“I am the Danger!” Walter White’s famous words from the TV series, Breaking Bad. He was a science teacher who, after finding out he was terminally ill, quit his 2nd job at a car wash with an abusive boss, confronted his disabled son’s bullies, and cooked the finest meth the fictional world has ever seen. He meddled with fearsome drug lords and made big bucks. He knew his life will surely and quickly come to an end. It triggered something inside that drowned out the coward in him and unleashed his untamed beast.
In this article, I want to bring you the logic behind unlocking your fearlessness. You could say this is an actionable article, not just merely informative. At the end of this article, you’ll understand what drives fear in traders. Why do we close out early, place impulsive trades and take unplanned positions? Assuming you are a sensible individual and can reflect on what drives certain costly behaviours, you should be at the beginning of the end to a seemingly uncontrollable habit.
Every trading account has a risk of ruin, no matter how small the drawdowns and how little the risk exposure. Every strategy and system has the potential to blow up. It’s a guaranteed fact. It might take a day or two or maybe even years, but I can absolutely guarantee you there is a chance, and for most of you a significant chance, to blow it all up. Walter realised that and unleashed his skills and processes that amassed him tons of money before he went down. You as a trader now know too, that every single day it can possibly be all gone. Trading is not a guaranteed job but blowing an account is not the end of your career either. Risk of ruin can be calculated for every account and basically rates the likelihood of your account going to zero.
Knowing that there is nothing you can do to prevent from losing, you’ll stop trying to save it and start flexing your abilities to see how far you can reach. You will stop trading your P/L and focus solely on the process. No more impulse trading or closing trades early. It has no meaning anymore. What are you afraid of? You can’t get out alive anyway. The root cause of impulse trading, closing out early and unplanned trades is your fight to save your trading account from blowing up. It’s like fighting aging, it’s futile. You’ll age, it’s the circle of life. Make the most out of it and live a life full of growth and joy.
I’ve promised this article to be actionable and not solely informational. As Humans, to believe in any method and stick to it, we need to understand it’s logic first. Understand that it’s not your job to save your account. As a matter of fact, trying to do so will only accelerate the inevitable. Your actions are limited to analysing, planning and executing. If you are part of a bigger trading team or prop firm, then likely research and analysis are already done for you, leaving you with planning and execution to grow your account.
Grow your trading account through compounding. Increasing your risk exposure with accumulated profits limits your downside risks and uncaps your upside potential. However, compounding only works if you actually cash in on profitable trades. For day traders, that means aiming to make money everyday on 1-2 trading ideas. For swing traders, 1-2 trading ideas per week (this can change per trading environment and method).
How to plan and execute trades? When to let trades run and when to take profits available? Whether to let your stop loss hit or cut the trade short? All these decisions are based on your incentives for the trade idea, unhinged from your P/L of your trading account.
For instance, if your reason behind going long Crude Oil is because of oil fields shutting down all the time while demand is consistent. Decreasing oil supply combined with consistent market demand, that surely means prices will rise. In this scenario you initiated a long position. What happens in your mind when immediately prices drop against you? Should you take action and cut the trade short? Move your stop loss further up? Surely not. Your incentive of lower supply is still in play, price dropping is a market dynamic. You’ll stay in the trade as it’s not the time to make any decisions. Price eventually does climb considerably higher. In your trade planning, you layed out that recent supply constrains has the potential to drive oil price up by say $5. Price has overshot your estimate and is sitting at +$6. Is there room for say $7? There probably is, but that’s not your business. Your money was at $5 and now with an overshoot you got yourself a bonus. The Market is making profit available to you, take it.
The scenario above illustrates a standard speculator’s setup. Where decreased product supply meets consistent demand, resulting in an imbalance and swift market repricing higher. If at any step you would have cut the trade short or moved stop loss higher or possibly didn’t take profit at target in hope that it could run further, you would have missed the opportunity or even lost money. If you were to only miss-manage trades once or twice a month, it would be enough to derail your account growth and/or drive it into red.
Capturing the heart of this article is surrounding fearless trading. There is no escaping the reality of risk of ruin. Your best shot is to run it as high as possible. Don’t fear a ruined account, one account is not your career. More importantly, don’t fear a ruined trading career, one career is not your life. Fear mediocrity, fear not giving it your all. Make them fear you. Be the danger.
Understanding whch levels hold, why market trends or consolidates and being able to trade while fulltime employed will enhance your success rate dramatically. Experience how speculators navigate the markets, join us at SpeculatorsTrading.