Death by a Thousand Cuts is the Best Thing Ever

Imagine you go to bed one day feeling fine, having just set up your algo to super “sensitive” setting that you are certain will generate winning trades and then wake up in the middle of the night -- as you usually do -- but this time unable to move. With the family away in Florida on a winter break, it’s just you and your 12-year chihuahua struggling to make sense of it all.

You are hit with dizziness, waves of nausea and your muscles ache like you’ve been stretched on a medieval rack. What is it? The Flu? Food sickness? Norovirus? In the end, you never really know, but you spend the next 48 hours crawling from your bed to the cool porcelain floor of the bathroom, drifting off into delirium which broken every thirty minutes or so by the ding-ding-ding of your algo making trades. You are just too sick and too disinterested to walk over 10 feet and turn off the machine so you let it trade as you wallow in your misery.

So that was my start of the week. By Thursday I’d finally managed to break the fever and drag myself to the screens to see what happened. I had bet on the idea that the new “super sensitive” setting would get me in earlier into intraday trend moves but instead the choppy FX markets this week whipsawed all my positions, once, twice -- about a million times. It was truly death by a thousand cuts.

And yet this was the greatest thing that happened to me this week.

When all was said and done I was down just 4.5% in my account because of two things. One, I kept my size small. Two, the algo took every stop.

If I was trading this manually I am certain that I would have lifted stops, I would have added to size and my overall loss would have ballooned to a much bigger size. That’s because most traders (and I am not an exception) can’t take more than 3 stops outs in a row, at 7 stops most traders simply give up. We hate the pain. We hate being told that we are wrong and we hate losing money. Over the years I’ve heard every possible elaborate excuse for not taking stops and always the most common argument is that stops are just a death by a thousand cuts. Yes! Exactly. The longer you can stave off the actual death of your account the greater your chance to fight another day.

As I was walking my dog still groggy from whatever virus hit me this week I came across a sign on a church. It was a quote from James Baldwin. “Not everything that is faced can be changed, but nothing can be changed until it is faced.” The beautiful thing about markets is that sometimes they help us crystallize the bigger lessons of life. Not facing stops is simply the refusal to admit that your timing was wrong, your system was wrong, your analysis was wrong. Stops are not the enemy. They are a protection mechanism to help you become better.

I realized that my “super sensitivity” setting was the stupidest decision ever. I stopped the algo immediately and reset the old time tested settings and by end of the week, one of the accounts was already back to break even for the week as both my health and wealth turned for the better.

Boris Schlossberg

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