Quicksand...

Happy mother's day and I hope everyone is having a great weekend.

I was reflecting on my one year anniversay of being a day trader, and I went over my records and journals to see what mistakes I have made and the glaring weaknesses in my trading. It is interesting to see the evolution of my trading during that time. I must admit, I have adapted and tried many different styles and strategies. Some were good, some were bad. Overall though, I feel I have settled pretty well on my strategies and style for day trading as a means of making a living. It is also interesting to see that most of my losses were mistakes made by ME, and I had no one to blame but myself.

In going over my journals, I noticed a few times where I made one common mistake. The last time this happened was in October last year where I lost 15 times more than what I had originally lost in that day. Becasuse I was trying to recover my initial profits and eventual slight losses. It was probably the wildest trading day of the year (maybe ever) where the VIX spiked to almost $90. Remember that day? I sure do. I'll never forget it. I was lucky enough to recover from that day - but it taught me several extremely valuable lessons. I always fear making this mistake and I believe I am overcoming that emotion.

If you've watched the movie The Replacements with Gene Hackman and Keanu Reeves, you'll know what Quicksand means in reference to football. The coach (Hackman) asks the team: what is your greatest fear? The QB (Reeves) replies: Quicksand. Things are going well for you, then you start making mistakes. All of a sudden it's a downward spiral and you cannot control the sinking - like you're in a quicksand. The Detroit Lions are very familiar with this concept - clutching defeat from the jaws of victory.

But seriously, I think the same concept applies to trading and has happened to me on a couple of occassions. You are making a profit. Then a couple of quick losing trades and you are now down. You want to 'make up' your losses and your emotions and fear rule over logic. You are now trading recklessly and pretty soon you are down a lot more than what you were trying to recover - Quicksand. Overtrading.

It took me some time, but I was able to overcome this by putting a limit on myself. If I make 3 losing trades in a row OR I lose 2% in one day - I am out for that day. I stop trading, regardless of how 'good' setups are. It is important to understand that there are opportunities to make money every day in the market. Wealth is accumulated over a period of time and many trades, not in ONE trade.

As you look for opportunities to go long or short in this market, make sure that you are following you trading plan and set rules for yourself on risk, profit, losses, etc. It's the only way to ensure consistency and survival in this business.

Good luck.