Thoughts on Max Loss: Supplemental

 “Losing money is the least of my troubles.  A loss never troubles me after I take it.  I forget it overnight.  But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.”

Jesse Livermore

Several days ago, I took a max loss on a trade. The short strike of an iron condor, begun way back in November, was 920 in the RUT. Bucking the upward trend, I martingaled the trade to keep it alive, according to my trade plan. I didn’t want to commit more capital after three adjustments, however; and the range of available tactics diminished. Finally, max loss was hit, and I bailed. I hoped the market would continue its historic up move to justify the choice beyond all doubt. Unfortunately, worse than taking the loss is the realization that one missed an opportunity. This is universally understood among traders. On February 4, 2013 (yesterday), I had the uncomfortable realization that had I stayed in the position, I could have bailed under much better conditions.

All that said, below are some quotes from my teachers about losses.

If you fight the trade to keep it alive, you’ll lose a lot of money.” Mark Fenton

You will lose. First you’ll lose 20%; then you won’t lose 20% but 15%. Then you’ll lose 10% and later 5%. Eventually, you might not lose anything.” Himanshu Raval

No hero shit.” Tom Sosnoff

I think the way is found in Himanshu’s thought. In fact, the loss gives me good reason to move up the scale of losses. Presumably the end of the rainbow will appear someday in this manner.

Image

Somewhere over the rainbow

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