Anatomy of a Rip – Part II

BellaGeneral Comments2 Comments

Hey Mike,

I hope that all is well and that you survived a week that in our industry, will not soon be forgotten. I attended last night’s webinar and wanted to thank you for a great session.  I believe that no matter how long we’ve been in this business, there are days when obstacles to success appear/reappear when we least expect them.  I have learned (the hard way) that it is crucial to to identify these obstacles as soon as we’re psychologically able as both transient and rectifiable.  To re-frame a tough trade/day/week/etc, takes discipline, self-awareness, and most importantly, humility.

It was fortuitous that the webinar fell on the exact day that I took my biggest rip since 2010.  The worst part about the rip is that I simply made an execution error by not using my tried and true presets.  I am bionic in this regard, but turned off “the robot” for this trade.  I have presets established that in the normal manner of execution, preclude me from entering without OCA orders for target and stop.  On this particular occasion, I simply entered too quickly via a different order entry method and left myself vulnerable; no target, no stop.  (This was an FOP trade on the Dec 14 CL contract).  You can guess what happened next…  By the time I spotted the error, I was down 3X my loss tolerance for this type of instrument and what resulted was my biggest rip in over 4 years.

So what do I take away from an experience like this?  A bruised ego?  A resentment against derivatives?  A belief that my platform or broker must be behind the rip? I’d be lying if I said that I never thought/felt these things in the past 6 years or so, however on this occasion I choose to see this rip as an opportunity to re-focus and pay more attention to detail. I made the mistake and accept responsibility for it; no excuses.  I’ll make sure that it doesn’t happen again.  Period.

I love my job as an independent trader/investor and know that I’ve found my true vocation after many jobs that held little intrinsic value.  There is always something new to learn and quite often, we need to be reminded of something that we learned in the past. This was one of those occasions. A wise Hawaiian (A tour guide on the Road to Hana tour) once warned me to “never turn your back on the ocean.”  On this occasion it is useful to re-purpose the aphorism to remind us that the market, much like the ocean, has immense power and can take us down if we become lackadaisical or complacent.  Anyone who successfully makes a living in this business knows that one of the keys to prosperity is the ability to lose properly and on your own terms.  If we let the market decide, the next big rip is just around the corner.

I hope that this “anatomy of a rip” can help someone out there remember that sometimes we have to lose to win, and being able to do so can be the difference between success and failure.


I have made this same mistake myself.  If you haven’t you will.  This year one of our experienced traders took a 6k rip (large loss) doing exactly what Trader Chris did above.  I took one for a bit more.

I love how Trader Chris wants to learn from this mistake.  His solution is to improve his attention to detail.  This is an excellent solution.  As I wrote to Trader Chris in my response email: This increased attention to detail will, in the end, make you much more than this painful rip.  It may not seem like this rip will be good for your trading today but in the near future it will be.

Now having said that….trading is a performance sport.  We cannot make execution errors.  Just acknowledging your mistake is not enough.  You must take the steps to improve and you must in fact improve.  Well you do not have to improve….there is always the alternative- elimination.

A huge thank you to Trader Chris for his transparency and for sharing his market lesson with the trading community.

* To watch that webinar Trader Chris attended watch HERE!

“You can be better tomorrow than you are today!”

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook. He welcomes your trading questions at [email protected].

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2 Comments on “Anatomy of a Rip – Part II”

  1. I remember my biggest loss every time I take a trade. It keeps me humble to know that I can make a mental mistake, or simply misinterpret a signal that could cost me thousands. I trade with confidence, but always with a little bit of fear. It’s the fear that keeps me from ever repeating what happened that fateful day in February 2013 where I lost $23k. Every 20% loss begins as a 2% loss. Something I always repeat to myself is that no one trade can make me, but one trade can sure break me.

  2. thxs for sharing Matt. i like your confident yet alert approach here. defense first.

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