Coping with Depression following a major drawdown.

Discussion in 'Psychology' started by LordMelbury, Jan 23, 2007.

  1. “I was twenty when I made my first ten thousand, and I lost that. But I knew how and why – because I traded out of season all the time; because when I couldn’t play according to my system, which was based on study and experience, I went in and gambled. I hoped to win, instead of knowing that I ought to win on form.”

    “There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!”

    “Suppose a man’s line is five hundred shares of stock. I say that he ought not to buy it all at once; not if he is speculating. If he is merely gambling the only advice I have to give him is, don’t! Suppose he buys his first hundred, and that promptly shows him a loss. Why should he go to work and get more stock? He ought to see at once that he is in wrong, at least temporarily.”

    “Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don’t make a second unless the first shows you a profit. Wait and watch.”

    “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”

    “With me I must back my opinions with my money. My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision. All my life I have made mistakes, but in losing money I have gained experience and accumulated a lot of valuable don’ts. I have been flat broke several times, but my loss has never been a total loss. Otherwise, I wouldn’t be here now. I always knew I would have another chance and that I would not make the same mistake a second time. I believed in myself. A man must believe in himself and his judgment if he expects to make a living at this game.”

    “The game taught me the game. And it didn’t spare the rod while teaching.”

    -Reminiscences of a Stock Operator (Jesse Livermore)

    Dr. Michael Roberts
    #11     Jan 23, 2007
  2. i wonder why people look up to livermore as some kind of trading god. i would say he was more of a reckless plunger that eventually lost it.

    "Folklore isn't just Paul Bunyon, Daniel Boone and Davey Crockett. There's a distinction between trading skill/money management versus 10% margin, no upticks, outside capital, acts of God, press releases, and insider information.

    For clarification, here's a sketchy chronology:

    By 1900, aged 23, he had amassed roughly $50,000, from the bucket shops.

    Fall of 1905 Thomas Lawson of Boston provided ALL partnership capital for Livermore to raid Union Pacifc stock, actively traded by the Harriman. pool.
    Losing his ass up until April 18, 1906 San Franciso earthquake. UNP stock took two days to respond lower. Lawson got the proceeds and Livermore pocketed a $300,000 fee. Took off for Saratoga.

    On an unknown date soon after Livermore made the mistake of going short the SAME stock. Harriman pool this time was prepared. Livermore watched a quarter of a million vanish on upticks.

    Slightly later, another 50/50 deal with Lawson to short Great Northern. Made a second killing. .

    Jesse made his FIRST million in shorting Anaconda in the summer of 1907. Market panic as much as his skill. Banks called existing loans. October 24, 1907 J.P. Morgan forced his fellow capitalists to start supporting stocks. Livermore knew better than to buck the Morgan crowd. Bought his first yacht, the Anita Venetian.

    Had an epiphany that commodities posed less "problems" because prices depended upon supply and demand (rather than synthetic measures). Long 120,000 bales of cotton. First used the power of the press release. in the New York Hearld "July Cotton Cornered by Jesse Livermore". Shorts covered, suckers (his term) rushed in, Livermore unloaded. New nickname, Cotton King.

    Spring of 1908, Desperately trying to stem a dropping price by buying in both New Orleans and Liverpool, found himself long 500,000 bales. Simply put, the Anita Venetian went under the hammer.

    For Livermore 1911-1913 appear to be lean years.

    In 1914 he was living Bretton Hall Hotel at 86th & Broadway.

    Filed bankruptcy in 1915 with $102,474 in professed liabilities.

    The Bethlehem Steel trade in cited LeFevere's book was in here somewhere.

    December 20, 1916, somehow became alerted to a telegram to Finlay Barrel & Co. in Palm Beach from a Washington reporter named W.W. Price leaking of Wilson warning the warring parties. Figuring there'd be a market collapse, Livermore approached Lawson again. With capital, shorted the "four horsemen" US Steel, American Can, Baldwin, and Anaconda. E.F Hutton made a flash wire to its offices hours before Wilson's note was publicized. Bids melted away. Livermore bought a half million annuity to throw off $30,000 per annum Also rushed out and bought a speed boat called the 'sub-catcher" and a $120,000 platinum and emerald ring.

    Unloaded his first wife via Reno in October 1917 and the 40 year old, on December 2, 1918, married the 18 year old daughter of a wealthy Brooklyn merchant named Wendt. Rented a furnished townhouse at 8 West 76th Street. January 1920, bought a seat on the Curb (today the AMEX). 1919, first son.

    1921 had a pool agreement with the Lewisohn Brothers to ramp Seneca Copper. After running from $12 to $25, the brothers canceled the (then legal) agreement.

    Summer of 1922, Livermore was reported to have lost $8.5 million on the short side of Mexican Pete. June 1922, Clarence Saunders, owner of the Piggly Wiggly chain hired Livermore to "kill the bears". By November, Livermore had amassed 105,000 of 200,000 shares outstanding at an average of $35. March 1923, stock was over $70. Livermore had 198,872 of the float. March 19th, Saunders asked Livermore to spring the trap demanding delivery from short sellers. Livermore RENEGED. Saunder's somehow succeeded anyway. From an open of 75 ½ sky rocked to $124, and closed the day at $82. Same year, ran the Mammoth Oil pool involving Harry Sinclair.

    In 1924, Arthur Cutten forced wheat to over $2 per bushel for the first time. Livermore was short and lost a considerable amount.

    In 1927, Livermore ran a pool to ramp Freeport Texas stock from $19 to $74 ½. Also a dirrector of Minter & Assoc, selling $9 million worth of Florida lots and filing BK two years after inception. Robbed at gunpoint in his home in May 1927.

    April 1929, sued for $1,450,000 over the 1926 Boca Raton RE crash.

    July 1929 refused to make a court appearance in a $525,000 suit against Livermore by the Carbonite Corp for an alleged breach of agreement.

    October 1929, details sketchy but even though Livermore "won" millions on the short side, he lost $6 million in his long positions in the crash.. Arthur Cutten purportedly lost $50 million.

    August 16, 1932. Divorced his second wife. March 28, 1933, married his third wife at age 56. May 30, 1933. Security Legislation enacted. Pool operations outlawed.

    March 4, 1934, Livermore filed BK again. . $2,259,212 liabilities/$184,000 assets. (FLAVOR OF THE THREAD)

    Thanksgiving Eve 1935 his divorced second wife shot his first son. Non-fatal.

    Summer 1937 chartered a yacht (Nina) rather than owning it outright.

    Apparently from 1934 to 1940 he was an investment advisor/broker. Apparently to acquire capital for a comeback, decided to write a book (in two versions) The office that's frequently mentioned in awe appears to have been merely a facade to promote the book. The "legendary" market key, is patterned after Dow Theory confirmation, but using two companies in each of 5 leading industries. Hardly original, and basically the opposite of pairs trading.

    November 28, 1940, shot himself in the head in the hat check room of the Sherry-Netherland hotel after writing an 8 page note to his wife with the recurrent theme "My life has been a failure"

    Hmmm, seems to reflect some risk management and position size issues in addition to artificial "edges". "
    #12     Jan 23, 2007
  3. me2


    this book

    When Supertraders Meet Kryptonite
    by Art Collins

    is a good motivational read when struggling
    #13     Jan 23, 2007
  4. Qwerty


    Qoute from LordMelbury:

    in just the last 12 weeks i have unbelievably and stupidly lost 600k, 300k thru trading


    Can you please provide details on where you bought or sold, what day, etc..
    Let's analyze what you did wrong, how can others help or assist you when we have no reference point?
    #14     Jan 23, 2007
  5. Take a break, get your head together.

    You've made money in the past, so you can do it again in the future.

    As another guy already said, half of your losses came from a property venture and not a market related event.

    15% draw down is not a disaster.

    Draw strength from your cancer experience and come back stronger. Get your mind right, don't return until you do.
    #15     Jan 23, 2007
  6. ElCubano


    so you have 2 kids over a million bucks and caught your cancer early....i dont get where the depression is coming from...really im not being a prick...your health is much more important than any amount of money and stressing over it wont make you better...enjoy ur life homey you will get over the loss of money...I wish you the best of luck
    #16     Jan 23, 2007
  7. 1) Get your health back. Absolutely no trading until that's there. With poor health, the stress accompanied by a large drawdown will only amplify illness you are trying to recover from.

    2) Get your life priorities straight. At least for me, that means God first, family second, money third. If you feel you're letting your family down, you are emotionally out of shape to trade now.

    The markets will always be there, so don't hurry. If you hurry, you won't be around very long. Take the time to get your life in order.

    #17     Jan 23, 2007
  8. As others have said, -$300k is from trading, which is a 15% drawdown. A 15% DD really isn't that much in the grand scheme of things, especially after doubling up 100% since 2000 and having an 18-month winning streak back in '05 (I perused your posts). I've had 2 drawdowns of ~15% or greater in the past 12 months but overcame them fine with record gains on the year.

    I would park the $1.3M into a money market @5% for the time being. $65k/year may not cover everything (especially if you're still in England), but it's some nice piece of mind while you go through this difficult time with the new baby and cancer battle.
    #18     Jan 23, 2007
  9. 1.) Consider incorporating as much living raw foods into your diet without really going 'all the way'. This is a balanced article:

    2.) Nothing beats yoga as exercise when one wants to improve nerve function/communication. Here's more about the physiology:

    3.) You can never avoid risk/uncertainty in trading so never put on a trade if the risk/uncertainty makes you uncomfortable. Being unnerved (uncomfortable) can severely impair the constant learning/monitoring process for a trader.
    #19     Jan 23, 2007
  10. RAY


    I don't post much, and there has been many great responses. I will concur with the need to exercise and be healthy.

    A while back I had a similar problem. The difference for my situation was/is that I was single (no longer, and she even earns a good living which did help). I am sure having kids makes everything different.

    Now... What I did was restructure my life to where I wouldn't have to trade/work to be OK for a very long time (not for ever). I sold the expensive car; I even moved into a smaller home. I pretty much did what Trader KGB is suggesting with my cash (I did a mix of income investments), but I took it many steps further.

    I then focused on my health. Being ill is VERY expensive (financially, mentally, physically etc.) I found good doctors (I actually flew 1500 miles each way to see them, check-ups and all.) I found a good psychiatrist (thankfully he is local!), and stepped away from the markets for almost TWO years...

    There is one thing I would do differently. I would keep a very small trading account, and play with it from time to time (super small). I suggest this because it took me longer than I expected to "recover" my trading "health"; once I returned to the markets (I was somewhat rusty; Hell, I still am).

    Happy to hear that you are having success with you illness. In my opinion most "traders" that are diagnosed with a serious illness need to restructure (reevaluate YOUR own risk profile) in order to properly deal with the illness/life.

    One last reiteration: the psychological impact of all this is WAY stronger than most would imagine. Getting professional help in this department is, in my opinion, imperative.
    #20     Jan 23, 2007