I am desperate, says a trader


I received the following note the other day with the subject “I am desperate”:

Dear John. Thank you very much for your services, – you are doing a great job! The reason that I am writing you right now is that I am desperate to loosing a half of my modest $2000 option trading account after my subscription of one of the options gurus, JC. I did trust them and I lost. Those people have so much money that they do not care how much one can loose in a trade. Anyway, I need at list to restore my account to the starting point and I am looking for some advice what should I do?

First of all, let me address the comment about the guru not caring about how much one can lose. I don’t know who this guru is or anything about their service. Assuming they are legit and worthwhile (and even if they aren’t), I would suggest that risk management is the responsibility of the trader doing the trading. While the guru may offer up suggestions about where to put stops or otherwise limit the losses on a given position, they cannot (and should not be expected to) tell you how big to trade, or indeed whether you should even be doing a given trade. They simply do not have the proper information. That is your responsibility as a trader to sort out for yourself.

In this particular instance, I can’t help but wonder if the trader in question was simply not financially capable of following the trades of this particular guru. It may be the case where the guru has several positions on at a given time, expecting the odds to work in their favor by maximizing the opportunities for them to do so. If a trader is not sufficiently capitalized to do the same, they risk not matching the guru’s performance because they are trying to cherry pick.

As for making the account whole again, I would tell a trader in this situation to put that out of their mind. Either add more funds to the account or reset your mental state to the current account balance (which really should be done on a continuous basis anyway). DO NOT attempt to quickly make the money back. That’s a recipe for disaster. Take a systematic approach to build the account back up based on a clear trading plan, assuming you have one.


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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.


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3 Comments:

  1. Mark Wolfinger says:

    John,

    You offer good advice, but it is not going to make any difference for this desperate trader, who after getting burned, wants a ‘list’ of investment ideas.

    I offer the following list.

    1) Someone with a $2,000 account should not be using options. That is especially true for anyone who wants to use options as speculative tools.

    2) You followed the advice of a guru. That is foolish all by itself. Did you blindly follow the trades, or did you request an audited track record to verify past results?

    3) Did you explain to the guru whether you are a conservative or speculative investor? Of course not. You blindly trusted someone else to have money-making abilities, just because he/she publishes a newsletter.

    That is foolishness in the extreme – because no advisor should be suggesting trade ideas to other people without understanding that person’s tolerance for risk, financial condition, age, and financial goals.

    4) If I had a brilliant track recording of making winning trades, I would NEVER sell my suggested trades to individual investors. Nor would anyone else. I’d be able to sell my stock-picking talents to a hedge fund and earn 8 figures withing a couple of years.

    5) I agree with John: No trader should make trades looking to ‘get back to even.’ That money is gone forever. Forever.

    What you can do now is begin again – this time with a sufficient bankroll – and try to earn money from now into the future. Forget the past (other than as ‘important lessons learned’)

    6) If you want to trade options, learn about options. Options are not stocks, they are not commodities. Options have their own characteristics and you must understand how they work before using them.

    Mark Wolfinger
    The Rookies Guide to Options

  2. Pingback: The Wrong Mindset | Options for Rookies Premium

  3. Mr MMK says:

    you better try real forex with ECN or STP account with a broker who has no dealing desk such as hotforex or dukascopy ,,,,etc option is more like gambling than a trade

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