Thanks for joining me. So today we’re going to talk about what happens when your draw down continues to leak and you can’t take it anymore and then you act out of emotion. A lot of folks refer to this as going on tilt, and although I can’t say that I’ve blown up from going on Tilt, I definitely know what the damn feeling of frustration is that brings you right up to the edge of the bed on that. Just for me, it was hard enough to get my grub steak together in the first place that after losing money and being in drawdown, the idea of going on tilt and then me further hurting myself wasn’t something that I was willing to do. Maybe I’m lucky in that regard, but that was just my makeup on again because it was hard to get my grub steak together in the first place.
So I think what’s the definition of tilt? I mean it’s probably as unique to you as your fingerprint is, right? You can look and say there’s a clinical definition, but who needs, most people don’t care about clinical definitions. What they want is what is the process or the solution that I can use to overcome this, right? And so for me, when I come into the trading world and I think, okay, if I’m right four out of 10 times, I don’t have any emotional constitution where I’m built into the trade having to be a winner. To me it’s just all the numbers game I’m going to put trades on. Some are going to some lose every once in a while. One’s going to blow up and do a really good job for you and who knows, make you five or 10% or more on your overall P&L.
The key is to avoid the big smashing. So we talk about using protective stops, that’s a given. Even if you feel like, well Michael, I don’t want the stops to get run. Well, to me that was always the boogeyman anyway is my stops are going to get run. And for the one in a thousand instance where that would happen, the value of having that protective stop in stopping you from getting that big smashing is so invaluable that I would do it anyway. I think a general definition on going on tilt is where whatever emotion it is that you’re feeling, aggravation, frustration could be whatever humiliation has become so strong, that emotion is what eventually starts to govern your behavior That never really ends well. As you can imagine. Some of you might be in that right now or you might be approaching that spot where you’ve just had enough.
Those are the moments when you want to go have what Peter Boris and I call the park bench day, where you just go out and sit down and put some distance between yourself and the market because the goal is to come back and to be able to play every day. If you lose all your marbles, it’s going to be hard to do that. And if you put yourself in a spot where you’re down over 50%, you kind of have to put yourself in the mindset that, Hey, I’m basically going to start over. You know what I mean? Because at that point you’re so far away from where your original capital was, chalk it up to tuition in
The game. That’s what you have to pay. Everyone has their hazing that they have to go through in order to learn their craft. And that was painful for me too. I lost a lot of money when I was trying to do everything I was trying to trade. So this is where it came up for me, it might be in the book, is that when I first got to Wall Street, I figured because I had access, again, this is in a world where there’s no mobile technology, there’s no email, there’s no blackberries yet, and virtually no one has any internet. So your you trade station at your computer and your phone at your desk was basically your cash register. And so I figured because I had access to the markets and research that I would be able to trade anything any way anyhow, any time and still do well, which was of course ridiculous to even think.
So I feel like I did try to trade stuff and there were a lot of things that I was not even good at. I went and for example, the foreign exchange market, the interbank market was 24 7 and I found it very, very difficult to not have any downtime. So my foreign exchange trading was not good. I was a net loser there. So this is in the first two years of my trading, my options trading was really good and also really bad. I didn’t make, and nor did I really lose any money, but it took so much time to babysit those positions that I just figured at that point in my career, instead of getting all nuts about it and going on tilt, which is the theme today, I was just going to stop doing it all together. And so I put that on the side.
So right then and there, if you had stocks and commodity futures, you had equity options. And then interbank foreign exchange, I took off the last two and surrendered. That’s chapter two of the book. As I surrendered to the fact that right here, right now, I wasn’t a good foreign exchange trader and had options for what I learned because there was no one there to teach me. There was none of these online classes and this and that. I was mediocre at best, but I needed to reallocate my time. And so I kind of did a little time blocking and it showed that for what I was good at, now I could reallocate that time to where I showed some promise. I still didn’t think I was onto anything. I wasn’t like, yeah, I made it. I was almost afraid to do that because I really wanted to see consistent results.
That might mean months for you. It could mean years for me, it was years because in one month you don’t know enough. You don’t even, companies report earnings quarterly. So that’s almost like where you should start in terms of your trading. So my stock trading was okay, but I was still immature enough that I was listening to other people’s fundamental opinions about things like I was still in that world where, and so was the ax on a certain sector. And so whatever they said goes, and if they were bullish, then you were bullish or what have you. Or you would look for those things that would keep you in line with whatever this analyst was thinking. Then you learn the hard way that they don’t always get it right. And there’s normally for these types of analysts, they never met a stock they didn’t like because in those days, again, there wasn’t commission free trading and there wasn’t a lot of this fee for service kind of business where you could run a portfolio for somebody 10 million in charge ’em 30 basis points a year annually, pay paid quarterly upfront.
Everything was still commission based. To give you context, Waterhouse Kennedy, Cabot Charles Schwab, they were charging flat rates, maybe E-trade as well. They were still so very new at the time, or they were charging maybe 30 to $50 commissioned flat rate where a wirehouse where I worked and the bigger places might be charging anywhere between one to say 3% of the dollar amount invested as a commission. So the analysts in those days would make their recommendations because they needed people to buy and sell because that’s how the firm generated revenue was through the commissions on the purchase and sale of those securities, either on an agency or if we were market making or even trading 19 cun three. So at the end of the day, I feel like my equity trading when I stopped listening to everybody else got a lot better. But still in the meantime, that was the third asset class that I kind of put on the side.
Even though more I was making money, wasn’t making a lot, but I was performing in a way that you could at least look and say, A is making money net a cost. I had real skill in commodity futures. And so that’s where I ended up focusing all my efforts and I said, let me get good at trading one particular style in this particular asset class. And I was thinking maybe build a track record or have something along those lines and then I’d have something to show for my time. And then after years of experience, I could look at other asset classes and say, okay, at least I know I have something to fall back on. Then I can focus on maybe adding back another asset class or even a different trading style, which is kind of hard to do because you’re kind of like your trading style is really your personality and it’s difficult to do that.
So at any rate, that’s how I avoided going on tilt was I eliminated the things that weren’t working for me, but were still very painful. It sucked to lose money. I know that. But I didn’t want to let any of my own emotions come back to hurt me because I knew the market was trying to steal my, not steal my money, but there were other very talented traders who were on the other side of my trades that were looking for credits and I was trying to avoid the debits. So we all want credits, but it’s again, it’s life on life’s terms. So I took a big mental diet of my mind and said, okay, here’s what I’m good at. Here’s where I have no skill, and I can kind of come back to that as it relates to those of you who are day trading.
There might be just too much noise and not enough signal for you just yet. And so when you hone that down, you might be able to focus on one aspect of your trading that can turn that around. I just found in the short run when I was starting out, there was so much information, it was hard to categorize what was really material and what wasn’t. And so I kind of put the short term stuff on the back burner so that I could develop again, focus on one particular asset class, one skill, one timeframe, and get really, really good at that. Now, that takes a lot of inner fortitude in a lot of patience because even after having done that, there were days where I was looking at the ceilings saying, what in the name of God almighty am I doing here? Because I haven’t shown any, I don’t have any results.
I’ve put a lot of work in. A lot of time has gone by. I’ve again, I had to raise money from clients, which might be a little different from what you are doing. So there was that aspect of my day two, whereas that I needed clients to give me money and put money in accounts for me to trade for them. So there was that on top of everything else. So I feel like when you’re feeling overwhelmed, to me the best remedy is to reduce your activity, reduce your size, reduce your frequency, and just realize like I do when I go to the markets, I figure 5, 6, 7 times out of 10 I’m going to suffer small losses. So I know that ahead of time, as they say ex-ante. So I don’t become emotionally invested in the outcome of any particular trade because I know what the numbers are.
That doesn’t mean it feels any better for me. I’d rather win on all my trades, but that’s just not how it works obviously. So I think the best bet is to mentally prepare yourself that if you’re going to have, I don’t know how frequently some of you are trading, maybe one trade a day, some of you might be doing dozens of trades every day. I would just take solace in the fact that it’s a game of mathematical expectation and as long as your winners are many multiple, the size of your losers, you can make money here. Albeit having several days in a row where you might be losing that just might be the way that it goes.
So hopefully that helps if you have more specific questions about going on
Tilt to avoid it, obviously you can get into breath work, you can do meditation, quiet your mind, you could turn off the screen, walk around the block. You could limit your trading to the opening ranges, and if nothing’s happening in the first hour of trading, then you’re done for the day. You might do the same and trade the close. There might be that type of a deal. So I’d need to know more of information about your particular situation, but if you send over some more information, I’ll be happy to address it. I just know that that’s the way I avoided a lot of that grizzle of going on tilt and then making a bad situation worse because I was unwilling to feel their feelings.
Lucky for me, I was born that way where I wasn’t afraid to feel any feeling and so I didn’t fall into getting blasted in big drawdowns and then going on tilt once I was there. So I’m lucky in that regard for sure. I was born with that constitution, so lucky for me. Anyway, while you’re here, please Like and Subscribe.
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