How 50,000 $ broke a profitable trader
As a coach I cooperate with a small financial company, a professional participant of the securities market, which, among other things, provides trust management of clients' money. We have one trader, let's call him Mikhail, who for quite a long time showed very good, and most importantly stable results on a mini-account (about 3000 $). He was able to bring his account to about 5 000$ for a few months, and then withdrew 2 000 $ and started over again, repeating his success over and over again.
In the end, we all came to the consensus that Mikhail has the abilities and skills of a trader. Having studied his statement, we saw a certain stability: a good equity curve, a good risk/profit ratio in each trade, and high execution accuracy, low drawdown. In short, all the basic qualities of a good trader were visible.
Based on the information studied, the company decided to give him access to a corporate account with an initial deposit of 50,000 $.
Something went wrong...
After moving to a larger account, Mikhail began to lose money: two of his three trades were losing, he could not repeat any of his previous successes and achievements, making mistake after mistake. Everything that distinguished him before disappeared - discipline, strict adherence to the trading plan, strict compliance with the rules of money management. What happened?
We began to sort things out. After an analysis of the conversation, it became clear that Michael had gone beyond the limits of the capital threshold.
What is a "capital threshold"?
The fact is that Mikhail's goal as a trader was to earn a certain amount of money in the market over a certain period of time. Earlier, taking into account the amount of the deposit, it was psychologically comfortable for him, and therefore achievable. When the trading account of 3 000 $ was under Mikhail's control, the maximum risk was about 200 $, i.e. when entering the deal, he understood that in the worst case he could lose only 200$, and it was lossless for him. At the same time, since he was steadily earning a certain amount of money each month, a short-term loss did not affect his psychological state and did not influence his trading decisions.
When Mikhail began to manage a trading account of 50,000 $, the average risk per trade increased to 1,000 $. This was five times more than the usual volume for him! And the psyche could not cope with the situation. The trader was not accustomed to lose 1 000 $ in one trade, as before it was one-third of his deposit. Thus, when the market began to go against the open positions and the price approached the stop order at 1,000 $, he would panic. As soon as his emotions kicked in, the reasoning and rationality that Michael had so favorably distinguished himself with disappeared, and with them disappeared his decision-making and successful trading.
As you can see, the reason for this behavior of the trader was due to the fact that there was more money in the account than he used to. Michael's consciousness simply could not cope with going beyond the capital threshold.
Like it or not, every trader has a similar "fairness threshold". For some people it is higher, for others it is lower. Most often it has to do with: a) current financial situation or, more importantly, with: b) psychological beliefs and attitudes about money.
Do you know your psychological threshold?
How confident are you as a trader?
It always amazes me how much time people spend searching for the perfect trading system, strategy, "Grail", as well as searching for conspiracy theories. I am sure that there are no enemies or puppeteers in trading, market makersand so on. Only the trader himself is both friend and foe, because it's not the market or market makers that make you enter or not enter a trade. It's always our own decisions. Trading is an endless process of self-discovery, personal growth, overcoming emotions, learning your own psychology and creating a path to successful trading.
Are you sure that your mind is so well prepared that when you trade you may not think about how much money you could make, how many loans you could pay, what things you would like to buy, where you would like to go on vacation? Are you sure these constant thoughts have no effect on the quality of your trading and decision-making?
Most novice traders who never became successful failed to realize at the right moment that the biggest obstacle in trading is man and his own mind. Ask yourself if you are familiar with any of these scenarios:
- Have you ever gotten frustrated and stopped clearly following your trading plan?
- Were the profits from a series of successful trades wiped out by one big loss?
- Have you ever felt that as soon as you gain confidence and begin to believe in your trading abilities, a long series of failures immediately follows?
- Have you ever said to yourself, "I'm just not capable of making good deals because everything I do is wrong"?
- I can make a profit on a demo account, but as soon as I switch to a real account, I immediately lose everything?
- Or: "all I need is a good and super profitable trading system, and then I will be a successful trader"?
I'm sure that one way or another, but any trader has encountered the described situations. So if you found yourself in the list, do not worry, you are not alone. The fact is that there is one common denominator in all these cases - you and your mind! Yes, the trading strategy is important, it's undeniable, but much more often your mind, emotions, psychology and beliefs about money are to blame for the losses.
The market is a trader's mirror
A trader acquaintance recently told me a good phrase: "if you're angry at the market, you'd better look in the mirror. Being a trader means looking at yourself in the mirror every day. It means starting the process of self-knowledge and, in particular, getting very clear about the two things that tend to make you push all the buttons out of fear: your thoughts, judgments and subconscious beliefs about 1) success and 2) money. Self-knowledge is one of the most important things a trader can do besides learning about the markets.
Trading is not your battle against the stock market or market makers, but it is a battle with yourself, with your emotions, negative attitudes and beliefs, and only you can emerge victorious. Fortunately, there are many things you can do to help yourself build healthy mental attitudes about money, abundance and success. By learning these techniques, you will learn to make more informed trading decisions rather than the emotional, or irrational ones that often cause the greatest losses.
And by the way, do you know what happened when Michael returned to his old score of 3,000 $? That's right, he began to show his old stable results again. He is still with the company to this day, bringing though not much, but stable profits. In addition, we have figured out how else it can be used, but we'll talk about that some other time.
A good essay ....
Why the essay? Hasn't that ever happened to you? Maybe it looks a little exaggerated, but it's reality.
Vlad, and written from personal experience. The point is that almost everyone has such a threshold, only everyone has his or her own threshold. You may or may not know it, but it is there. It's one thing to have personal money in your pocket and spend it. Then it is difficult to determine the limits that exist. It is quite another situation when a person feels the pressure of responsibility. These are two fundamentally different psychological states and are far from the only ones related to the psychology of finance. Surely you are familiar with situations when some people have money "sticking" to them, while others have it like water running through their fingers? Some people do not seem to put much effort and still live well, while others do their best, but it makes no difference? All these and many other phenomena have the same origin.
Not everyone has this situation, today the deposit is 3k, and tomorrow it's 50. This is stressful. Even if you go to 50 gradually, somewhere along the way there will begin to be cracks that worsen the growth rate of the depot. Like pilots, a fighter plane holds 7g and a transporter at 3 is already fainting.
ramplan, absolutely right! A drastic change would lead to stress anyway. The fact is that the man has been showing stable results for quite a long period of time. And in principle, he was psychologically prepared for the coming changes. But it is never possible to calculate everything up to the end. That is what happened in this case. Unfortunately.
As an option - trade your own money and expect your result, even a small one, but to trade other people's money - it can be quite a different psychological burden, because there, in addition to responsibility, it is possible to raise the bar, because if you are entrusted, then they expect from you not the "little things" to which you are used to
And just connect the copying of his trades to an account with a large depo really couldn't be?
Surely the trader himself did not think he would have such a problem...
Andrey Chalbyshev, that's exactly what we did.) Only we didn't tell him anything, so as not to create too much psychological pressure. And plus he now writes his market vision every Monday, something like a weekly forecast. It turned out very well.)