Excerpt from
Janice Dorn, M.D., Ph.D.
www.thetradingdoctor.com
Money is a singular thing. It ranks with love as man's greatest source of joy. And with death as his greatest source of anxiety. Over all history it has oppressed nearly all people in one of two ways: either it has been abundant and very unreliable, or reliable and very scarce. ... John Kenneth Galbraith, "The Age of Uncertainty"
In the spring of 2000, the NASDAQ dropped almost 40% in two weeks. Shortly thereafter, David Owen wrote a great piece in the New Yorker.
Like much satire, the message of this piece is powerful. I am acutely aware that, despite the ongoing market rally, many of you are asking the exact question posed by Mr. Owen.
What Happened To My Money?
Mr. Owen suggests that your money went to be with God in Heaven. He goes on to say that you can never have that money back, but you can dream about it. The money is not there to buy that BMW or pay for your children's college education. Finally, Mr. Owen throws in a couple of sentences about everything being OK as long as you have love and happiness in your hearts.
An interesting thing about satire and self-deprecating humor is that it rings true with so many people. People actually do believe that they still can have that money in their dreams and that one day they may come to be reunited with their money. Until that great reunion, they can have pleasant thoughts about their money and all the things they were/are going to do with it.
Far be in from me to sit in judgment of those ideas. If that is what people believe, and that is the way that they are able to rationalize the loss of money, so be it. If money makes the world go 'round, then different ideas about money may make it go 'round even more. What do I know? What do we really know about all that money?
The one thing I know for sure is that money you have lost is gone. It is no longer in your account. It was in your account--but does that make it your money? No. It is not your money unless you keep it. Unless you do everything in your power to protect your money (risk management, position sizing, stops and profit-taking), you will lose it. Once you lose it, it is no longer your money. In fact, it never was your money. It was sitting there as digits in your account, but it is not actually your money unless you take it.
Seeing your account balances go down is painful. Losing money is a kind of mind-numbing sensation where time passes more slowly, colors are muted, and the sense of self is changed. Losing and continuing to lose are like being pulled downward into a swirling vortex. We feel helpless, panicky, nauseated, fearful, embarrassed, lost and hopeless. We don't know what to do. What happened to all the money that was in our accounts? How could it disappear so quickly? What went wrong?
It is easy to look outside for the source of your own difficulties. It is easy to blame the endless lists of usual suspects: HFT, PPT, QE, POMO, brokers, newsletter writers, government, banks and an endless list of people, places and things. I have even heard people blame their spouses and pets. The list of people, places and things to blame is endless. This type of attitude is just like putting a tiny steri-strip bandage on a large, gaping wound. It doesn't stop the bleeding, and it misses the major issue. This issue is that you and you alone, are responsible for your money. No matter how much displacement, projection or any other so-called neurotic defense mechanism you apply to this situation, it was your decision to put your money into the market. No one forced you or held a gun to your head to make you do it. Once your money is in the market, it is your responsibility to manage it and protect it. If you win (let winning positions run, cut losing positions short, manage risk with positions sizing and stops) it is your own doing. If you lose (take small premature profits, let losing positions run, do not manage risk with stops and position sizing), it is your responsibility.
Legendary trader Victor Sperandeo in his 1993 book "Trader Vic: Methods of a Wall Street Master" (Trader Vic-Methods of a Wall Street Master. Copyright © 1993 by Victor Sperandeo) tells the story of a $4,017.00 hair dryer.
In 1979, he was long 40 wheat contracts when he got an unexpected phone call from a sobbing woman friend. (First mistake is to pick up the phone when you are trading).
He had a mental stop on the contracts (Second mistake is to pick up the phone when you are trading and have a mental stop).
The woman was hysterical and crying so hard that Trader Vic couldn't even understand what she was saying ( Third mistake is to pick up the phone when you are trading with a mental stop and stay on the phone trying to figure out what an hysterical person is trying to say)
After some prodding, Trader Vic found out that this disaster that caused the hysterical outburst was not a divorce, death or major accident. It was a hairdryer. Her hairdryer had stopped working. (Forth mistake is to pick up the phone when you are trading with a mental stop and not hang up immediately when someone has freaked out because of a $17.00 hair dryer.)
After offering to give her $17.00 to buy a hairdryer, he looked at his trading screen to discover that his wheat positions had dropped two cents below his mental stop. In 1979 that turned out to be $100 times 40 contracts and a loss of $4000.00 more than his mental stop had allowed. Add that to the $17.00 he would have to pay for the hairdryer and the total loss was $4017.00. (Fifth mistake--see mistakes one through four and $17.00) .
Trader Vic has a fabulous sense of humor and could laugh at this silliness. Maybe you can too because it happened to someone else who was honest enough to write about it.
Trader Vic channeled Simon and Garfunkel saying: There must be 50 ways to lose your money. Actually there are more than 50 ways, but each one begins and ends with you. Let this be many lessons for you. Every moment in the markets is unique. You are responsible for your thoughts, feelings and actions when you are in a trade. My trading buddy and I often write back and forth about what we call "aggra." It's outside stuff that we each let into our trading day. The commonest cause of aggra is the telephone. Trying for a close second are e-mail and the financial media. The telephone is my enemy. When I am in a trade, I do not pick up the telephone--no matter how many times it rings. Whatever it is can wait. Rarely does any good news come to me on telephone or e-mail. Usually, it's some kind of crisis. Those of you who have been reading my writing for a while know very well about the messes I have created for myself by picking up the telephone. Whatever it is can wait until I am out of the trade. No exceptions. I am responsible.
Get real with yourself and take full accountability for your positions. It's not about the position of the markets, rather about your position in the markets. If you are in a day or scalping trade, don't take your eyes away for even a second. Be fully present. Some of the most remarkable moments of my life are those when I sit alone in absolute silence listening to the music of the markets and watching the ebb and flow of a position. It's absolutely beautiful!
Prepare to discover the incredible possibilities that open up when you begin to develop and evoke personal responsibility. You discover how to be truly accountable for all aspects of your life, including your trading. Prepare to discover the true freedom to choose who you really want to be and what kind of a world you want create for your trading. You are now becoming the person and the trader you truly are.
Man is made or unmade by himself. By the right choice he ascends. As a being of power, intelligence and love, and by the lord of his own thoughts, he holds the key to every situation... James Allen
Thanks and Good Trading!
Janice
Janice Dorn, M.D., Ph.D.
