Blow Outs.

Discussion in 'Trading' started by walterjennings, Dec 29, 2006.

  1. After reading many posts which state 'a few blow outs before profitability' either as a warning or from experience. I have this question to pose to the forum.

    I have been trading for around half a year with no real issues. I was wondering if it is normally possible to transition beginner (zero experience) trader to expert without experiencing a blow out or some degree there of? Do even the best traders on wall street have to deal with it at some point in their careers?

    Thanks for any insights or opinions.
  2. If you have a blowout you have poor money management period.
  3. mind explaining what you mean by money management? I didn't know what a bid/ask price was 6 months ago. I haven't spent any time learning about the subject. I probably employ my own variation right now.
  4. Money managment = 100 different things like:

    adding to a losing trade
    running without stops
    being just plain stupid when it comes to trading

    please feel free to add fellow ET'ers
  5. I think it's pretty rare for an independent trader not to experience an account meltdown at least once while climbing the curve. Better earlier than later, imo :)
  6. basis


    It's not strictly necessary (how could it be?). But the reason so many have done it (including myself) is that most haven't internalized the lessons that real risk can teach you.

    There is a certain "pit of the stomach" feeling that you can only get by violating prudent risk rules and getting your ass handed to you. It's extremely worth avoiding, and you know that when you've felt it. It makes you a better trader.
  7. MattF


    Glad I haven't hit that yet...:(

    Although I'd rather feel bad getting stopped out, then feel even worse raising that stop thinking things will come back, only to lose even more...
  8. I dont think it is mandatory that you have a meltdown or significant drawdown but as one poster pointed out, greed and recklessness are human traits that trading magnifies which leads to those one or two times you put on a position bigger than you should have on or makes you hesitate in taking the small loss which becomes a big loss.

    No matter how good you are, human nature always sticks its nose in and messes with you. I think the more years you trade the better you get at controlling it (I hope!) but perhaps in the early years it is harder to turn off that little greedy devil that sits on your shoulder egging you on when you should pull it back a bit.

  9. overleveraging is the biggest thing.

    but i like averaging in on losers, and keeping my initial entries very small. additionally i'll only average in on winners if the fundamentals seriously change in my direction. (ie I bought more AAPL today after the scandal was cleared .... but if this jump were on just decent earnings, which are expected, I might not buy more considering it had already run)

    of course, i set my position risk to be large enough to include a serious amount of volatility, and usually only exit if I see the fundamentals changing. I like the Bruce Kovner idea of deciding position risk (1 or 2% per trade) and then determining position size and strategy by analysis.

    so that means widely spaced entries often with VERY VERY small starting positions.

    for higher leverage instruments, this flexibility is harder to come buy - which is why stock trading can be very rewarding.

    you can take another approach, averaging in on losers, but setting stops for each successive entry ... to keep leverage under control on losers.
  10. Been actively trading since '99. Lots of heavy options action too.

    I took a hit from 9/11. Had a big index option position on and got nailed good.

    But, I KNEW what my max loss was. And it was never account threatening.

    Now I trade systems with an average low exposure. 20 consecutive losing trades will not take me out. Another 9/11 will not take me out. Nothing will take me out of the game, unless I want out.

    It's all about balancing the fear/greed equation. I could jump my trade size hugely and really crank in the gains. But then the unexpected event, which should ALWAYS be expected IMHO, could wipe out my account.

    Ain't gonna happen.

    Good trading to all. :cool:
    #10     Dec 29, 2006