Just like everything, I find that we are given challenges to our ability to handle them. As our trading experience – and trading accounts – grow, we are given a different set of tests. Harder tests.

Something I teach in my course, not found anywhere else, but vitally important as you grow your account… it’s my Money to Brains Ratio. This essentially says that the more money you have, the less brains you have. In other words, as you develop your skills and your account grows, it can get wildly high with more money than you’ve dreamed possible. And that converts to less value per dollar. If you work hard and earn only $50k a year in your day job, that income will be very valuable to you. You will likely carefully budget and watch your spending. But, if you are earning $250,000 a year trading, ‘working’ easier and less hours doing what you love, the ‘value’ of that $250,000 will not be the same, and certainly not five times the value you placed on your income when you were slugging away at your day job. When you have lots of cash that you’ve not experienced before, you may tend to spend it easier.

In terms of trading, it’s easy to be distracted and try a new technique. One of our traders, Julian, had an amazing week, ramping up his $25k to over $36k by Friday. In fact, October 29 was a great day for him, logging over $4k in earnings. Then, early afternoon, he took a chance on some same day expiration calls. He bought 100 459 calls for .54 expiring that same day, Friday, October 29. SPY promptly dropped but Julian, determined to hold on, did so until mid-afternoon, selling for 8 cents. He took a hit for about $4,600. Ironically, he got hit again watching SPY rise at the end of the day back up to .61, as if to tease him. Needless to say, he was angry.

Now Julian is a good trader. He is very methodical, calculating and in control of his emotions. Normally. On this day, he let his guard down on this out-of-character position and he took a sizeable hit. It was pure greed, nothing more. Not the end of his trading career but damaging enough that he would contact me to discuss why he should remain in the market. I explained how this is just a bump in the road and that he’ll recover… and to not do this again.

So, how does one prevent self-destruction? Think of it as driving on the L.A. Freeway. If you stay in your lane, you’ll be fine. Veer off into the next lane and it could be disastrous. From missing your exit to a major accident, you must stay in your lane to avoid a catastrophe. Same holds true for trading. Once you establish your momentum, your core strategy, using all your check lists, indicators, entry and exit tools, simply continue doing what you do to make money. Do not try anything different. Just stay in your lane.

When these horrendous events occur, I often wonder if the right brain ever talks to the left brain. Intellectually, we know what to do. Emotionally, we are overcome by the excitement or need to strike it big. There was no need for Julian to take that last position heading into the weekend. He was up substantially and he knew the consequences. If your daring brain wants to kick in, simply remind yourself how bad  you will feel when it all goes south. When you hit your target, just close it all down. Do something completely different and forget about it.

Remember, it’s better to not be in a trade wishing you were, than to be in a trade wishing you weren’t.


Head Trader Hugh