Trading on Borrowed Time - Part 1

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Jea Yu

08 Sep, 2008

in Getting Started and 1 more

Have you heard the one about the poor guy who ends up lost in a minefield? Having no clue what to do, he prays, covers his eyes and walks a straight line. Miraculously, he survives. Brimming with confidence, he is convinced that if it happens again, he will employ the same technique to survive. Well, you can figure out the rest of the story. Boom. It’s just too obvious. That guy was simply on borrowed time.

This ‘guy’ could be any number of traders, including you, who trade in the same style. Finding themselves in that proverbial minefield with huge intra day losses. In a fit of desperation, they put on crazy Hail Mary trades with double, triple, and quadruple the normal size just looking for that miracle. You also know the ending to this story.

The one word that injects fear into the heart of every trader is blowout. As in, “Honey, I blew out the account again…” and (Honey, please put the gun down..).

Control is the essence of good trading. You can’t control the markets, but you can control your actions. You either have the control or you hand it over. This is a multi-layered statement, which I will explain later. As a trader, ‘handing over’ control is putting it lightly. Realistically, you get beaten into a bloody pulp and have no other options but to submit.

Are you on borrowed time?
If you are doing any of the following actions, then you are trading on borrowed time:

1) You go ‘ALL IN’ on any single stock aka a Hail Mary.

2) You go all in on a stock position into an earnings report or an FDA meeting

3) You are constantly ‘praying’ for a position to go your way even though all your original premises and signals have broken down

4) You start justifying your trade position with a ‘longer term’ out look and decide to ‘invest’ or ‘swing’ the trade.

5) You keep trading to ‘make up’ the commissions

6) You keep trading to make up losses on the day, even through the setups are blurry

7) You go double, triple or more of your normal comfort level size on trades after each stop loss--- especially when it’s during consolidation periods

8) Your intraday losses are greater than 10% of your account

9) You can’t leave the screens for fear of missing an opportunity, not even to go to the bathroom

10) You regularly pray for just one more miracle trade! (several times a day)

There’s a fine line between having control and plunging head first into the abyss. This line can be crossed merely by a string of emotional stop losses. These losses can turn into a domino effect that gradually snowballs into disaster. The trader loses all sense of objectivity and pushes silly trades with size just to ‘get back to even’. As the trader continues to throw Hail Mary trades with too much size, he gets more and more desperate. Eventually, this trader is going to regain some of his senses and call it quits for the day, proceed to blowout the account or get real lucky as a miracle trade plays out, digging him out of the abyss. Every trader faces the abyss and recovers at least once with a miracle trade. Rather than considering this as a gift, consider it more of a warning. Just like our ‘guy’ from the minefield, if the trader doesn’t change his ways, a blow out is eminent.

Miracle Whip-ped
After a miracle trade, a trader will come to one of two conclusions. This is where the fate of the trader is sealed.

The trader will realize how lucky he was, take a step back and reevaluate his methods objectively. He will take the necessary steps to get back in control and maintain control. Never for once will the trader mistake the miracle trade for some great feat of trading ability. He got lucky. He won’t be so lucky the next time.

Or…

In the absence of reason, the trader will chalk it up to skill and natural born talent. Lol. The miracle trade has now embedded a dangerous precedent in the mind of the trader. In the guise of a profitable trade, the market has placed a ticking time bomb into the mindset of the poor trader. The trader will go on as if nothing has happened. He will inevitably find himself in the minefield again. He may survive again, which makes it even worse. With each successive miracle trade, the trader gains more false confidence. Instead of avoiding the minefield, this foolish trader now actively seeks them out. It’s like a scene from some B rated horror flick where the victim is completely unaware of the psycho killer behind him. It doesn’t take a genius to figure out the inevitable conclusion to this story. Let’s just say, dead man walking. The best way to not get blown up in a minefield is to not place yourself in a minefield

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Interesting Article

Good read, the market is made up 100% of humans and the psychology that comes along with being human:) I found other reads into Behavioral Finance to compliment this article. Such a great topic to shine light on especially for the new trader.

Dec 09, 2013

Member (16 posts)

Informed and illuminating piece of work ......

Jea Yu this is an excellent piece of writing and resonates in many many more fields than just trading

In my early teens I was already a very "accomplished" Gambler from helping out in my Father and Grandfathers bookmaking business from before I could walk.......and being fortunate enough to have learned from a lot of knowlegable gamblers over the years

at 16 I was using multiple bookmaking accounts and betting serious levels of money on horseracing and making good money......I was incessant in my research to perfect a system - and eventually found one that for about a month delivered astonishing returns .......I was finally invincible and spoke to my dad about it who told me it was good but not to be foolish with the bets as that would put me in the mindset of every punter he fleeced most weeks......wise words I never heeded as I was now unbeatable

I researched the forthcoming saturday and 100% winners sprang from every race almost....it was the most tempting volume of racebets I had ever seen in my life and I was lured into pushing over 90% of my saved bank onto the table in search of the Holy Grail getting the early Odds needed by laying money in advance and waiting for the many many thousands to be returned to me .......

which never happened..I had my worst day ever in over 2-3 years of serious Gambling ....I got absolutely killed and was a wreck by the end of the day as I could not take the bets back and got buried .....the systm had a bad day and I had the motherload on the table

Dad knew me and sat me down first ensuring I was not bankcrupt and also hadnt borrowed to do it ...I hadnt fortunately !

biggest lesson of my life and a wake up call to me ........sure I still gambled the horses as it was in my blood but I knuckled down to my studies and made sure I got a good education and then an Accounting qualification to ensure I could always earn a living from non Gambling acvtivities .....

looking forward to part 2

Neil
NVP

Jul 28, 2013

Member (33568 posts)

Re: Trading on Borrowed Time - Part 1

The article is very informative and mind blowing. Giving the idea of trading and way people burst.Patience is the key of trading

Jul 28, 2013

Member (4 posts)

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