Posts Tagged ‘blowout

15
Aug
10

Blowing Out – Live on video

Blow up, blowing out, faceripper, knife in the gut. There’s probably a thousand ways to describe the process that takes many new traders out of the market. Even if you are a seasoned professional, it is the dark cloud in the back of your mind, rumbling ominously. Did I make a mistake? Could something be horribly wrong, my risk parameters incorrect – or trading gods help me – my protective orders not filled right?

These are thoughts that keep traders awake at night.

I present for your consideration a link to a video that shows an unfortunate trader doing just that – blowing completely out. At first I thought it was staged – but from further research on the conditions and an excerpt from the original post by the trader after the video aired, I think it is real.

http://www.youtube.com/watch?v=NYeLrcWFitY

In his own words:

For those that didn’t see the video when it originally aired January 22, 2008, I lost over 30k holding a trade over the weekend being long the stock Futures indices. I was overleveraged, but I never thought the market would go limit offer (Dow Futures down 650pts) with the US markets closed on Monday in observation of Martin Luther King day. I sold my long before the market opened due to a potential margin call that would have liquidated everything. On Tuesday, the Fed did a surprise interest rate cut, and the market popped 500pts. The Dow dropped close to 1000pts in 3 trading days.

After viewing the video, I had to wonder – what did the equity curve look like in those short minutes? A bit of video scrubbing and noting the loss numbers gave me this horrific graph:

This is what a blowup looks like. All the market truisms triumph here – notably, “Cut your losses short”. This graphic should be printed out and put up next to every trading screen in the world. You don’t cut your loss, you are in for a bad ride to blow-out town.

This is the dark side to trading. We’ve all been there. If you have made a trade and let it ride just a “little bit longer”, you’re flirting with the same results. Is your pulse racing? Breathing faster? Good. It means you are alive and willing to learn from past mistakes.

I don’t know if this person is trading today. My research turned up a somewhat inactive blog with a post from July of 2010, so it is hard to say. I have to give him credit for having the balls to post this on the internet. You always see and read the stories of great success, but rarely do you get to witness the more common failures.

Keep your head in the game, and trade your plan.

Good trading!

Trader Tim