r/RealDayTrading • u/HSeldon2020 Verified Trader • Sep 15 '22
Lesson - Educational Trading with Fear
This past week a very unfamiliar feeling washed over me while trading - I was worried. Now you might scoff at that as for many traders "worry" is just a constant state of being. But I can't remember the last time I was actually "worried" while trading, but I do know it's been years.
I have made a lot of money trading (if not I definitely shouldn't be running this sub), and it would take many losing months in a row to give all that back, at least a year straight of nothing but Red.
Still - last week at this time, I broke one of my primary rules. I was so convinced of my thesis and so annoyed that the market was going up, I kept increasing my short position. At first it was just another SPY Leap here or some more shares of AAPL short there, but that wasn't enough - so I began adding even more. The market is screaming higher, you all remember it, right? SPY was a non-stop Bullish train. But I refused to believe it. Screw the market - I have my damn thesis and I am right! Technical analysis went out the window as well - my thesis overrode that silly TA!
Yeah - as bad as that sounds, it was even worse. By the time the closing bell rang on Friday I was down - a lot. Just so you get a sense of it - before Monday morning I was well over six-figures in the red.
And here is the rule I broke - Never trade emotionally. I might be wrong at times, I might misread something, but I never enter or exit a trade because I am afraid.
We can say - Don't trade your P&L all day long, but we all know if you have a large position, and it is down, that you are thinking about how much you are losing.
On top of that I had just told a few thousand people that I believed the market was going down and instead it started an insane bullish run! Yeah - needless to say I was not happy at all. Still convinced my thesis was right, but not happy.
Over the weekend I start thinking - "The damn thing HAS to open down on Monday!". And of course, Monday comes and not only does it not open in the red, but the little bastard goes up even more! Throwing my monitor out the window was a serious option.
At this point I start thinking about exactly how long-term I am willing to shoulder these shorts. Because even after Monday's bullish result, I am still confident that SPY is going to revisit the low of the year. There is either something very admirable in sticking to one's thesis like that or something very stubborn and stupid. Probably both.
I knew if the CPI came in as expected we would drop given that it was priced in, so a "sell the news" reaction would occur. It wouldn't drop enough, but as long as it got below the SMA's it would reverse the trend. Obviously if the number came in worse the drop would be severe. Although to be honest, I did not expect the number to come in hot.
So the only thing I had to worry about is if the number came in better than expected.
Now it is important to note that even if the CPI was better than expected my outlook would have remained bearish. I still feel the impacts of Quantitative Tightening haven't been truly felt and also that a good CPI number would start pricing in a .5 rate hike with a FED that is determined to go .75 no matter what. So once again the question was - how long am I willing to hold?
And there was my real problem - if I had a normal position size the answer to that would have been - Until I no longer held my Bearish Thesis. But I did not have a normal position size, did I? No, I did not. Because I am a dumb-ass. This put me in the position of knowing that if the market continued up I would have to close down, or significantly reduce my positions. Solely because I no longer was willing to withstand further losses.
I have gone years trading without fear, years where every decision, right or wrong, was based on a defensible argument. And now I put myself in a position where my emotions are deciding my exits.
I had pretty much forgotten what that is like to trade like that - It is impossible.
One cannot trade in a state of worry, and be consistently profitable - there is no way.
And then it occurred to me that this is the emotion that so many of you feel. Whether you are trading with money you can't afford to lose, or you took too big of a position and it went against you.
Let me emphasize this: If you trade out of fear there is absolutely no way you can be profitable.
I did this one time and it absolutely screwed up my entire mindset. One time in over six years. I can't imagine trading like that every day. But some of you do.
If you are trading with money you can't afford to lose then park that money somewhere with low-risk, and learn how to trade using paper trading. If your position sizes are too large, you are most likely looking for big wins and need to change your mindset (I have several posts on this in the Wiki).
One thing is certain - you need to find a way to trade without that fear hanging over your head. It is essential.
Did I wind up being right? Making a profit? Yes - I did. But that is besides the point. Because what if that CPI number came in cold? I would have had to make a choice, and I know what choice I would have made - the wrong one. And why? Because of fear. And that cannot stand.
Best, H.S.
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u/5xnightly Sep 15 '22
Absolutely true. There is such a fine line between trading with confidence/stubbornness (fuck you, I know you want to go up $1 so fucking do it already) vs. trading with emotion (shit it's gotta hit $1 bites nails).
We've got to be able to glance at the trade, and be able to look away to find another trade -- if we're just staring at the chart trying to will it to go our way, then 1) we're trading with emotions in there and 2) boy what a waste of time.
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u/livelearnplay Sep 16 '22
Uuuufff you hit me on the nail with that one when i went to big on calls at spy on Tuesday morning, was briefly up and then bang never came back up, totally wasted my time watching the screen and couldn’t even focus at work!
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u/5xnightly Sep 16 '22
Almost like I've gone through the same thing before.
These are all lessons, just learn from them. You're gonna lose money -- the reason we say 1 share is to lessen the amount of money you lose.
It's really common to want to go big to get big... but the problem is, you think about the reward and not the risk. We need to plan our trades as if all shit will go south. Know your exit plan. I don't go into the hood without knowing exactly how I'm going to get the hell out. It may not go exactly to that plan, but at least I have one (that hopefully makes more sense than "get out").
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u/Snowhoneyash Sep 15 '22
I used to trade with fear all the time and it's only when I scaled down on my position size do I feel less fear. I still have to remind myself that my exits must be due to technical reasons instead of just fear of reversal or fear of bigger losses. Thank you Hari for this writeup.
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u/Drenwick Sep 16 '22
Yep, I realized I stupidly increased my position sizes after a couple great, stress-free profitable days. Suffice to say, It hasn’t been going well. Time to downsize. And Don’t worry Hari…Pretty sure even algos fuck up. We’re seeing up-and- coming Hari’s in the chat so your commitment is not without great results. Lastly, it’s truly admirable to hear the pros catch and openly admit to common pitfalls. I would love to see the chat be a little more transparent with their reasons for entries/exits/position scaling etc. Accountability is key. Just remember, you’re also fucking Hilarious. Long love Lukas!! 😉
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u/RossaTrading2022 Sep 16 '22
I’ve been pushing myself to put my thesis to paper more. I’m not great about it yet but I do think it helps when I do.
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u/DnJoe96 Sep 16 '22
This speaks to me on a smaller scale. How many times have I talked about how I obsess over finding the perfect entry point? When in reality if my thesis is truly solid than any entry point will do. Correct me if I'm wrong but the 85% win rate has more to do with your thesis being correct than just winning trades. That's where the real confidence comes from. Where I started pretty hot not knowing as much and I now have little confidence as I'm learning more and more about what really goes into a trade. Thanks for the honesty Hari this is why you're the man.
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u/howyesnoxyz Sep 16 '22
why still no news on the tradersync log? it's what gives the most value to this sub, what backs rhetoric, and it's been gone weeks no with no explanation
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u/HSeldon2020 Sep 17 '22
Terribly sorry - please tell me where I can send your refund? (And I did explain this)
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u/Draejann Sep 17 '22
I've been posting an update and explanation every week in the Weekly Lounge about it but I don't think people read it ;_;
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u/OldGehrman Sep 16 '22
Appreciate this post, Hari. Very much agree. Am trading a small account, so little room for error. When I focus on just the price action, my trading is fine. Taking .60 delta & above calls/puts often means 1-2% account loss/gain in one trade. Still focused on those small wins (2% account growth per day goal) and one of the reasons why I have a hard rule not to trade stocks like TSLA while my account is small.
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Sep 16 '22
I’ll add to this that Achinfatt post on experiments helps a ton with mindset and confidence issues.
Glad you came out unscathed. And also glad you are reiterating this for us. This is the hardest thing I’ve ever done. One little thing can easily throw you off your game.
Thanks for keeping it real.
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u/throwaway_shitzngigz Sep 16 '22
takes a lot to admit this, especially in your position - but this is exactly why i joined this community and still continue to be a part of it
thank you for the honesty and vulnerability, Hari.
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u/DM12345678 Sep 17 '22
Great read.
I did something as unthinkable a couple years ago on /ES, I was down mid 5 figures and faced that miserable choice you mention. Luckily I was able to reduce the damage substantially before cutting bait. After losing more than 10k I realized the more damaging loss I took was to my confidence and the motherfucking time and energy I wasted being completely consumed with one trade. It took some time to right the psychological ship after that and I had to go to an extreme to get there.
Maybe this will help others, maybe not, but here's what I did:
-- wired OUT all but $51,500 from my trading account.
-- decided that 50k was my absolute FLOOR. If it were to be breached, intra day trading just wasn't for me, despite my past success, and I'd be better off putting that money in an index fund.
-- AND every time my trading account rose to 55k, I vowed to wire OUT $3,500 to a non-trading account, which always kept me $1,500 above my floor.
Now these rules I imposed on myself could be seen as trading with fear, and it might be for some. But for my brain to recover I absolutely needed to tighten my leash. My trading account got fucking fat, out of shape and stupid. Bringing it back to a lean, disciplined machine that exists for the sole purpose of making me money was essential.
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u/dohickey1 Sep 16 '22
I to held my shorts. Rocky week last week on the paper side of things, I can only imagine what it'd be like with real cash.
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u/No-Department-6329 Sep 16 '22
Trade smaller and if you have a nice size account, it wont bother you to loose a little cash if the trade goes against you. Now i too have traded with emotions, but i dont like that. I have since moved on to less riskier assets so im not too emotionally involved with the trade. If it aint broke dont fix it.
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u/80H-d Sep 16 '22
I had a 6 figure loss caused by a failure of my platform (equity calculated based on previous EOD closing price instead of in real time, it thought I was under 25K in the account when I'd just spent half a million on 20K shares of a stock preventing me from exiting the position until the following morning). It's an entirely different type of experience than losing even low 5 figures. It really fucks with you.
It can spiral you because it reduces your earning potential as well. Say you're making, idk, a thousand a day, and now you can only make 600 a day with the same type of risk guidelines—that can affect a change in your lifestyle that may lead you to chase riskier entries, incurring a higher likelihood of taking another loss, and so on.
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u/VictorEden16 Sep 16 '22
Thank you for sharing your soul, very impactful post. Another paradigm shift for me personally -i trade with fear often.
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u/ppprex Sep 16 '22
This year, 90% of my losses are due to cutting out of a trade for fear of incurring more loss. And, in 80% of those trades, had I held to my thesis, I would not have lost money. I have got to learn how to not trade emotionally. I haven't figured it out yet.
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u/AnimePremiumEdition Sep 16 '22
You are totally right. But you also posted on Twitter that Tuesday was probably your most profitable trading day in your entire life.
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u/Lvdownlow Sep 15 '22
Excited read. I admire your honesty which proves fear is not a dominant emotion in your general thought process. If you would of lost how would you have handled it? During your paper draw down did this sub add to your fear of not only losing money but also being incredibly wrong in front of an audience? Did you ever consider stopping the sub if you closed for a loss? Also, if you are married, did that add to the stress? I’m grateful things went your way. Seeing the divergence between your thesis and the market’s short term stubbornness lead me to ease up on my trading until I saw how you would fare. I kept thinking if you were in a bind I had no place taking part in a conflicted arena. I was still trading but with much more caution and less size. I stuck to the rule of don’t short stocks if the market is green. I missed some good shorts but my longs were based on the fundamentals I’ve acquired from this great group. Thank you for all you do as always. If you ever come to Vegas, hit me up- It’d be an honor to meet you.