Death by 1000 Cuts

This journal will document my effort to un-blow up an account by doing the exact opposite of what every new trader seems to be able to instinctively do so well.

I have always been excellent at cutting my losses and letting my winners run…unfortunately those few occasions where I have taken my profits before they became monstrous have really hurt me. On a number of separate occasions I would have nearly doubled my account equity without any scaling whatsoever, but by taking the profits off the table before they became large enough, I have managed only a small interruption in the slow bleed of my account.

Some examples that come to mind are long aapl at $90, long YG about a year ago, and long spy puts that cost .08 and expired at 3.00 each (I sold at .20).

So….from now on I am setting out to only realize losses…

I use a mix of fundamental and technical analysis but have been around long enough to realize (that for me at least) these probably lend little value beyond getting me into positions which contain the possibility of outsized moves in one direction and the reality of a tight stoploss in the other direction.

I am risking +/- 2% of account equity on each trade. I still think there is a good chance of blowing up here, and would risk less if the account size were not so small.

Trading instruments are to be leveraged and liquid, most major currency pairs, YM futures, SPY options etc.

Stop losses will be very tight +/- 10pips in currencies, +/- 10 Dow points, etc. I know these may seem TOO small, but they fit with my risk tolerance and my experience that:

A. the probability of getting in at a price level that will not be seen again (at least for a while) is much greater than one would expect and

B. my best trades are usually profitable right from the start.

Once I manage to get into a winning position the unrealized profits function as an increased stop loss – the further the position moves from my entry the less likely I am to get stopped out.

I realize there is a good chance here of death by 1000 cuts…but it is a chance I am willing to take.

I will update the journal as I take positions and periodically in-between. You are all welcome to read and make relevant contributions! Thanks!

 

okay, short USD/JPY here (long yen) at 106.25. 10 pip stop at 106.35. position is 10 pips in the money, so effective 20 pip stop at this point.

i had been wanting to sell the FED rally for days, but was at work when it happened don't want to chase YM short here, because i'm worried about getting stopped out too many times in the overnight chop. hope is bug guys will be hedging/dumping japanese open.

 

Stopped out at the Tokyo open. Trying again with the YM. 10 point stop. Also marginally in the money for a +/- 20 point stop. If i stop out of this one, calling it quits for the night, will try to get one sold in the AM.

 

needless to say, took a small hit again trying to get short the YM. trying again with the YEN tonight...my conviction is still strong that this market is headed lower. will keep trying to nail it with small stops until i hit the big one or blow out trying. death by 1000 stops.

 

looking to enter some form of long YEN on the sunday night open - in my experience it is a good time to get into positions that don't retrace too heavily.

also looking to go long some SPY puts, but I want to wait until we complete a nice bullish pattern to suck in some more buyers.

 

How will you make any money only realizing losses?

 

hi doli,

thanks for the question.

i mean that as hyperbole...

i do intend to realise profits, but not until they grow very large...

so for example i might stop out a dozen times getting long the YEN, or short the YM or whatever position...but when i get into a position thats a winner, i either intend to scale into it on a retracement or just hang on...and exit only on some kind of capitulation or outsized move in my favor.

since starting this journal i have put on a number of positions that were 2.5 x R winners, etc, but i don't deviate from my original stop...and i usually get stopped out.

it is a psychologically difficult way to trade, but i think it is the best way to achieve abnormal returns (for me at least)

my only real worry is that the account size is quite small, so i can't keep the losers as small as i would like in terms of % of account size...

 

okay, managed to work myself into a small winner in the YEN again for an effective 20 pips of risk. lets see if i get stopped out of this one too

 

You might win more if you picked a better name.

 

lol, i think your right. what do you suggest? broccoli? or cabbage maybe? stopped out of YEN again btw. am going to wait for risk aversion to return before i try this one again.