The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
A Tale of Three Traders (Part 5)
02/15/2008 12:00 am EST
Finally, here's the oddest experience I had as a manager of other traders, yet in essence, it deals with the same character issue.
John was the son of a cash currency broker. Everyone knew his father, and though John was fairly young, when he applied at my currency desk for an assistant trader position, we decided to give him his chance. John started as the assistant to the yen trader and after a brief stint as an assistant was given his own small loss and position limits in the Australian dollar.
John was a natural from day one. He had spent several summers working alongside his father, so he was already well versed in how cash currencies were traded. He'd never traded before we hired him, but he knew all the mechanics. Once he got his limits, his hot streak started. He made money his first day trading. He was ecstatic. His father was proud. The other traders in the room liked him, so they were very happy for him.
He made money his second day trading.
He made money his third day trading.
By the tenth day of trading, John still hadn't had a losing day. The other traders began to comment on his winning streak. John was giddy.
Five days later, the streak was still alive. John had been trading for 15 days and still hadn't had a loser. The rest of the traders were shaking their heads, waiting for the inevitable first loss. In fact, the ones that were closest to him started warning him not to worry when that first loss came, because it was a part of trading. John wasn't giddy. John didn't know what to think.
When the streak reached 22 days without a loser, he came to see me. I told him not to worry about it-take the trades and very soon, one would be a loser. But it's just a part of trading. Winning streaks happen, losing streaks happen, but as long as you keep them in proportion, they're just a part of trading. John was very nervous about all this.
He didn't make a trade the next day. Or the next.
A group of traders took him out for a few beers after work and came up with a plan. They'd help him make a losing trade, to "get the monkey off his back." Then he could relax and just trade once the streak was broken.
I honestly believe he tried to lose money the next day. But he didn't. He took a position that the traders in the room were certain was a clear loser, and it was a nice winner before he could blink his eyes. He wasn't happy. He wasn't mad. He was frozen.
When he came in the next day, he just sat there. I watched the other traders try to talk to him, try to draw him out. After watching him sit in agony for several hours, I called him into my office. "A loss is just a part of trading," I told him. He shook his head and then sat there quietly.
"John, sooner or later, you'll have a loser and then you won't feel all this pressure. You can just go back to trading, and start again like you did the first day I gave you limits."
John shook his head and said glumly, "You don't understand. I'm on a streak. If I break this winning streak, I may never have a winning trade again."
Try as I might, I couldn't get him to think about it rationally. I flipped coins for him for over an hour, at one point flipping heads twelve times in a row, and then a bit later, flipping tails nine times in a row. I was trying to show him that even in a random string of events, positive and negative runs happen, but over the long haul, they are just a part of the entire results. He listened, but he wasn't buying it.
He came in the next day and talked about trading. But he didn't make a trade that day, nor did he make a trade the following day. When some of the traders tried to help him make a trade, he wasn't interested. When I explained to him in private that traders trade and trading meant winning and losing, he didn't say a thing. He was frozen. As surely as traders that are caught with losses well past their limits are frozen, John was frozen.
Monday, John didn't come in. He didn't come in on Tuesday, either. I called his father. His father knew about the streak but didn't know John hadn't shown up for work the past two days. He told me he'd find him and have him call me or show up for work the next day.
And around mid-morning the following day, John walked in and headed straight for my office. I left the trading desk and went in and closed the door. He didn't say a thing, just handed me a letter of resignation. I told him he'd shown good promise as a trader and asked him if he was certain he wanted to resign. He told me he'd made up his mind to go be a broker. He didn't like the feeling of going through streaks. I asked him if he wanted to talk with any of the other traders before he finalized his resignation and he told me he'd rather just leave so he didn't have to answer questions. He had made his mind up and just wanted to be done with it. I took his letter of resignation and shook his hand and he quietly turned and left.
These three traders were all successful at one point in their trading career. But all three were unable to master the hardest part of trading: their own weaknesses. This applies to professional traders and to those of us that trade our own money. This is about being human. You can be able to make money hand over fist when times are good, but if you cannot master your self when times are bad, you will find being a successful trader nearly impossible.
"Master your tools, Master Your Self." ®
|I wish you all good trading.||Part 1 | Part 2 | Part 3 | Part 4|
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...