Daytrading.no-the homepage of Oddmund Grøtte

Inevitable losses
Copyright Oddmund Grøtte 2005, written 13th of February 2005

"Every trader faces it. Only the winners know how to handle it. The dreaded losing streak rears its head every so often and attacks every great trader. It eats away your judgement; it saps your confidence. Sometimes, it can you so low that you think you will never get out. You are sure that something has gone wrong, that you have lost your touch, that you will never be a winner again. When you are in the middle of it, you think it is never going to end, but mostly, your judgement and rhytm are off and what you have to do is stop and regain your compusure....In August 1996, I was in the worst losing streak of my career. What was driving me crazy was that I would see the trades, but I was so scared of losing, I was not thinking about winning. This fear of losing was slowing down my reaction time, and while I was seeing everything, I was reacting later and later, which meant that I was taking more risks, not less....I wanted to regain my confidence because confidence is essential to a successful trader. I had three contracts the other day, which is a tiny position for me, but I ended up making 15 000 on them. Fifteen thousand is real money, and I took that and built it into 40 000 the next day, and all of a sudden, I am hot again, and I feel great."

- Pit Bull, Marty Schwartz, page 110-111

I am kind of in this situation right now, except that I am not losing money but making very little. Last year was a very good year for me, I made money in 240 of 251 trading days, which is quite good. The problems started in January when there was a new law implemented that ruined 70% of my strategies. SEC has made shortselling much more difficult, esspecially in thinly traded stocks and ADRs, which I traded. Some stocks are impossible to short, even intraday. Too bad for me (and the whole industry), but a real wake up call. (BTW, this is a perfect example that unnecessary regulation increases the cost of doing business. Every broker will now have to employ more people to make sure they do not break the law. Higher commissions will be the result from this. To make things worse, the SEC is funded by a small fee from every stock sale. This fee increased 40 percent in January to 33 USD per 1 million in value sold. Quite hard to digest for me....)

I started reading Pit Bull again this weekend to get my thinking set straight. I consider this among my favorite trading books. I thought this quote above was well worth to mention. I think this is the reason most people fail in trading. The inevitable losses is to hard to digest for most people. In order to profit you have to take risks, there is no free lunch, and along the way you will suffer losses. There is no way around this. It takes a little bit of hard work and discipline to overcome the psychological damage during such periods, but with the right mindset for numbercrunching and rational approach in the market, you will survive.

I, for example, have depended too much on my former strategies (which are now untradable). I spent too little time developing new strategies which I now pay dearly for. So in the next few weeks I will spend most of time testing new strategies.