Chris Rock is quoted as saying when his first daughter was born that he instantaneously knew that from that moment on he had only one purpose in life. Not to make money. Not to be a success. Not to win an Academy Award… but to keep her off “the pole” at any cost.
If you’re a trader it’s the same thing: your one purpose with your trading life is to avoid the “suicide trade” at any cost.
Maybe you think that it is insensitive and superficial to compare the actual loss of life or losing a daughter to stripping with blowing up a trading account?
Well I am not talking about a twenty something college student losing his birthday savings account at Charles Schwab. I’ve had numerous people well into their 40′s and beyond tell me, after they find out I teach trading, about blowing up their life-savings or retirement accounts and loosing major parts of their lives like their spouses, their children, or their homes.
Some are now suffocating under a mountain of debt (credit card cash advances that funded a trading account). One did all those in a three-month period of insane trading.
And if you throw in the “Madoff’s” of the world, it’s easy to see that the damage the suicide trade can cause can be as bad as (and in some cases proceed) the actual loss of life.
I’ve got three rules for avoiding a suicide trade:
Rule #1: There is no amount of good work that can’t be undone by one bad decision.
You’ve had a good day trading? A good week? A good quarter? Maybe even a good year trading.
Doesn’t matter; one bad decision and you can give it all back.
Rule #2: There is an inverse relationship between the amount of time and work needed in order to create and the amount needed to destroy.
You can spend hours each day looking at charts, talking with other traders or following them live in trading rooms, running scans, reading all the SEC documents you can get your hands on just to locate a low risk high reward trade that gives you an edge in your trading and…
One stupid “gut” trade, input in a few seconds, and it’s all for naught.
Rule #3: Sometimes, your worst decision will be your last decision.
If you make a trading decision that is bad enough:
Ignoring your stops,
Adding to a losing trade,
Miscalculating the risk or
Over-leveraging your account,
It won’t matter what your real intent is, it can be your “suicide trade”.
This last rule is the most critical, of course.
Trading in the abstract can be about many things; control, ego, risk, stimulation, but at the end of the day/week/month/year, your success is measured in dollars.
If you have more of them when you finish than you had when you started, you are a success. The thing is, as long as you are still trading, you are never finished, and you’ve still got a shot at success.
Helping you retire on time,
Big A