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Have you ever been in a situation where you had a horrible trading day, and after the trading session you ask yourself, “why in the hell did I do that?”
It seems so obvious afterwards that you shouldn’t of done those actions. But don’t beat yourself up for it, we’re only human.
Even professional traders make the same mistakes, after years and years of doing this job. The only difference between professionals and novice traders, is their ability to recognize, and adapt quickly.
That’s exactly what happen to me this week, and I want to share with you my learnings.
This week had me on a rollercoaster ride of emotions.
On Monday, the account reached a new high of $3,631. That’s a +600% return from the original investment.
I could feel the $5,000 marker on the account but my eagerness grew and led me to making mistakes. Those mistakes costed my account to be cut in half to $1,700 by Thursday.
From making +$900 to losing -$900. That’s -$1,900 price wiped from the highs.
This honestly crushed me, even though it’s a small account. On Thursday, I went for a walk to really dive into, what mistakes I made.
On Friday, I made a strong comeback to ending the week strong with a 17% account growth for the week.
With all of that said and done, I’m going to avoid trading until next Friday.
Why?
1) It will allow me to reset my mind, and comeback with a fresh new perspective.
2) FOMC & Apple earnings are this coming week, and the market will be volatile and unpredictable.
Now, let’s go over these 3 critical mistakes I made that can blown your account.
At first, I was wondering if my position size was the problem. And even though that is a factor to losing your capital, it’s not the biggest problem that happen to me over the week.
Trading is a game of patience, and those that are patient get rewarded handsomely.
Being impatient this week led me to rush into trades that were not my setup. What led me to increasing the small account to over 600% is by being patient.
It’s critical for you to be patient for you setup, and not rush into anything that will make you impulsive and reckless decisions.
Another mistake that I made over the week, was using smaller timeframe as if it was a bigger timeframe.
For example, I normally use the 5 minute timeframe to execute my trades, and because of my impatience, I used the 1 minute timeframe and read it as if it was a 5 minute timeframe.
I told myself, “okay the 1 minute timeframe says we’re bullish, so we have to be bullish.” Wrong.
I ignored the fact that even though the smaller timeframe said one thing, the bigger timeframe said another – smaller timeframes do not tell the big picture.
Looking at smaller timeframes is similar to looking at a painting through a penny-sized hole. You can see some of the details, but you can’t understand the overall composition.
When I first started the small account challenge, I had no choice but to opt-in into cheap contracts that were far out of the money.
I kept doing that this week, but let me tell you something, buying far OTM contracts is far more riskier than adding more capital to a trade.
Buying far OTM contracts means they have less intrinsic value, theta is extremely high, and the delta is low.
There were times where I bought far OTM contracts, theta was destroying them, by the time price action finally move, the contracts didn’t have enough delta to make them worth anything.
It’s not worth getting cheap contracts once you have more capital. Buy higher quality contracts.
These lessons seems so obvious now, but when you’re in the trenches, it’s extremely easy to forget.
So the important lesson here, is to take a step back, reflect, and recognize mistakes so you can avoid them next time.
Do this enough times and avoiding these silly mistakes will be easier.
That’s it for today. See you next week.
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