If you missed
Part I you can find it here. I promise it won't be a trilogy. I left of by saying I got out of a large bet at exactly even sometime in late 2009 and was feeling extremely lucky. While my friends and family were down 50% or more in their retirement accounts I was feeling a bit guilty but also selfishly happy for myself. I'll be honest and say I was very nervous as the jobs I was preparing myself for in grad school simply weren't going to be available as the labor market shed 200K plus jobs a month. I sat in cash for a while more than happy to drawn down $2000 per month until I could figure out what to do with my life. I had no solid idea what I wanted to do, just something finance oriented, hopefully investment related. It hadn't yet occurred to me to try and trade the market for a living. It wasn't until a full year after school, a bunch of unanswered job applications, and a few failed interviews that I decided to take the plunge.
If you haven't yet seen my bio page, take a look
here . Those numbers are real and most of those trades can be found in the archives of this blog. It was at the end of calendar year 2010 that I took a look at the numbers. Here is an incomplete list of what led me to try and trade my account for a living:
- Track record was looking good
- Was having fun
- Was in denial about the true nature of the economy
- Truly thought I could at least continue to average $2000 per month which paid my bills
- Needed to buy time either to let the economy rebound or find my next calling
- False sense of security from past experiences
- I'll just say denial again, and a little bit of being a baby. I wasn't hurting bad enough to hit the streets looking for anything and everything. I had a bit of an ego. It was difficult to interview for jobs that didn't pay much. I wanted to shout "do you know I don't need this job, I just want it".
In short, I was in need of some humbling but I did not think that at the time. Denial is a powerful force. So I set out on what was supposed to be a 6-month journey just to see what happened. I just searched the archive and found the post from after my first six months, you can read it
here. Wow did that ever hurt to read. I was so happy at that point, really flying high thinking I might have a shot to stay self-employed and thus end my miserable job search in a terrible market. Try looking for a job when you're 39, have a limited real world resume, and its the worst job market anybody has seen in our short lifetimes. Wasn't fun and was easy to run away from because I had the capacity to do so. All regrets.
It was late July 2011 and I'm thinking that while things have gone well so far, if I was truly going to try and make a living, or justify not looking for another career, then I was going to have to trade a little larger and be willing to take some risks. I didn't mind the account fluctuating or taking losses, as long as the long-term average was in the ballpark of what I needed. I was going to give it another 6 months, make it a whole year, then reassess at the end. I was shooting for $4,000 a month, but if I came in at $3,000 I was easily going to green light myself to do this another year. I clearly remember that thought process. Does it really make sense for someone my age to try and get by on $36,000 a year? No, again though, I wasn't wanting to deal with reality.
I had been having great success with trading the ZB futures. It was beginners luck that lasted well over a year. I don't think I ever got cocky or arrogant, but I did feel confident. This combined with my denial and desperate need to try and make this work set the stage for my fall. Since I had recently decided that I needed to be willing to take on more risk in an attempt to truly see if this could work, I found my opportunity. If you take a look at the ZB bond chart we had recently had a parabolic move that came crashing back down. I made money all the way down, again just lucky timing. I thought the world was overreacting again and was willing to stay short ZB feeling like it will eventually come back down again. I was short four contracts at about an average of 127, was long some TBT which is equivalent of being short some more ZB, was short some out of the money VXX calls, and long some BAC.
Well the shit hit the fan in August 2011 and all correlations when to 1.0. Bonds went to the moon, past the highs at about 136 set when banks were actually failing, all that was happening this time was rumblings of unrest in Europe, at the time that was nothing new. I thought this was classic overreaction but shit just got worse for four straight weeks. When we took out new all times highs on bonds I only lasted a few more days, I closed out at 140.75. So lets just round to 141 minus 127 x 4 = $56,000, plus the losses on all the other trades, it added up to close to 100K. My only solace is that not only is ZB still above that number today 18 months later, about 143.50 last time I looked, but they went as high as 152. Even had I been smaller in size I still would have pulled the plug at some point. As I found out, my real tolerance for pain was when I got close to $100,000 left in my account. That was just a line in the sand that I didn't think was acceptable to break, purely psychologically. What happens if it hit $97,000? Nothing, just a psychological boundary.
I believe the account balance was somewhere about $212,000 when I started and I pulled the plug at about $120,000. While I still haven't had the courage to update my spread sheet from those trades and then update my bio page on this blog, I do know that my 1099B that year said -$70,000, and I was up about $16,000 before I lost. So that's about right, I knew I lost about $100,000. Now while I don't expect anyone to feel sorry for still having more than 100K left, to me this was devastating on a lot of fronts. First of all I failed, I never thought I would let my account balance get below 200K let alone closing on on 100K. That was beyond any worse case scenario I would have imagine. I had no viable way to make this money back other than trading, and as you can imagine my willingness to trade was non-existent at that point. My account entered a death spiral phase. I was cut in half by 50% in just six weeks combined with no way to make any more money, so do that math and at a straight draw down of $2,000 per month I could tell you approximately when I was going to be homeless. Trust me I did that math constantly.
I was completely out of my mind for almost a year. I actually found a job I was interested after about four months but the hiring process took about 11 months to be finalized, and I never knew until month 11 that it was going to happen. I spent most of 2012 absolutely miserable, depressed, scared, anxiety, you name it. Kicking myself in the butt, doing the what if scenarios in your head, etc. Every few months I would get the desire to make a trade. My 2012 1099B shows a profit of $5,000. I traded sparingly and sporadically. I would get cold feet so damn fast, literally couldn't sleep at night if I had a trade on so would cancel it for a small loss if need be just to end the anxiety. I still had this need to make something, anything to help out with expenses and delay living in a storage unit. This might sound like pure exaggeration but I can tell you that it was reality in my head.
I've been asked by a few already how my psychological state is now when it comes to trading. I think enough time has gone by that most of the fear is gone. I still have some left over guilt and shame. I've got a stable job now and the ability to trade again but I stay small, no more than two futures contracts at a time. But the truth is I did so well for so long that I finally realized its just time to forgive myself and move on. In the end I felt like if I can just start to slowly work my way back, even if it takes literally ten years, as long as I'm on the path then that's all that's important. If I can just trade profitably, no matter how small, then I'm good. I really enjoyed the blog, made some new friends that have stayed in touch even when I dropped off for a year, most notable Dominic, Sandeep, and Darrin, thanks guys. I'm currently getting my ass kicked short the ES but I'm having fun, so I'd say that I've made a pretty good recovery. Now its just time to grind my way back home.
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