how I lost 5 times my net average week

This past week my account suffered a net loss 5X larger than my average trading week, my largest loss this year. Now I admit for a split second post the market close on Friday I thought to myself, there is no way I can update my performance to show a nearly 3% drawdown this week– I’ll have to lie. And immediately I thought to myself, fuck that, I am going to write a post about it so everyone can see.

Before I get into how it happened let me discuss why it is so important to avoid weeks like this. My average return per week for the year up to this point has been about 0.56%. That is all my losing weeks and winning weeks added together and averaged out over the span of weeks. So lets do some simple math.

➢ I lost 2.89% this week.
➢ I will now have to make slightly over 3% in gains to recover what I lost.
➢ At 0.56% average return per week it will take me six trading weeks to recover what I dropped in just this one week.

Now some of you may yawn at a 2.89% drawdown and think that’s “nothing”. But you can see based on the math above that “nothing” on average will cost me six weeks worth of trading. For those that know how I approach the markets, my #1 goal for my account each week is literally not to lose money. That’s it. See I believe the winning weeks will take care of themselves; all I need be concerned about is how much I can lose. I pride myself on consistency and constantly hitting singles or doubles and never striking out—and this was a big strikeout.

I started the week off well on Monday booking some small gains and finished the day positive. Tuesday started the pain train. I shed about 1% of account equity that day with somewhat “standard” losses with one exception where I had put too much size on, but overall just your average losing day in the markets. Now the problem with having such determination to end each week in the green is that when you start to drawdown 1% your survival instincts will begin working overtime to sniff out trades that aren’t really trades at all.

I typically average about 3-6 trades per day and by the time I finished Wednesday’s “catch-up” session I had about 17 trades on the book. As I look back over the trades, there were probably about 3 that I would consider “A” setups, the rest were garbage. I had another 1.3% down day on Wednesday. Thursday was relatively flat and Friday another losing day.

It’s funny that after the close on Friday all these ideas about how I need to change my trading system came flowing into my head as if I was back to my early naive trading days. The truth is, nothing needs to be changed. My trading system is fine, that’s not what caused the losses this week. It was my own fault. I let Tuesday’s losses get a little out of hand, and worse, I let it affect my trading mindset and performance for the rest of the week.

It reminds me how important it is to manage the highs and lows of trading and to keep that steady long-term approach day in and day out. As a matter of fact I am starting to like the fact that I had an outside down week in my account. It keeps me in check, it makes me reflect on my process, and it reminds me that if I drop my guard down for just a moment the market will be there to expose my flaws. I am not worried about the money out of all this because I know if I stay true to my process the money will flow back.

So please have a chuckle at my performance graph after this week (9/9/13) and I hope you can take something away from my experience to prevent weeks like this in your own trading. And don’t forget to check back after six weeks to see if the math proves itself accurate.

If you’re not losing money from time from time, you’re not trying hard enough.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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4 Comments

  1. Matt Pepin on 11:51 am September 15, 2013 at 11:51 am

    Your ability to recognize your faults is the exact reason why you are going succeed. Too many of us forget to fully analyze what caused a down turn, whether it be markets or even life. Your system works (graph doesn’t lie). As we all know, emotions sometimes get the best of us, but from these experiences we learn and grow. I have no doubt you will recover, I hope you’re wrong on your six week prediction 😉

    • Evan on 6:03 pm September 15, 2013 at 6:03 pm

      well said Matt and I completely agree, this sort of introspection can be applied to many other areas of life. I appreciate the comment !

  2. Darren on 9:41 pm September 15, 2013 at 9:41 pm

    Evan, since misery usually enjoys company, I just wanted to let you know I also had a horrible week. I did get a chuckle out of your account of the week as it sounded all too familiar. Something im sure we all go through. I feel I’ve paid for a number of executive MBA’s through trading losses. The lessons learned and humility gained will ultimately make us better at what we do. Appreciate you sharing your experience so honestly and wish you a speedy recovery.

    • Evan on 10:25 pm September 15, 2013 at 10:25 pm

      Darren,
      Completely agree with you, staying positive, keeping an open mind and just learning from the day to day experience, as cliche as that sounds, is all part of the learning cycle. It is a must in this business. Thanks for the comment and I hope you have a turn of good fortune next week as well!

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