Market Watch Ep.14: Traders Mindset: Dealing With Loss

Welcome to the Market Watch podcast by Amplify Live, where you can access the latest market insights with me, Anthony Cheung, the Head of Market Analysis, and joined by our Head of Trading, Piers Curran, getting you up to speed on what mattered in markets this week. Hello and welcome to episode 14 of the Market Watch. And as ever, I'm joined by Head of Trading Piers Curran. And what we wanted to do with today's podcast episode is, if you go back to episode 11, we talked about what makes a good trader. And thankfully, Piers, we had some really great feedback, lots of comments on that one specifically, because I think it really resonated with a lot of people. There was this idea about what's— what was the key component, and one of those was an ability to be able to take risk and deal with loss. And so on that particular point, what I wanted to do was kind of, you know, you're a guy with 20 years experience and I'm sure there's been highs and lows along the way and just really delve into that because I think there's a lot that the audience could really take away from some lessons and points from your experience. So yeah, I guess the topic title then is kind of the lessons learned from loss and your biggest loss and experiences around that.

Yeah, absolutely. It's such a— I don't know, trading is such an interesting job. It's such an unusual job, I think. And it makes it very hard— some of the aspects of it make it incredibly hard to deal with. I mean, it's just the sort of— especially if you're kind of like I was doing for most of my career, it's like short-term, looking to trade short-term volatility, macro-generated volatility. A lot of my trades were intraday. So you're holding positions for anything really between literally a few seconds sometimes up to, let's say, 4, 6 hours. All right, so as an intraday trader. But the ups and downs you mentioned there, that kind of roller coaster, and the emotion— and it's an emotional— it's not just a P&L roller coaster, of course. It's an emotional roller coaster along with with that. And I think the frequency of the ups and downs in a trader's life is much, much, much greater than the frequency of the ups and downs in most other jobs. There aren't many other jobs where you can work your absolute hardest all day, get in early, grafting all day long, stay late, really putting the hours in, and then finish that day worse off than when you started. There aren't really many jobs like that. It's like Will would always talk about a guy building a house. It's like you spend all day building a wall, then right at the end, you get your sledgehammer out and knock it all down. And actually, don't only knock it all down, then dig out the foundations as well and throw it away. So you're actually worse off than where you started. So I think for that reason, trading is incredibly difficult to deal with, which is why it's so difficult and why most people who attempt it fail. But of course, loss is— as we said in that podcast before, loss, I think, is— you can't really start to consistently make profits until you've really learned how to lose. Now, no one— let's just make this clear— no one wants to lose. No one likes losing. But it's almost an everyday reality of our existence, especially if you're trading short-term. And so I wanted to talk about how I've experienced loss, and how have I been able to deal with it and get over it. Move on. And so perhaps we can talk about, well, what's my biggest losses? I mean—

Yeah. I mean, everyone— there's always an imprint, right? Say when you broke up with your first girlfriend, or you had your first big argument, or something like that, your first fight at school. It's not that we— we don't think about it consciously all the time. But obviously, we compartmentalize it. We can probably recall it. So I'm sure there's one trade or one period that you can remember where there was a significant loss, or not P&L, but maybe loss of confidence. And is there one that really sticks out for you?

Would it be weird to say no? I've definitely lost money. And I've lost a lot of money. I've made more than I've lost, though. But I don't know whether either I'm really good at dealing with it, or it's buried back there somewhere.

And I don't know.

We need some kind of psychiatrist to dig it back out. But I know that I've been through weeks— obviously, there's single trades. Obviously, there's days. There's weeks. I might even go as far as to say there's a month We very much defined our performance over those time periods. It's, right, what's my P&L for the day? What's my P&L for the week? And certainly for the month. That was the big one in our business. We'd always be looking to be— you definitely want to be profitable over a month. And that's talking about consistency. If you're not profitable after 20 days of trading, well, something's gone wrong. And what's gone wrong is either you've taken a massive hit at some point, and you've let that discipline slip, and it's really hurt. Or you're not cut out for trading, right? Or the strategies you're trying to run are just not right. Or you're just not able to deal with the emotional side, and so you're often in that irrational zone, which means you're making a lot of mistakes. But I've definitely had big losses. And I think what's important, I think, the most important thing about dealing with loss is actually recognizing— it's like self-awareness. It's recognizing how you're feeling. And it's identifying, hang on a minute. Right, I recognize this feeling. OK, I know this. This means I'm in a bit of trouble here. This means actually the danger level has just ratcheted to max. And I now need to extract myself. So what type of feeling— you mentioned like breaking up with your first girlfriend. Or it might be, I don't know, you're about to walk into the exam room hall, you're about to take your A-levels, or you're about to take your finals at university. It's basically a moment where it's like a life-changing moment, where something is about to happen, and it could change your life. And there's quite a unique loss of— it's like when you lose control. Another analogy might be when you're on a roller coaster, and you're you just go off the big dip, and you're heading down that loss of gravity, that kind of sense of, actually, hang on a minute, I'm not in control of this situation, and this could really hurt. And if you're trading, and you're trading huge sums of money, it goes beyond just, this is going to hurt. It could be, actually, this could change my life. This could end my career. That's the weird thing about being a trader. If you're not in control, you're only ever seconds away from ending your own career. It's quite a weird situation. I always find you've got— with experience now, don't get me wrong, I've lost control and dealt with it badly and lost a lot of money. It's about coming back from that and making sure it doesn't happen again, or making sure that next time I control it better, and I lose less. It's about minimizing your losses. And the only way to do that is discipline, and control, and self-awareness, and recognizing when you're in that danger zone, and having that discipline to pull yourself out of it. That means cut the trade, get out, walk away. There's only one— I always say the best form of risk management is to physically separate yourself from your trading terminal. I mean, that's harder these days because you can do it on your phone, of course. But throw your phone in the bin or whatever it might be. So I've lost definitely lots of money. And I think the thing is about how do you deal with it? Because the problem with loss is not just the loss of money right there and then. It could— if you don't deal with that properly, that emotional feeling and reaction to that event will then carry on and continue and stay with you and heavily influence your decision-making in the future, your decision-making the next day, your decision-making the next week. And when you start to get in that zone of desperation, trying to make your money back— if you ever think— if you ever step back and be honest with yourself at any moment and go, hang on a minute, I'm just desperately trying to make my money back here, rather than, hang on, I'm doing some logical analysis, and I'm making some trading strategies based on that analysis. If you're desperate to make my money back, you're dead. I mean, the irony, the great irony, the more you try to make your money back, the more you're going to lose. So I think—

It's so funny how It's so— even outside of trading, I was just kind of— maybe the scars cut deep, but it sounded like how I felt when I did break up with your first girlfriend. And you're like, you want it so much. And you're like, why did it go wrong? And you're chasing it. You lose all rational control. And then you know what you should do. You just can't do it.

I'm taking it you got dumped. Anthony Cheung.

How did you know? Well, you've got to learn from your mistakes.

So that's perfect, right? If you get dumped— it's a really good analogy. If you get dumped, if anybody's been dumped, there's so many different emotions. Like when I lose money, there's like embarrassment. It's like shame. It's like, hang on, I don't want to talk— I don't want to admit to my mates that I've just been dumped. So hang on, I'm going to really bottle this up. And I don't want to tell anyone. I want to go and just hide in a black hole somewhere. And when I come out, hopefully, magically, this whole situation would have been just a bad dream. And actually, it didn't happen. So it's like embarrassment, shame. And the problem with traders, it's like you're trapped a little bit. Because do you want to talk to your colleagues and confide in them and use them as a bit of a counseling session. But then it's hard to admit to them that you've made an error, or it's embarrassing that you've performed like that. But then outside of the trading floor, it's incredibly hard for people to— if you've never traded, it's really hard for people to understand really what you're going through. So either— it depends what type of person you are. Either you're fine, and you'll blurt it all out, and you'll get it off your chest. I remember Will had a good example of this where he lost a lot of money, and then one of the risk managers just fished him off the desk and took him out for some beers. And the risk manager called it, let's go and have a wake to kind of mourn the death of this money and to have some closure. And to say, that money's gone. You can't get it back. That's gone. So let's just take a time to mourn it and learn some lessons. But then very much, that's gone, and that's behind me. And now, right, let's move on.

So that mourning process— it's getting very morbid now— but that mourning process, people deal with grief —in many different ways, right? And that's an important thing as well. There is no uniform one way here. Because I know you've got some stories of how traders over the years have managed that frustration or loss.

I know you've got some good stories there. Well, yeah. And it's so interesting, human beings, and just how different we all are, and why life is so interesting. But yeah, there was a great— one of my vivid memories of life on the trading floor was a Canadian guy. I won't mention his name in case he's listening, but hi, Andrew. So he was one of the best traders on the floor. You knew who the best ones were. And he was right up there. He's in the top 3. And the way he dealt with loss was he had a stack of keyboards propped up against the wall next to his desk, not plugged into any computers, just like 3 or 4 keyboards. And when he lost or when the market did something he wasn't happy about, he would stand up. He'd pick up one of his keyboards. And he'd start smashing it on the desk. You get buttons flying off everywhere. And he's going through that rage for 20 seconds. And then he'd just calmly put the keyboard back against the wall and sit back down and then get back on with his day. So he would really vent in a very visual way. I mean, I was very different. I was at the opposite end of the spectrum to that. I would internalize everything. As I said, I mentioned embarrassment and shame. I was very much one of those people. I didn't want to admit to my colleagues what was happening. And then so actually, for me, the release for me was actually— I mean, at the time when I was trading perhaps at my peak, if you like, I had kids. I had a young family. And so I had 2 kids. One was 6 months old, and the other one was 2 years old. And one great way— I think one really important thing for traders is to detach yourself from that job, that existence of being a trader, because it's so addictive. It's like we're talking about addiction here. Let's not shy away from this. Trading is very addictive. It's like gambling. All right? And people get into all sorts of problems with addiction. And so I think you need a way to release yourself and step out of that world and into something else. And for me, my young family was the perfect scenario. Because it didn't matter if I'd made a lot of money, lost a lot of money, was flat on the day. When I opened the front door at home, my 6-year-old son doesn't care what's happened to me. And they require— you know what young kids are like, you know very well. But they require your full attention. And it's just such a release. And for me, that was incredibly— looking back, I didn't perhaps appreciate it at the time. But looking back, it was a really healthy reality for me to step out of that world of profit and loss and just entirely switch off. And that helped me. Like, if I had a bad day, back home, play with the kids, great. And then, you know, it helps you kind of separate it and deal with it. And then the next morning you're back into the office and, you know, you've dealt with it and it's gone, right? And now I'm going to move forwards without that hanging, without that baggage kind of hanging on me and influencing how I behave.

Just, just a question that's kind of slightly tied to this is Were you one of those people that had like a, like a routine that helped you stay on point? You said about almost like segregating like your professional and your personal life, and that kind of helped manage the psychology. But was there a routine? And if so, what was that? And were you— and again, this is very unique to different people. Some people are a slave to it, some people are much more like to freestyle it. But was that beneficial for you, that process, or not?

I'd say that I would more like have a routine rather than a— I wasn't much one for— I'm not superstitious or anything. I wouldn't have a routine in the morning before even getting to work. I know some people, almost like the superstitious, they'd always make sure they're putting— like Sam North would always put his left sock on first before his right sock. And God forbid if he got it the wrong way around, because then the whole day is going to be a disaster. I was definitely nothing like that. So I wasn't particularly one for, I've got to get on the same carriage of the tube train each day, otherwise I'm going to lose all my money. I was definitely one that I'm in control of my money. I'm in control of my profit or loss. Did I get on the right tube train? Has absolutely zero to do with my performance. And I think maybe superstition, I don't know, it's a way of people perhaps dealing with it. But that was never for me. But I did have a very key process for each trade. And I think the best parallel here is sport psychology. And it's like, how do you deal— like, if you're operating in an environment of high risk, uncertainty, every decision you make is absolutely critical. And there's a huge amount of pressure. So you're actually— you're in the conditions where making the best decision, it couldn't be any more difficult to make the best decision at that moment. And so how do you deal with that? And for me, it was that process around the trade, where it's like analysis is making sure I'm doing my macro analysis and my technical analysis for each trade. I'm building a trading strategy using that analysis. Because I know that when I'm not in a trade, and I'm just analyzing, I know that that's when I'm at my most rational. Peak rationality is when you're not in a trade. So I'm going to be most logical and rational when I'm building that strategy, right? So I've got my plan. Then I execute. Now, as soon as you step into the market and trade, well, now you're at risk, right? You've taken risk. And so here, that rationality is also at risk. And this is where you now have P&L fluctuation, which triggers your emotional side, which means that then your rational side starts to come in. And so for me, it was always about having a fixed anchor point in what is an incredibly high fluid environment, where everything's moving, everything's changing, not only price, but P&L, and emotion, and everything's swinging around. And it's like being in a storm at sea. About latching on to a fixed anchor point. And that fixed anchor point is my process. I always go back no matter what happened, no matter what's happening, no matter how I feel. It's like going back to that process, right? It's analysis, strategy, execute the strategy as I had planned it, come out of that trade, and then write review and see what happened. So for me, routine-wise, it's per-trade routine rather than necessarily my, my day-to-day life routine, if you see what I mean.

Okay, well, great. I mean, that's a really excellent example, I think. And, and much like all of this is what we described, it's, you know, a lot of it is psychological. So I think you do need to go through your own experiences. And, you know, there is no substitute, as the saying goes, for screen time and experience. I guess it's kind of going about your early phase of your development in the right way to buy yourself that time. Yeah, um, is, is really quite key. But well, let's wrap it up there. Um, as we said at the beginning, if you go back just a few episodes to episode 11, this being 14, there's, there's kind of the lead-in to this discussion. It's almost like a two-part, um, episode series, so check it out. Otherwise, uh, Piers, anything going on this weekend?

Quiet one this weekend, just relax actually.

Okay, so, so there's no half marathons and gym sessions then? I see, I see your Apple Watch points, you know. I do keep a sneaky eye on you from time to time.

I can tell you now, I will never run a half marathon in my life, never mind a marathon. I know Will's gearing up for another— it's fourth, I think it might be. I'm just not cut out for that kind of thing. It's not for me. And I'm okay with that. There you go.

And there's the acceptance of loss. And on that note, everyone have a great weekend.