The Thinking
When I was trading part time, after lot of study, practice and following other fellow expert traders I started getting some success in it. I used to trade small amounts since I was just exploring and experimenting. From making losses or random trades most of the time, I was able to successfully establish a model where I started making profit consistently. I was also slowly preparing to move into full time trading.
One of my calculations to quit my regular job and move into full time trading was as follows (please don't laugh)
Assume I can make X per month by trading using a capital of 1 Lakh. Then to match my current income I need to make n times X per month, for which I will need a trading capital of n times 1 Lakh.
Right ? .. Unfortunately wrong .. as you will see this has the potential of becoming a great blunder for me. I used to try bigger trades sometimes, it used to fail wiping out the accumulated profits of past 10-20 successful trades in one go. I did not get the right message out of it. I thought that the large trades are failing because I am not giving full attention to the trade because of my day job. If something can work on a trade of 1 Lakh, it should work just as easily for a trade of 10 Lakh or for that matter a trade of 1 Crore .. after all these are probably big amounts for us but at market scale these are nothing amount, practically zero amount. Now comes the second bad conclusion. I thought I will be able to make it work easily by just scaling it up once I start doing it full time. You see where I am heading.
The Beginning
So I quit my job, move to a new place, set it all up for a trading desk and start trading full time. I think by now you have a fair idea of what happens next. To warm up I start with few small trades. Make good profits and then I try a big one. This time watching it carefully and BOOM wipe out all the profits accumulated until now. Ok shit happens. Probably a matter of chance, bad luck, statistics. So I again do a series of small trade to regain confidence and build my profits back and then try a big one. BAAM .. all profits for the last 10-20 trades wiped out in one go. Now I start to worry a bit. Read a few things, watch few videos, try minor tuning in my trading strategy here and there. Then repeat. So probably a little better this time, but net result is same. My big trades were always failing me. My small trades always worked consistently. It puzzled me .. it frustrated me ..
The Options
Now this was getting serious. I had two options.
Option#1: I need to do lots and lot of small trades to match my (now) previous income which would have been painful
Option#2: Time to pack up and go back or look for something else.
This ordeal lasted for almost 2 months. It was getting frustrating. I was quiet sure that I have to have a strategy in place by the end of 2018. I was not going to waste another year in experimenting and exploring considering this was looking like an endless pursuit mostly ending in failures. My core and biggest assumption that the trades can scale linearly and infinitely had just bombed right in my face
I was heavily invested into this. Had left too many things behind. This was Nov of 2018. I thought I should atleast try few things until 2018. Give myself one last chance and then decide what to do in 2019.
This time no books, no videos, no following what others are doing. This time, it was introspection time. I had read and watched enough over the past several years and was not hopeful about finding anything dramatically new on the internet.
Figuring it out
I went back to the trades that failed. I looked at what specifically was going wrong. Initially it all looked random. Then I started trying to do some incremental trades. Something in between. Not too big, not my regular small trades. This time I was trying to look at what was going wrong with the trades still open/active. Earlier I used to do this analysis only retrospectively. One of my important observations was that I was panicking too easily when my trading position was large. There were few other observations about myself that were quiet funny. Anyways my small trades used to make a profit or loss of something like 500 to 1500 Rs per trade and I was able to hold on to these trades throughout the day (6 hours of market time without any panic) since these were small amounts even if it was a loss. My large trades would easily move up or down by 4-5K almost instantaneously and it caused me to panic thinking I am losing all the accumulated profit over the past 5-10 trades in just an instant. Once I entered the panic mode I would get filled with imagination if the loss is this much in just few mins what would happen in 6 hours.. setting off a chain effect of doing too many wrong things. Closing positions in panic at obviously wrong levels, over exposure to trades gone wrong instead of exiting them, revenge trading, multiplying my errors and losses. What was I thinking? What did I expect? my regular trades would have a position size of 1 Lakh and my large trades had position size of anywhere between 10 Lakhs to multiples of it all the way upto 1 Crore. Obviously it would move up and down by a similar quantum 10-100X in profit/loss also. For all the numbers, maths and stats love I pride myself with, I was committing some of the most basic mistakes. It is easy to get emotional when large sums of money is involved and difficult to look at them as just numbers.
A satisfactory experience
Once I root caused myself in panic state, it was a turning point for me. After which I took several steps to fine tune my trading, execution, record keeping, analysis and several other aspects. By the time I arrived at it I had only 3 trading sessions left in 2018. I will not go into the details of strategy, etc because it depends on individual personalities. However I am happy to share that I was able to execute 3 ultra large trades today successfully in profit, without panic and as per plan. I also closed today with 3 largest booked profits of my entire trading career of more than a decade including part time and last 2 months of full time. More than anything else today I just felt satisfied. Not euphoric, just satisfied, peace and calm.
I think I have reached day one today. On the way there will be more learning, more tuning, more experiments and more scaling but the starting point is to reach day one .. from one day. It is now time to say Happy New Year 2019 !
Few other interesting problems to look at would be the winners curse, stop loss hunting and supertrends.
When I was trading part time, after lot of study, practice and following other fellow expert traders I started getting some success in it. I used to trade small amounts since I was just exploring and experimenting. From making losses or random trades most of the time, I was able to successfully establish a model where I started making profit consistently. I was also slowly preparing to move into full time trading.
One of my calculations to quit my regular job and move into full time trading was as follows (please don't laugh)
Assume I can make X per month by trading using a capital of 1 Lakh. Then to match my current income I need to make n times X per month, for which I will need a trading capital of n times 1 Lakh.
Right ? .. Unfortunately wrong .. as you will see this has the potential of becoming a great blunder for me. I used to try bigger trades sometimes, it used to fail wiping out the accumulated profits of past 10-20 successful trades in one go. I did not get the right message out of it. I thought that the large trades are failing because I am not giving full attention to the trade because of my day job. If something can work on a trade of 1 Lakh, it should work just as easily for a trade of 10 Lakh or for that matter a trade of 1 Crore .. after all these are probably big amounts for us but at market scale these are nothing amount, practically zero amount. Now comes the second bad conclusion. I thought I will be able to make it work easily by just scaling it up once I start doing it full time. You see where I am heading.
The Beginning
So I quit my job, move to a new place, set it all up for a trading desk and start trading full time. I think by now you have a fair idea of what happens next. To warm up I start with few small trades. Make good profits and then I try a big one. This time watching it carefully and BOOM wipe out all the profits accumulated until now. Ok shit happens. Probably a matter of chance, bad luck, statistics. So I again do a series of small trade to regain confidence and build my profits back and then try a big one. BAAM .. all profits for the last 10-20 trades wiped out in one go. Now I start to worry a bit. Read a few things, watch few videos, try minor tuning in my trading strategy here and there. Then repeat. So probably a little better this time, but net result is same. My big trades were always failing me. My small trades always worked consistently. It puzzled me .. it frustrated me ..
The Options
Now this was getting serious. I had two options.
Option#1: I need to do lots and lot of small trades to match my (now) previous income which would have been painful
Option#2: Time to pack up and go back or look for something else.
This ordeal lasted for almost 2 months. It was getting frustrating. I was quiet sure that I have to have a strategy in place by the end of 2018. I was not going to waste another year in experimenting and exploring considering this was looking like an endless pursuit mostly ending in failures. My core and biggest assumption that the trades can scale linearly and infinitely had just bombed right in my face
I was heavily invested into this. Had left too many things behind. This was Nov of 2018. I thought I should atleast try few things until 2018. Give myself one last chance and then decide what to do in 2019.
This time no books, no videos, no following what others are doing. This time, it was introspection time. I had read and watched enough over the past several years and was not hopeful about finding anything dramatically new on the internet.
Figuring it out
I went back to the trades that failed. I looked at what specifically was going wrong. Initially it all looked random. Then I started trying to do some incremental trades. Something in between. Not too big, not my regular small trades. This time I was trying to look at what was going wrong with the trades still open/active. Earlier I used to do this analysis only retrospectively. One of my important observations was that I was panicking too easily when my trading position was large. There were few other observations about myself that were quiet funny. Anyways my small trades used to make a profit or loss of something like 500 to 1500 Rs per trade and I was able to hold on to these trades throughout the day (6 hours of market time without any panic) since these were small amounts even if it was a loss. My large trades would easily move up or down by 4-5K almost instantaneously and it caused me to panic thinking I am losing all the accumulated profit over the past 5-10 trades in just an instant. Once I entered the panic mode I would get filled with imagination if the loss is this much in just few mins what would happen in 6 hours.. setting off a chain effect of doing too many wrong things. Closing positions in panic at obviously wrong levels, over exposure to trades gone wrong instead of exiting them, revenge trading, multiplying my errors and losses. What was I thinking? What did I expect? my regular trades would have a position size of 1 Lakh and my large trades had position size of anywhere between 10 Lakhs to multiples of it all the way upto 1 Crore. Obviously it would move up and down by a similar quantum 10-100X in profit/loss also. For all the numbers, maths and stats love I pride myself with, I was committing some of the most basic mistakes. It is easy to get emotional when large sums of money is involved and difficult to look at them as just numbers.
A satisfactory experience
Once I root caused myself in panic state, it was a turning point for me. After which I took several steps to fine tune my trading, execution, record keeping, analysis and several other aspects. By the time I arrived at it I had only 3 trading sessions left in 2018. I will not go into the details of strategy, etc because it depends on individual personalities. However I am happy to share that I was able to execute 3 ultra large trades today successfully in profit, without panic and as per plan. I also closed today with 3 largest booked profits of my entire trading career of more than a decade including part time and last 2 months of full time. More than anything else today I just felt satisfied. Not euphoric, just satisfied, peace and calm.
I think I have reached day one today. On the way there will be more learning, more tuning, more experiments and more scaling but the starting point is to reach day one .. from one day. It is now time to say Happy New Year 2019 !
Few other interesting problems to look at would be the winners curse, stop loss hunting and supertrends.
All the best Vikram!
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