Risk taking and pulling the trigger

Let me preface this with a funny but true story:

In my twenties, I took a big risk, I invested all my net worth and even my future income into a software business idea. So essentially, more than I had. It was a huge risk. It took 16 months to get the software idea from scratch to launch-able. We of course blew past deadlines as is typical, and went over-budget. I had no money left though I had some on its way. I was at a pop machine with a friend and business partner (he’s probably reading this and laughing) but I had one single looney left and I told him, this is my last looney and I’m buying a diet coke with it. I went to put into a pop machine. Guess what? The pop machine stole my very last looney to my name. Sounds super cliche but it’s an actual true but hilarious story. The pop machine ate my last looney. The end of the story is positive, the business worked out fantastically and all is well. But I took a leap and risked it all except one looney which a pop machine stole.

I am part of a chat group (Index Trading Group) which I started back many months ago and has now well out grown me. It is now some 250 people. 250 very smart and ambitious people. It’s grown to a point I never believed possible, I rarely contribute on there though my intentions were good but life, busyness and trading gets in the way as it often does. It’s no excuse. I should contribute more. Anyways, this options community is, in my opinion, immensely changing and shaping the future of retail complex option trading with new brilliant research and ideas. It’s got to be at the forefront of market neutral options trading. I often am even somewhat intimidated and in awe of some of the members abilities to focus and create great back-tested ideas and videos (I think most of those reading this will know who they are). Perhaps, it’s why I rarely contribute, it would take a lot of resource to match the quality they put out. I trade huge accounts which takes up time, I have a business to run and I have a family to take care of. Again, no excuse, so do they. But those become excuses I use to put off doing or coming up with ways to contribute (human nature). Anyways…

Today a topic came up about risk taking and trading for a living. A member asked what it would take to quite your job and trade for a living (the dream eh?). I say that almost facetiously, I trade as if it was for a living probably, and it’s got its perks but it’s also very hard money. I think business can be much easier 🙂 The breakdown from one member was very succinct he had listed out exactly what was required to adequately trade for a living and it was in the ball-park of 5MM which assumed you’d only trade 20% of your net worth and that you had several years put away for reserve. I’d pretty much agree with that except there-in lies the rub. If you used that equation to assess risk taking, you’d probably never make it to 5MM. Whatever gets you to 5MM in net, is likely to have broken that equation. Sometimes, you have to break the usual conservative views on risk taking and make that leap. Now, I don’t know if you should do that with trading per say. If you do do that with trading, you better have done your damn homework and have had a long stretch of success!

In life, and if you want to become successful and rich, you just have to jump and pull that trigger. BUT. You have to give it your all and you have to make sure you have back-ups and fail safes built in. Take the risk but if your fucking taking that risk, if something happens, you don’t sleep if it requires attention, you work your ass off making sure the risk you take works or that you have back-ups and ways to mitigate failure. When I started my business, I put every single cent into it, very irresponsible and would have seemed crazy. It worked out well but I think it was more because of insane persistence, fail-safes and tenacity. Once I made the decision to pursue an idea re software, I did everything I could to make it succeed. It took 7 years before it was profitable, and I worked 14 hrs a day 7 days a week to make it work (in my twenties). I pulled the trigger and being smarter now, I doubt I could ever make the same jump again, it’s just so crazy! But back then, once I had pulled the trigger, it was game on, I had back-ups to make it work and I worked 14 hr days 7 days a week making it work. I gave it my all.

The thing is, trading is so psychological and it’s essentially built on irrationality and the medium/arena (market) is largely unpredictable (some TA’s are screaming right now). I don’t think I’d pull a trigger in trading for a living if I were back in my twenties and about to take a risk.

For instance, on the macro level, trading for a living can largely be successful with all of the points I mentioned above (tenacity, hard work, dedication and backups). So Sure, I agree with that, hard work, tenacity and dedication will eventually lead to success as a trader on a macro level. But it’s not the same as a business..it’s a different beast. It’s a psychological Beast. You make decisions that directly and quickly cost or make you money. Dealing with the repercussions of those decisions whilst in a challenging time (down turn in P/L, stressed about $, needing to make more) etc will wear on you. I’ve made borderline adjustments that have cost me a car. Those adjustments bother me and used to affect my life. If you start second guessing yourself…it will start to affect your well-being. I lost many days of my early trading career life dealing with these frustrations and stress. I wasn’t even trading for a living, it was more of a hobby and the amounts weren’t touching my net worth. I can’t even imagine what it’d be like to trade while requiring it for living. I don’t know if I would wish it on my worst enemy. It can’t be easy. I commend the pro full time retail traders. They are a strong breed. Unfortunately, all of these little unexpected psychological issues of trading are human nature and WILL occur. It’s like running bad in poker, some players never recover, it’s a high speed venture with instant requirements for decisions that can cost you dearly. That will wear you out. This is why the best traders have very strict plans that they adhere to religiously. You cannot have on the fly decisions affecting your well-being or your trading psychology. This leads me to the micro level..

If you get into trading for a living and you run bad, this negativity will seep into your trades and it’s not something you can hit the pavement and make work with tenacity since its so much more complex of a battle (I am mostly talking about the internal battle within yourself at challenging times in trading and with the whole basis of the market being irrational and unpredictable). If a trade doesn’t go your way, and it’s getting desperate, there’s not much you can do and it’ll lead to more risk taking. So the whole internal battle you have psychologically, will tend to burn out or cause failure within someone. You can’t just get motivated late at night as a trader, and make something work instantly. So many times, I’ve thought my way through a problem in business, often times that’s not really possible in trading. That in and of itself, will lead to feeling helpless if you experience a bad run. This helplessness will compound. Then comes along second guessing yourself, and generally putting yourself in a compromised mental position.

With a business, usually, you can solve it with smarts, tenacity, dedication and time. You can, not always, but mostly, make it work! You can work hard enough to get lucky. You can do that on a large macro level with trading in general but not on a micro level which can be devastating to the psychology of the trader. I wouldn’t wish trading for a living on my worst enemy if not properly prepared, well bank-rolled and experienced.