Inevitably in life, all of us are going to experience hardship. Some of us more than others, or to a greater extent than others. Individually, some of us are naturally better equipped at handling stress and temporary defeat. None of us are fully immune however, and special caution needs to be taken during trying times to protect capital.
Managing money in and of itself is an emotional business. It can take years to learn how to alleviate those emotions that come with trying to profit in the capital markets. Our emotional makeup is the most forgotten about factor when it comes to trading and investing. Few novices respect that fact that I could put them in front of 10 stocks, guaranteeing a move up tomorrow, and most would still find a way to lose money. Once you understand your personality and its flaws, and have spent enough introspection time, this game gets easier.
Numerous situations however serve to arouse emotion and throw you back into a mental state that is counter productive to your success. Some examples:
Death of a loved one or pet
Loss of a job
Family or personal illness
Separation from a partner or spouse
Recent physical or emotional trauma
The list could go on and on. What happens? Life happens. And it will. I hope that the following serves as a useful list of how to adjust your strategy should you experience an unfortunate circumstance that rattles you to your emotional core.
“You’re gonna be all right there Billy Ho.” -Sydney Deane, White Men Can’t Jump
1. Decide if you need to trade at all.
If profiting from short term movements in the market isn’t your main source of income, it is likely best to back away for a while. Stay engaged with the market, and risk manage your current positions and holdings, but don’t initiate a new position. Your focus during this difficult period isn’t zeroed in, and taking on more risk will seldom lead to more return when you aren’t focused.
2. If you must trade, take this time to be extremely meticulous about your setups.
This is always good advice, but before committing more capital during this period in particular, be very picky, and only take the highest probability trades. If you have any doubt about putting your money to work, move on and keep looking. Research and look for the fat pitches only. They are out there, and finding those will be of paramount importance.
3. Talk to someone.
I have always been amazed at how much talking to someone helps. We have all gone through hell in some way or another. We’ve all had someone die, traded through back pain, or been at work worried about something outside of work. When you open up to someone, they are often quick to not only be supportive, but they share there own story about when they were down and out or on edge. You end up helping each other, making a new friend, or deepening your existing friendship. Sometimes, misery loves company.
4. Commit less capital per trade.
In my options trading account, a full position for a front month directional option is between 3-5% of total capital typically. If I am a sad bastard in physical or emotional pain and I am not at my best, I will lower that to 2% of capital. The majority of us get more emotional when more zeroes are at risk. Now is not the time to press our luck.
5. Get rid of that “Woe is me the world has it out for me mindset.”
This is my God-Given genetic flaw. It’s a glaring admission of a serious imperfection in my psyche and I am going to get up close and personal about how important it was in trading, and even more so in life, to get rid of this quickly.
I am not entirely certain where it came from but I believe it started after the passing of my dad when I was in 6th grade. I likely never dealt with all that emotion and loss back then, and its lasting effect was one of resentment and anger towards someone or something. I spent a lot of time pissed off, and asking “why me?” When I began trading, and I started losing I would say things like, “Of COURSE I’m losing money because why would I EVER WIN AT ANYTHING? I’VE BEEN SHIT ON MY WHOLE LIFE, WHY WOULD THIS BE ANY DIFFERENT? SO FUCKING STUPID LIFE IS STUPID.”
Now…. I spent a LOT of time working on that. Like, more than you want to know. It’s not entirely gone, but the minute I catch myself with that entitled attitude I catch myself and put an end to toxic thinking. Sometimes I’ll text or call a friend, tell them the situation I am struggling with and ask them if I am in my right mind to be thinking the way I am.
If you have this attitude like I used to you WILL fail at trading. I promise you that. You will also fail at all the other obstacles life throws at you. If you need my opinion on the best ways to get rid of this type of mindset, send me an email. I promise it will do more for your trading than teaching you a chart pattern or trading system.
While there are some other tips that can surely assist trading through a tough time, the 5 above will serve to help your protect your capital, and keep your stress levels at bay. Remember that there is light at the end of nearly every dark tunnel no matter what brought it on. Easier and happier times are ahead and the market will be there to greet you with a warm welcome when you are ready to come back.
I’m happy to listen if you are going through a tough time in trading or otherwise and give you an outside opinion. Hit me up anytime.
@omahacharts [email protected]
OC