Big Red Days: Using Them as a Catalyst for Change

My turning point as a day trader came after having a really big red day. I think big red days are turning points for most traders. Those are the days that force you to step back and take a close look at what you’re doing, including what you’re doing right and more importantly, what you’re doing wrong. A big red day can be the final straw that breaks the camel’s back and makes you throw in the towel and potentially quit your career as a trader altogether. Alternatively, a big red day can become the catalyst for change. In my case, when I had my turning point, I was unemployed. My only income was from trading and a couple of side hustles. I was already 18 months into my endeavor to become a trader, and I felt I had come too far to turn around. I had no other choice but to see my way through.

Unfortunately, the path got darker before it got better. I accumulated nearly $30,000 of credit card debt, and I was selling things from my garage to fund my trading account. My back was up against the ropes, and I didn’t have much more runway. What I did have though, or what I lacked in money, I made up for in self-confidence. I believed in myself, and I believed that I could do it. That belief came from the fact that I had seen other people achieve success before me. I didn’t think they had any special advantage. special skill, greater intelligence, or more money than I had, but there was something that those people possessed that I lacked, and that was discipline.

Spiraling Losses and Emotional Vulnerability

My early years trading were marked by being very emotionally triggered. I was shooting from the hip, taking Hail Mary trades, and walking a fine line between trading and gambling. I was in my 20s and perhaps more emotionally susceptible to trading out of anger and frustration than I might be today. Whatever the reason, I continue to find myself becoming emotionally highjacked. I couldn’t pull myself away from the trading screen even as I began a downward spiral of loss after loss after loss. The particular loss that became my turning point was a day when I lost $5,000 at the start of the trading month, which meant I would need to add more money to my trading account before I could trade in it again. I was now $10,000 away from my $5,000 monthly goal that I badly needed to hit in order to pay my bills and the minimum balances on my credit cards. The stakes for me were very high. After submitting to the market and accepting that I had no choice but to call it quits for the day, I walked out of my house over to my wood shed and began splitting firewood.

Tears ran down my face as I split the firewood. and I took out my frustration on the old pieces of wood. I asked myself, “When am I ever going to learn?” It seemed that whenever I had a big trading loss, those days would only get worse as I would refuse to give up and stop trading. In fact, if I had eliminated my top 10 worst red days, that would have alone made the difference between being a losing trader and being profitable. I had allowed my red days to become so big they were jeopardizing my ability to continue trading. After suffering that big loss, I sat down on my chopping block. I thought to myself, “There has to be an answer.” Even at that time, I knew that I was capable of making money.

Learning From My Mistakes: The Importance of Tracking Metrics

I would have weeks where I did very well, and then like clockwork, I would give it all back in a single day. 5 small steps forward would be washed away with one reckless, emotionally fueled day of trading. In all of those green streaks that I have was my belief that I knew what I was doing and if I could just stop having these terrible blowouts, I might be able to turn the corner. Because my loss was so big, I couldn’t trade in my account until I added more money, which was naturally a cooling-off period. I didn’t feel that I just could take a vacation and watch TV or do nothing, so instead, I went back into my little office and I began pouring through my trading records. I owe my mom a great deal of gratitude for teaching me to be meticulous about financial records. She taught me to balance a checkbook at a young age and she gave me a ledger where I could track how I was spending my allowance.

When I took my first day trades, I set up an Excel doc and tracked each trade I was taking, including documenting the time of day, the price of the stock, and why I bought and sold it. it. If I hadn’t done that, I’m not sure that I I would would have turned the corner. That’s why I emphasize to members of Warrior Trading the importance of tracking your metrics. In all of that data, there is a story. It’s a story about what you’re doing that’s working and what’s not working, and there will be hints about what you could or should do to improve your trading. I have known many traders over the years who dismiss the value of metrics and others who in fact don’t look at them at all. I personally find that hard to fathom.

Discovering Patterns in Metrics

As I was pouring through my metrics, I discovered some patterns. I sorted my trades by biggest winners and biggest losers, and naturally, I found that my biggest losers were clustered. I stood together on the days when I had become hijacked by my emotions. I found that my biggest winners were on stocks where I had taken large share sizes because I had conviction, but I took a relatively small winner. For example, I would take 10,000 shares and 15 cents a share for $1500 profit, or  20,000 shares and 20 cents a share for $4,000. These winners certainly added up quickly, and I didn’t need to take very many of them each month in order to hit my goals.

I also discovered that my profitability was predominantly on lower-priced stocks and that I consistently lost money when I tried chasing news trades, including economic data releases and breaking news that occurred in the middle of the trading session. In those days, I had subscribed to a squawk service that would tell you about rumors and speculation of news. I fell into a bad habit of chasing those stocks and losing money. I recognized pretty quickly that if I stopped trading higher-priced stocks and stocks from my news service, I would save myself a lot in losses. I was able to cancel my subscription to the news service and save a little bit of money at the same time. I also noticed that the stocks I did the best on were the same stocks that pretty much all the other traders were trading on that particular day. In other words, these were the obvious stocks in play. They were often the leading percentage gainers, had high relative volume, and the volume and the chart patterns were clear.

The Path to Success: Selective and Strategic Trading

I found that complex combinations of technical indicators were not working for me. Trading options and large-cap stocks felt like trying to play chess against a computer. The algorithms and the hedge funds were in control. Once I funded my account and was able to trade again, I told myself that was the last time I was going to add money. In truth, I think I probably would have added more if I had needed to, but I made a commitment to be disciplined. The stakes were high and I couldn’t afford to screw up again. I would begin my journey of recovering my early losses and building the momentum that is still with me today. I remember during my recovery, I was very disciplined about only trading when the right opportunities presented themselves. Rather than trading every setup I saw, I was only trading when I had a 90% conviction that I would make money. I adopted a belief to trade the best, leave the rest, and live to trade another day.

I did have losses and setbacks following my turning point. The biggest red day of my career was on my birthday in 2021, and it was a day like many other red days when I became emotionally hijacked. I’m still not immune to this happening to me, but I’ve become much better at being aware of my emotions and preventing myself from experiencing sustained drawdown. Whenever I hear about traders who blow up their accounts, I’m reminded of the day when I had my big loss, and I’m hopeful that they’re able to experience a similar turning point in their trading.