been there, bought the T-shirt.
Taleb's book is the best trading related book I've read regarding risk. Shows you how you cannot predict disasters and they are always around the corner. This why I am afraid of swing trading anything other than options. And Douglas's is all about discipline.
As a trader you don't need to read more than these two.
"As a trader you don’t need to read more than these two."
True dat!
This is sad. He did everything wrong as a trader: gambled, no stop-loss, tried to predict a bounce before confirmation, traded against the trend, and MOST IMPORTANTLY, sold into the panic when the odds were excellent for the Fed to step in.
He would have made most or all of his money back at one point today.
This is a perfect example of why trading should be treated like a profession rather than a game. The bear market will destroy a significant percentage of those who have built blogs and accounts day trading the bull. Anyone who lived through the dotcom bubble-bust has seen this all before. Funny how no matter how many books raise awareness of the dangers, people plow in with bravado.
I am very sorry for this man's loss. This is why that day trader in ATL shot and killed the people at his day trading firm at the end of the dotcom bubble. Hopefully he realizes that he can easily make that money back with a job and some time ...
Well said D.H.
Excuse me, I'm very new to your blog, but when you say:
"My plan WAS to buy the huge gap down opening. Now, after the surprise Fed rate cut I’m not sure what I’m gonna do."
Can you explain what you mean exactly? I read that you usually wait until after the 10am bounce.. so, before the fedrate, I imagine people were looking to go short after the bounce, possibly after it broke the low of the first 30-60 minutes. Is that correct?
I was in meetings all day at work and missed the fun..
I started doing gap fades back in the summer of 2006. I first mentioned it in this post - http://tradermike.net/2006/08/review_of_mastering_the_trade_by_john_carter/
It's simply trading in the opposite direction of large gaps. Exit when the gap closes or when your stop loss, which is the same distance as the gap, is hit.