Inside the prop desk: Recovering from a big rip

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Guest Blog by D. Brown

Fast forward to the end of May, 2011. The summer is quickly approaching, the weather is beautiful in NYC, my graduation is finally here, and my life as a trader is just beginning. I’ve been trading w/ SMB for a month now, and I’m up roughly 5k in the first 18 days. Awesome!

Or so I thought… My first month I am positive 16 out of 18 days. This is a level of consistency I am happy with. However, if you have 1 bad day that wipes out 10 days of grinding it out,  what good is it? Something I have noticed over the past year is that I always do really well the first 3 weeks of the month. And the last week of the month my PnL is always flat to down. Perhaps it’s my way of locking in my month.

This is exactly the opposite of what I should probabbly be doing. If I have a great first 3 weeks I should press the last week if I am trading well. You don’t have to trade with huge size, maybe take it down to half size or less, but still make the last week of the month a productive one. So in an attempt to press, on the 2nd to last trading day of the month I over extended myself, traded too big and ended up giving back $1500…rip.

This was very disappointing. The fact that it happened during the week of my finals didn’t help either… I pride myself in having the self control to keep my losing days small. I couldn’t even remember the last day were I lost over $1000. Grrrr..

Upon looking at my records, the last day I lost $1000+ was at the end of 2010. I was still very positive for the month, but giving back 1500 was a nasty rip. Whenever I have a losing day, my goal the next day is to be positive. Whether its 10 bucks, or 1000. My mindset is that I need to be positive no matter what. A few $600 days and I”m back in the game.

One of the biggest mistakes a trader can make is to trade bigger after bad losses. Chasing losses is a great way to blow up your account, and put you out of business. Whenever I have a bad day, I will almost always trade with 1/2 size the  day(s) after.

Attached I have included the days leading up to the rip, the rip, and the days after the rip. A week after the rip and grinding out small 200-400$ days I had my best day of the month, making $1200. I was able to build my confidence back up, make one good trade, followed by one good trade, followed by one good trade and the rip is now in the past.

This is something I will learn from, and at the end of next month I will let you know how my last week went. Instead of pressing and trading with bigger size, I will trade with less size and only risk giving back a very small percentage of my month. Giving back that 1500$ was roughly 30% of my month, that is simply too much and not acceptable.

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