A Trader in crisis reaches out for help

The post explores problems that led a trader to crisis and the potential solutions and actionable activities that will lead him out of the darkness and towards the light.
I received this heartbreaking note in my mailbox this morning from one of our group members. I am posting it, not to humiliate the sender, but for all of us to learn from.  It actually takes courage to reach out for help and I am proud of this person for recognizing what they are doing isn’t working.   I will do my best to help.   My comments will be in bold throughout
 
Note:  I have made several changes to the original email to improve readability.  The context and problems presented are as they were originally stated.
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Chris, I need someone to talk to.

Super; here to help and I will do my best

On Friday I bought puts for Monday and was so tense about them that I intermediately sold them for $4.50, but had I just waited until the eod they were selling for $8.00, I had 10 contracts. I really needed a win because this year I’m down over 10K trader.

As a new Trader, trading weekly options is a dangerous game.  A quick move the wrong way and the weeklies move against you so fast.  I’d focus on developing and then honing your craft on the daily time frame.  Additionally when your thought patterns turn to ” I need a big win” your psychology is flawed. A loss is a loss. Best case, you can only take from the market what the market will give you.  Thinking and then trying for a “big win” leads you to force trades with out-sized positions which adds to the stress you said you experienced.

Later that day I still held a big put position so I bought some calls. When Tuesday opening the huge losses I realized due to my outs were nothing compared to the small gain I had made in the calls so I sold the puts and added to my call position. All day those calls kept losing value as that day the market was in theta burn mode.

Buying Calls against a large put position means either you were trying to hedge out the risk, or were not sure about the direction of price.  In my experience you have to be very fast to react on weekly options. When I trade them, i keep position sizes manageable and use tight stops.  When price goes against you and takes out your stop, in my experience, its best to take the loss.  Then look for another set up.

I added more calls going into the close and when the Market opened Wednesday around 292 my calls were down over 70% sold and took the loss. I call had UVXY puts and they had lost a big chunk as well. In the next hour or so UVXY has dropped a few points and my puts would of been at break even at least, and calls would of broke even if I waited until end of day…

Through numerous experiences and heartaches, I only use weekly options as a day trading instrument for the reasons you too experienced. An overnight move will wipe you out.  If I want to hold a position for several days, i go out at least 2 weeks out and more often a month. It will cut the volatility way down and greatly reduces the overnight risk.  Lastly, you will drive yourself insane playing “if I had only waited” game.  Set stops, honor stops, period.  You cant guess the future or surmise what would have happened if I had only waited for the day to play out.  Markets reverse,that’s what they do, but you cant hold a position that is going against you in the hope that it will because that will be the day when it keeps going against you.

so because at 9:50am yesterday I sold all my calls and UVXY puts when SPY was at 282 I had no part of the action on the ride upto 288.90 the high of the day and 289 was my first target from the get go but because I got wiped out during the opening bell I had no position.

That moment when I sold my calls I switched to puts immediately, so instead of recovering my losses on my calls yesterday I lost money by selling my calls and by buying puts in the morning and holding them till after 2pm where I finally decided to close them.

As soon as I sold my puts I bought calls again and rode the wave up to 288.90 and had actually made some profit to turn a horrible day into a bad day.

So instead of selling my calls and just taking a break from it all I jumped right back into calls when I saw the market kept grinding higher and once it broke 288 it made a fast push to 288.90, but because I didn’t sell in time it dropped again to 287.75 and I got wiped out again on my calls…

could of walked away with some good money left in the table yesterday but got really aggressive at the end of the day buying and trading calls back and fourth on margin.

What you are describing are classic whipsaws; jumping back and forth between puts and calls as price jacks you around. It is very stressful and unproductive.  Try these ideas to cut down on it.

  • Before trading begins, write down your trading plan.  What is the direction of the primary trend? If you don’t know or are not sure, no trading.  If the primary trend is bearish, only look for bearish set ups.  Trade only in the direction of the trend. It is simpler and trading with the trend will offer more favorable outcomes.
  • Trade level to level with specific entries and specific exits.  If price breaks X I am going short w/ a target of Y.  If price reaches Y I am out with a win.  If price reverses and takes out my stop, I am out with a small loss.
  • Trade small….1-2 contracts while you are rebuilding confidence. It will lower stress levels and let you focus entirely on trading process.
  • Set yourself a daily loss limit and /or a weekly loss limit.  If you hit it, stop trading for the rest of the week.

At 3:45pm in the afternoon I had 65% less in my account then when the market closed on Tuesday so I used that remaining money to put the 284 puts for this Friday thinking all I need is a move to 277-280 to make some of my money back.

Although there is no trader alive who has not experienced these thoughts, don’t allow yourself or your mindset to drift into trying to recoup losses. If your process is sound you should know, not guess, that those losses will be recouped with solid trading over time. What you describe above looks and feels like revenge trading….trying to prove to the market you  can recover big losses in one fell swoop.  It rarely works out well.

And as of this morning it looks like it’s going to be another losing day. Questions is should I sell at the open since we did not gap down or hold and wait until tomorrow’s expiration to try to make my money. Problem is there’s only 2 full days left and if there’s no sell off today then my entire position will be worthless.

Clear your positions and take a break for a few weeks.  Then do these things

  • Develop and write down your trading process
  • Rebuild confidence by demonstrating success with paper trading.  If you can’t win on a demo / paper account, then you won’t win with real money on the line.   I have gone through this and it really helps by forcing you to hone in on the process.
  • When you feel you are ready, ease back into live trading with micro positions. 1-2 contracts.
  • Trade the daily time frame to reduce whipsaws and give yourself at least 2 weeks and preferably 4 or more weeks for the trade to work.  This will reduce trading frequency and decay on your options.
  • Measure your success against your execution of your process.  For instance, if you have a loss because you are stopped out, that is fine. Its part of trading.  If you have a win but it was the result of luck or throwing darts and ignoring the process, then that is a poor result. Process is everything
  • Journal your trading day. Jot down the thoughts you have in real time. Recapping your journal entries will be very enlightening. You’ll begin to see both good and bad trends emerge which you can work on.
  • Lastly, play the long game. Success takes time and lots of practice. You’re not going to get rich by Christmas and the sooner you truly integrate that thinking the sooner wins will come.

Funny thing is this past Monday when I went into the close with a 2:1 ratio in puts to call the futures traded that night to a low of 2770 and I was really feeling good going to sleep. On Tuesday when I woke up the futures were up-to 2866.

This week has been nothing but a disaster of a stressing nightmare and I don’t have the energy to try to make money. There’s a 77% chance I will on my puts and once that happens I’m going to walk away from the market for a few months to regroup and try to make sense of things.

Losing is stressful. Any trader that has traded any length of time will attest to that.  The key is understanding the reasons for the stress.  Out-sized positions; holding weeklies over night; not having a well-honed process to lean on.

Sorry for writing so much. I just needed someone to vent to because I don’t want to tell my wife what happened because she will get even more madder than me for losing money.

Trading can cause real rifts at home and at the end of the day if you lose your family life because of trading that would be a damn shame and not worth it.  My best advice is to bring your wife in on your process. Let her understand how hard trading is and the methodical process you are going to use to get better.  She will admire your dedication and hard work to get it right.  After all, she wants you to win as badly as you do.  Demonstrate to her that you deserve to trade with your collective monies by showing her success on a paper trading acct.   Then trade small in live markets. Learn to calm the destructive emotions that are dominating your current mindset.

Lastly, although you are feeling despondent and in a tough spot, it is a place all traders have been in.  During your needed break from trading, read Market Wizards, read Reminiscences  of a  Stock Operator.  It will show you that even Market Wizards go through tough times but through hard work and a rethink of what they were doing, they were able to overcome adversity and power on to success.  The stories are inspirational and you’d benefit from reading about what they went through.

I want to thank you so much for sharing your struggles.  Your story will help others who are in the same spot.  I hope the ideas that I offered are helpful.  Stay in touch and let me know how you’re doing good or bad.  We’ll get you pointed in the right direction and if you truly work it, success will find you.

Good Luck!!

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After thoughts

One of our group members offered a great suggestion that never occurred to me.   That is to suspend the trading of options all together and focus on using the multitude of 2x and 3x leveraged ETFs that are available.  These leveraged ETF’s are a great alternative to options. They offer a degree of leverage but are much more forgiving than a weekly option.  This particular trader uses these instruments to great success.

Pulling it all together

All traders, at one point or another, either hit a wall or otherwise find themselves in crisis. Its easy to do.  What is also common is to deal with the crisis with a combination of denial and fear.  The downward spiral proceeds from there.

For the trader in crisis  I can offer two bits of advice.

  1.  Stop trading.   Although it is hard, stop trading.  Take a step back for however long it takes to calm yourself, examine the root causes of the problem, and to rebuild a trading process you can lean on.
  2. Ask for help.    Many people feel asking for help, in any situation, is a sign of weakness. Nothing could be further from the truth.  It is a sign in fact of great inner fortitude and strength.  If you’re stuck, find a tow truck to pull you out of the swamp. You will be surprised at who offers to lend you a hand.

Now that our group member has reached out, I look forward to working with him to get back on track. Once pointed in the right direction and with continued coaching, there is no reason that with hard work and dedication this trader can’t go on to experience consistent success.

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