It's the little things that kill you

In the movie Molly’s Game there is a scene where a seasoned, well disciplined poker player is going heads up against a dilettante that everyone at the table considers to be a rank amateur. This man is known as horrible poker but in this one instance he gets lucky and his hand beats the veteran. The veteran is so shocked by this turn of events that he loses all of his customary discipline and goes on wild reckless, gambling binger, becoming bankrupt by the end of the night.

In poker this behavior is known as going on tilt and if it sounds familiar to anyone who traded that is because virtually the same dynamic happens to anyone who has ever battled with the markets. In trading retail however, going on tilt rarely occurs from bad beats of the market. Almost always it’s the little things that kill you. Things that almost no one imagines have any impact on your success rate, but are actually the most dangerous elements of the game.

Something so mindlessly mundane as your internet connection is one. Imagine you are in a trade and forget to attach a stop and your internet connection goes down. Your trade is now floating naked in the market and by the time you reach your broker you’ve lost four times your intended risk and are now so furious that you start to trade wildly to make it back.

Or imagine your platform freezing up just as prices skyrocket to your target only to unfreeze when prices have fallen through your stop turning what was a brilliant winning trade into an ugly loser.

Or imagine hitting a buy button instead of a sell and compounding that error by also accidentally  trading at size 20X your normal entry. What’s your first reaction once you realize the error of your ways? Close out instantly or watch the screen like a deer in headlights hoping that equity turns positive for just a tick? No matter how much you think you’ll do the former, my hunch is that you will always do the latter.

In all of these situations the loss did not result from the setup not working, but because of some utterly extraneous factor that you didn’t even consider. Add to that the regret of being late to an entry or the unbearable desire for some action when the markets are in a lull and you have the perfect recipe for failure in trading.

In the military there is an expression “don’t expect what you don’t inspect” meaning that you should never take for granted that any weapon will work until you actually examine it. 

In trading that means creating some very basic failsafe procedures before you even glance at the charts. Make sure you have at least two independent connections to the Internet. Make sure you have your brokers dealing desk number on the speed dial and test that it works. Make sure that all your algo  forces you to manually turn it on (the reduction in unforced errors on size and direction will more than offset the tiny slowdown in execution). Create a simple checklist of all the elements you need for your setup entry then create a hotkey script that will quickly type that checklist into Google Word. Check off the list just like a pilot checks off his. This will help you take your trading account as seriously as the pilot takes his job.

The more I trade the more I come to the conclusion that strategy is absolutely the last thing that matters to success in trading. It is all the tiny mundane things that no one tells you that sabotage the best laid plans. Since most of these problems are clerical which means that we can monitor them with a few well chosen pieces of software. 

But despite these precautions there will still be many times in the market when the unexpected will clip you. Markets are not like real life. They are far more volatile which is why you should only expose just a fraction of your capital to speculation. That’s the beauty of speculation - leverage allows you to use a small portion of funds to control your position while the rest of your money sits safely in a bank or in sovereign paper. And that is perhaps the most important thing to remember - don’t expose your whole bankroll to the market because no matter how certain you are of winning things can suddenly go sideways faster than you imagine.