Hey Guys,
The market is down sharply this morning. The S&P 500 had a red day yesterday and then dropped roughly 100 points overnight.
And I took a punch in the mouth with a number of my positions. I hit stop losses on three different stock positions. And all the option trades that reached their time limits yesterday resulted in losses. The options trades were especially rough because they're leveraged and have a high setting on the "risk/reward dial."
After a week like that, I like to step back and look at the big picture. First of all, we know the deep history of backtest results indicates that even with the strong long term performance, there have been many periods of drawdowns. So it's not a surprise that there are tough weeks like this.
Even though we know tough weeks like this will happen, it doesn't mean they're easy to live through! If you're feeling a strong emotional charge, here are a couple things you can think about:
1) Consider lowering your position size. If this feels too heavy, that might be a good indication that you'd be more comfortable if you had less risk on the table. Less risk means less potential reward, but if you can't live through the drawdowns, then there will be no reward at the end of the tunnel anyway.
2) You could look within and try to uncover why you feel such a strong emotional charge. Like for me, when I was growing up, I somehow got the impression that my self worth was tied to performance, and so early in my trading career a losing trade would challenge my sense of self worth and make me feel fear. I have since come to realize that my self worth has nothing to do with performance or money, and that makes it so much easier for me to live through drawdowns. I wrote a blog article about it here. Each of us has a unique system of emotions, and if you come to understand what drives your emotions, it gives you more of a choice about how to respond to them.
I took on new trades today. In the stocks account, I bought positions for GLW and VTR. I didn't take on any new option trades yet today, but I did buy CSX options late yesterday in the options account.
If you have any questions, just reply directly to this email.
Eric