The Value Of Perspective In Day Trading And In All Things

This week’s article is all about perspective. 

You can probably tell from that intro that I just sustained another sizable red day this week, a -$7,000 loss on Thursday between three stocks. While it’s far from being the worst hit I’ve taken, it’s never fun when you essentially wipe an entire week of profits from your trading account.

But this isn’t about just gaining perspective on your daily, weekly or monthly P/L in order to get yourself out of a funk. Instead, I want to zoom out a bit further and look at the broader aim of day trading and how the daily pressure to turn a profit and make the best financial decisions possible can sometimes lead you to overlook important details, even when they’re right in front of your face.

What really got me started thinking this way were last week’s announcements from the major brokerages that they were all dropping commission fees. It was huge news everywhere and it sacked TD Ameritrade Holding Corporation AMTD market cap by roughly $10 billion in an instant.

But looking into what each broker was actually offering, you would have seen that their zero-commission models didn’t really apply to their regular accounts and are more akin to zero-commission trading apps like Robinhood or Webull. 

While there’s nothing wrong with that—there’s obviously a market for zero-commission trading—the life of the average day trader won’t really change in the “zero-commission future.” The execution times alone make the value proposition of zero-commission trades a losing one for active traders. But those facts were lost in all of the hype around the major brokers “dropping commissions” and what it would mean for the industry.

While that example is ripped from the headlines, it applies to how I’ve recently tried to contextualize my trading career. 

In my video from Thursday, I took another dip into my Tradervue account, this time looking at my drawdown history. I recommend tuning into the clip, but the main takeaway was that as my trading account grew, my biggest drawdowns grew in near-lockstep.

Of course, since my aim is to make a profit, those big drawdowns aren’t nearly as constant as the progress in my trading account, which has grown by 100%-150% over the past couple of years. But in the drawdown chart, each year’s low point is followed about 12 months later by another low point that’s twice as deep.

You might think that’s an obvious consequence of increased buying power, but I don’t accept that. 

It might be a drawback of my strategy, which is possible. I can also address it by monitoring my win/loss ratio and paying attention to the profile of stocks I trade the best, just like I did when I first got started day trading.

Another possibility is that it could be an issue with my temperament and how aggressive I can get while trading. That’s not something new, I’ve always been aware I can get ahead of myself when trading. But maybe at a certain point I need to put in more safeguards against that behavior in order to avoid these bigger and bigger losses.

However, I also need to step back and appreciate that I have found success through these factors in my trading, and altering them too much might have the opposite effect of stunting my trading account without preventing loss.

There’s no clear answer to problems like these. But being aware of these factors and paying attention to these big red days that throw my whole trading mojo out of whack is important if only so I don’t start accepting them as par for the course. The path of least resistance is rarely the best path.