The Trials and Tribulations of a Trader

drawdownIt has been nearly two months since my last post and I know that readers are wondering what happened to me. Did I blow up my account? Did I jump off a building? Is Aram just another one in the long list of flash-in-the-pan here today, gone tomorrow gurus? I have received countless emails from faithful readers inquiring about where I went. I thank all of you for those emails and concerns. It truly is a comforting thought to know that the work that goes into maintaining this site and writing these posts does not go unnoticed. Those of you that regularly view the Portfolio and Trading Results pages on this website know that I have been actively trading and keeping my positions updated on a regular basis. But what really happened and why have I not been posting the Weekly Portfolio Analysis? That is the subject of this post – the challenges that face many “part-time” traders and the toll that everyday issues in our lives can take on our ability to trade profitably.


“I do stay busy. I like new challenges.” – Kirk Kerkorian

This quote describes my personality to a tee. I thoroughly enjoy taking on new challenges and am a very goal-oriented and driven person. I will pour myself 100% into something until I have met the goal that I set for myself. I am also one that gets bored easily after having mastered a new skill. When the boredom sets in, it is time to find something new to challenge myself. Perhaps that it is one of the reasons that I enjoy trading. There is always more to learn and it is more of an art than skill. A person can have studied all of the best books written about trading resulting in a comprehensive knowledge of the subject and still lose money. Over the course of my life, I have challenged myself in three broad areas – music, aviation and trading.

As a youngster, I demonstrated ability (talent) as a pianist. I was able to leverage that skill in way that allowed me to have a successful concert career for over a decade as touring concert organist. Very few people can say that they have had a classical concert career as successful as the one that I enjoyed. And yet, I would be a fool to think that I was successful because I played “better” than others. Actually, quite the opposite is true. However, it was my desire and dedication to achieving the goal, in this case a successful concert career, that actually permitted it. I searched for the right doors to open that would provide me with the opportunities that I needed, rather than waiting for opportunity to simply knock on my door. That would, in all probability, never have happened. My quest to achieve this goal was not unencumbered. There were failures along the way. Lots of them. And I did not have much of a cheering squad to support me either. In fact, every failure was always accompanied by someone telling me that I would never have the successful concert career that I dreamed about and that I should focus on the things that I could be successful at (like finishing my college degree). This never discouraged me and, in fact, provided more motivation to prove these naysayers wrong. I have to agree with Winston Churchill who said, “Success consists of going from failure to failure without loss of enthusiasm.”

How does this translate to trading? Failure (aka losses) are part of trading. Even the most competent traders experience losses. The key to successful trading is to mitigate those losses in a way that permits you to continue trading after experiencing the loss. Even significant losses can be overcome with time as long as the trader still has a base (funds) to work with. There are many ways to limit losses in trading. Some traders use stop losses on their broker platform. Others set mental stops at which they will exit the trade. Many traders utilize risk-defined trading methods where an acceptable loss is defined at trade entry. Another way to limit losses is to never put more than a set percentage of the account at risk at any given time. Hedging (purchasing insurance) is also utilized by some traders to prevent catastrophic losses. The bottom line is that losses will occur. The successful trader learns to accept losses as a cost of doing business and does not let them hinder his/her psychological ability to continue trading in a logical and potentially profitable manner.

I opened this discussion by quoting the late Kirk Kerkorian, a fellow Armenian and very successful billionaire businessman. I keep very busy in my day-to-day pursuit of the American dream. These days, my full-time job keeps me very busy as part of the management team for the largest builder of church organs in the world. I also am the organist and music director at an Episcopal church. Although not a full-time job, the church position accounts for a solid 10-15 hours per week. During the Christmas and Easter seasons, it is more like 20+ hours per week. And as if that were not enough, I took over as the chief flight instructor for the aviation department at a local community college in January. This new position has taken virtually all of my free time. The college is in the process of bringing all of the flight training in-house (it was previously outsourced). The challenges I have faced over the past 90 days to insure that wheels don’t come off the tracks mid-semester have been enormous. However, we are now on a path whereby less hand holding should be necessary going forward.

When one gets this busy, time becomes very precious. Time management, prioritization and efficiency are crucial. Is it possible to continue trading successfully when so many other priorities are competing for your time? The answer to this question really depends on the individual. However, I will offer this suggestion – I do believe it is possible to successfully trade even when you are unable to commit 100%, 50% or even 10% of your time to it. However, the less time you can devote to trading, the more you must rely on your trading “system” to work for you.

I made two crucial mistakes in the early part of this year that resulted in me having serious losses. The first mistake was not following my system. I got greedy. I traded several straddles in crude oil when the implied volatility was very high. Instead of pulling the trades off when they hit 25% of maximum profit (as per my trading rules), I decided to keep one of them on a bit longer. The daily theta on the straddle was intoxicating – that is, until the position moved against me. I had an opportunity to pull the trade off for a profit and missed the opportunity. It was not a huge loss, but it wiped out the profits from the other crude oil straddles that I traded. In February, I decided to trade a strangle on /ZB. I don’t trade bond futures very often. And in this particular case, instead of choosing strikes with a high probability of expiring out-of-the-money (>1 SD), I chose strikes that were very close to the money. The strikes were about 30 delta each on the strangle. I never put on trades with strikes that close to the money. I don’t know what I was thinking. Perhaps it was fatigue with everything else that I had going on. To this day, I do not know what possessed me to put that trade on, other than the fact that I noticed implied volatility was very high. The next thing I know, bond prices are rocketing upwards and I am closing the position at the very high that /ZB traded. That trade marks the single largest loss I have had – nearly $5,200.

The huge loss in /ZB marks a fork in the road. Do I cash out and close up shop? Do I accept that I am a lousy trader and am just wasting my time? Or, do I learn from the mistake and move forward? I chose the latter. I am not a quitter and I am quite stubborn. I also am not content to just stop trading until I have more time to devote to it. That could be… never! These are my trials and tribulations as a trader. I continue to learn from them and build on the foundation that I have already have. My goal is not unrealistic. I don’t expect get rich from a 5-figure account. My goal is to learn to successfully trade this small, 5-figure account, so that by the time I retire, I can successfully trade my 7-figure retirement account.

 

  • Excellent article Aram. All of us have experienced losses in trading. I have lost a six-figure amount or the equivalent of a 4-year education at Stanford. So I know how you feel. Having met you in person and getting to know your personality through your blog, I know you are not a quitter. Just hang in there and know that all successful traders will have to go through that same journey from failure to success. Every master was once a disaster. In closing, our mistakes will teach us more than our successes. Life is the greatest teacher.

  • Stephen Cramp

    Great writeup and nice back story Aram. I’ve had huge losses in the past (AAPL ’12) but I still trade. I have less eggs and more baskets now. Only way to have a trading account and never have a losing trade is to refrain from putting any money into the account. 🙂