Catastrophic Loss (Part 3)

In Part 2, I gave some background about what led to my latest catastrophic loss.

One thing I find tricky about the trading business is that catastrophic loss often looks foolish in retrospect. When I contemplate what happened to me in August, it seems absolutely absurd! Hindsight is always 20/20, though. More often than not, I’ve found sharing these stories with other people to be met with a lot of head nodding. We’ve all been there and many stories are commonly held.

One thing that makes my catastrophic losses difficult to stomach is the fact that I trade in a discretionary manner. With a systematic trading approach, I can see exactly where the profit and loss falls with regard to numerous other copycat trades. Discretionary trading means every trade is different and I have no context. Making things worse for this particular case is the fact that I’m quite sure the current drawdown would have been much lower with a more systematic trading approach. In this pursuit that is already boring at times, discretionary trading does help keep me engaged. However, when that means constantly battling the market and becoming emotionally drained, I can end up more vulnerable to catastrophic loss should a true market challenge present. Case in point: August 2015.

The emotional impact of catastrophic loss can be devastating. In the past, I have felt depressed and unwilling to get out of bed in the morning. I have felt like a failure and seriously considered going back to work as a pharmacist (e.g. “throwing the baby out with the bathwater”). I’ve felt gun-shy and very fearful about getting back into the market. I know one other guy who trades full-time. I heard from him a few weeks ago and asked how he managed the correction.

“I took a huge hit,” he said in his message. “I’m going back to work a real job.”

Talk about catastrophic loss and devastation! I was shocked and despite repeated calls, I haven’t heard back from him since. I’m not at all surprised he hasn’t wanted to face it and share his story. Most people don’t.