Trading Funk: Vulnerability

The recent market action has no doubt raised concerns for many and perhaps brought about flashbacks of 2008 for some. It’s times like these where seasonality, mean reversion, short-term indicators, etc. all fail as emotions and headlines take center stage. The chances are heightened that one can fall victim to panic, confusion and even helplessness all of which can be exacerbated by the pressure and stress of the markets.

In continuing with the Trading Funk series of posts I thought it was an appropriate time to discuss vulnerability, a facet under the Neuroticism trait. High scorers on Vulnerability experience panic, confusion, and helplessness when under pressure or stress.  The market has a way of making us show our hand here, no question, especially when a main goal for many is monetarily based. The undue pressure in a goal which says that a certain dollar amount needs to be made each day can cloud objectivity. Some days, or even weeks,  are just not meant to be traded.


Many traders have taken the reigns from their under-performing broker or rolled an old 401K into a self-directed IRA when the market crashed back in ”08 and they’ve been blessed with some rather easy market conditions since. Especially for trend trading and swing trading yet it’s those very same strategies that are now not working which tends to lower one’s guards. The vulnerability lies in the dips that were bought no longer being bought and confusion, frustration and even anger setting in as this tendency to take a loss occurs repeatedly, especially in a short period of time.

The profits of yesterday are all but a memory as trading on tilt ensues which results in nothing good. This can lead to depression which can be debilitating in other aspects of one’s life. Those that don’t believe that what goes on outside of trading impacts their trading have no problem believing that what goes on in their trading impacts their lives outside of trading. I don’t know why this isn’t seen as a two-way street.

As a premium seller in the $SPX I can see wild swings in unrealized profits and losses on a daily basis. So much so that if I don’t focus on other aspects of the market the swings can become overwhelming. In fact, on days like we’ve recently seen, I’ve found that walking away from my trading desk to get my mind off the markets does wonders. I stick with my system knowing that I (not anyone else) have done what I know to be proven and tested. My risk is managed first and foremost and that simple fact goes a long way in keeping me objective in my market participation.

I had to alert my clients today that have chosen to sell August premium inside my safety zone that I can’t help them. They call to ask what I would do, and I politely say that I wouldn’t have put myself in that position in the first place so it’s hard for me to say what I’d do now. I’m not emotionally or financially involved at that level, so I do my best to do a quick check of their vulnerabilities and make sure they aren’t depressed or even suicidal.


I did my master’s internship with a chronically depressed population and as a result developed a good skill-set for crisis intervention. I employ that from time-to-time with my clients and others that have sought my help. Often times the best prognosis is time away from the markets and designing some positive outcome-based activities to help them get back on an even keel. Once they are emotionally stable I’ll transition to the cognitive side of things which is where the bulk of my work resides.

If you don’t keep a trading journal that goes beyond the one or two lines of fodder, then start there. I’m talking about a feelings/emotions journal wherein you document the ups and downs and seek to discover the whys. Another great topic to discuss in your trading journal is what others were/are saying around you. Don’t fall victim to anchoring or other cognitive biases. You are better than that.

I started in this business over a decade ago helping people understand themselves and the emotional capital needed to be successful in the markets. I’ve experienced my own transition from a  know nothing slinging money at the market to a profitable and consistent market participant. I’ve also seen first-hand others do the same thing and it’s beautiful. However, I gain nothing by blowing smoke and skirting around the issue that many more fail than succeed in this business. Don’t be an addict, get professional help if needed.

RESOURCES [list type=square_list] 

  • Buy this book and read it daily
  • Great interview with Market Wizard Mark Cook
  • Find your niche
  • Get help with issues in your life outside of trading
  • Set limits on your participation (discipline)[/list]