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Day 175
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Apr 26
I’ve made the mistake (again) of front-running some shorts this month (semis and SP500), which resulted in large underwater trades, and I had to meet several margin calls in one account. I’m trying in this post to understand the roots of it, and getting better.
This has been a recurrent trading mistake of mine, occurring from time to time. Shorting things, before some sort of TA confirmation.
But here are the more profound issues I found, after some introspection and feedback from a couple of more experienced traders:
1- Undefined risk and no clear exit plan on those trades.
2- Oversized trades, based on FOMO.
3- Lack of proper risk management.
In truth, I have known all these were No-No since the start of this journal, but all the checks and rules I have put in place were consciously overriden this month. Why did that happen? It could be part overconfidence, part psychological pressure to meet my financial obligations, and part lack of maturity. In any case, it is imperative that I evolve and that this situation never arises again.
"There is no such thing as overbought when the trend is up. There is no such thing as overvalued when the trend is up".
Front-running shorts is usually a bad idea, but the main issue is not having a clearly defined plan for a trade, with a well defined max risk (loss).
Another thing to ponder. When you win money with bad trading, you reward bad behavior. This means you can still lose when you win.
So what's next? I'm reviewing my general mental approach, my rules, and how I can adhere 100% to them. I'm planning to revisit a couple of books: "Trading in the Zone" by Mark Douglas and "Think & Trade Like a Champion" by Mark Minervini.
I may also toy with the idea of an AI agent supervising my trading logs and keeping me in check.
Onwards!