It doesn’t matter how careful you are. If you are speculating in the markets there’s always a chance you will lose all your money.
Don’t believe me? Think back to the flash crash of 2010 when $1 trillion of stock market value disappeared in 15 minutes only to recover right back. The velocity and violence of the move was so sudden that if you had a leveraged position in the market it was likely margined out before you could even figure out what was going on.
And if you think that such an event can’t happen again because the exchanges changed the rules then you need to appreciate the fact that the history of financial markets is basically the story of “all rules are made to be broken.” Just look at LUNA and the concept of “algorithmic” stable coins that showed how code can be broken.
All of this is to say that if you are thinking about the money in your account while you are trading you’ve already lost because the root of all evil in trading is money. Trading money is not like money in your bank or money in your pocket or even money on your credit card. It is always but its very nature at full risk of loss. Your own stupidity, a quirk of the market or simply some unimaginable fate will always conspire to blow it away. This is why you should never, ever, ever, ever drop all your money into your speculative account.
If you worry about money you will inevitably do the wrong thing at the worst possible time as a result of trading your P&L rather than trading your strategy. How many times have you been in a trade and whatever position you may have on gently touched some round number in your account and you closed it out not because the trade was no good now because not because you thought that there was no more potential to the upside but just because you reached some sort of a milestone on your equity and you wanted to make sure to lock it in? That is certainly sub optimal but that’s actually not the worst thing that happens to you when you think about money rather than trading.
The time you truly get in trouble in your trading is when you’re trying to protect your balance from eroding further and stop yourself before your strategy tells you simply because the pain is too much. Inevitably you end up selling the bottom or buying the top simply because you just couldn’t take it anymore. I’ve done that a thousand times and it was only after I made peace with the fact that my trading account is not really money that I began to truly trade properly.
This past Friday I had a couple of unfortunate events in both of my trading accounts. On the prop side I got myself into a trade cycle against the NASDAQ long without realizing that I was trading the pre-NFP market. Friday pre-NFP is literally the single worst time of the month for me to trade stock index futures simply because the market is just biding its time and if you happen to be on the wrong side of the move the slow deadly drip could wreak havoc with my strategy. Once I remembered that it was pre-NFP I took the loss rather than let the strategy bleed itself to the bitter end. Though it was painful to give up a couple of days worth of profits in the end it was absolutely the right decision because I would have taken a much larger loss. By not caring about the money and just focusing on the proper tactics I was able to make back at least a day's worth of trading by the open of Friday New York trade. Two steps backwards and one step forward is a lot better than going back to the starting line.
But my troubles weren’t over. After trading my prop account I turned my attention to my own futures account. All was going well. I was picking the right spots in the market. My algo was executing perfectly and I was really pretty much ready to call it a day. I did however have one last trade on and because I was trading futures and because futures have two distinct instruments - the micro and the mini I need to keep her eyes out on the position while I stepped away from the office because my algo could not seamlessly switch between the two. So I decided that I was going to monitor the trade through TeamViewer on my phone. I was actually being incredibly proactive in managing my risk and very proud of myself for thinking through a way to keep an eye out on my position. After I left the house and check the phone I realized that the trade resolved quickly in my favor so I didn't have to look at the phone anymore. I put the phone in the back of my pocket not giving another thought. When I came to the office about 45 minutes later to glance at the screen I couldn’t quite understand what’s happening. My account was literally 20% lower. Looking a bit more carefully at the screen I realized that I had somehow assumed a big long position in large NQ contract with no stop and was bleeding money by the second. The old me would have frozen like a deer in headlights hoping against hope that the position would reverse, but the new me instantaneously closed the trade then tried to figure out what happened. What in fact happened was actually the ultimate irony of the week as in my attempt to be super risk conscious by monitoring my position on the phone I had inadvertently triggered a much larger position through the TeamViewer app. I had accidentally butt dialed myself to a massive loss. Will it take me a few weeks to get back to breakeven? Yes. But that doesn’t matter. What matters is that I have the full and total confidence that I can do it.
In trading money doesn’t matter, but risk management does.