The Anatomy of Going on Tilt in Trading

The worst thing that you can do as a trader is to go on tilt.

• You start chasing trades instead of letting them come to you
• You erase your hard-fought gains
• You rationalize bad trades
• You cry yourself to sleep at night

Sound familiar?

But why do we start going on tilt? Most of us know better.

Yet we insist on being stubborn and giving into our animal instincts, instead of relying on our trading training. When we finally come to our senses, it can be too late and the damage has already been done.

Worse than the monetary damage is the hit we take to our psychological capital. That can leave us scarred for weeks or months to come.

But how do we prevent this? There isn’t one blanket answer, but I believe that the best thing we can do is to learn from the experience of others.

That is why books like Market Wizards and the Jesse Livermore biography are so valuable. They give us a glimpse into what other traders should have done, but didn’t.

So in order to help you learn from my experience, I’m going to explain how I went on tilt late last year. I’ll get into the details of why I did it, how it affected me and how I stopped it.

The Cause

In this case, I got bored.

Actually, that's not really it.  If I think about it a little deeper, I was over anxious for results.

My account had not moved past +12% in a long time and I was getting married. There was pressure to perform as well as I knew I could. I wanted to finally make some real gains in my account so I could start trading for a living.

The pressure wasn't from an outside source, it was completely within.  I'm sure you have felt that before.

It wasn't the system's fault, it was obviously net profitable or breakeven at worst.

But I was trying to make the system do something that it obviously wasn't built for.  A horse can only pull a wagon so far before it has to rest. Production cars currently max out at about 270 mph.

Everything has its limits.

Push a system beyond its limits and it starts to break down. This is exactly what happened to me.

The Result

When I first started tracking my live account in MyFxBook in 2011, I had some outstanding initial success.  My first few trades made 12%, with only one small losing trade.

Then I proceeded to trade between 9% and 12% for quite awhile.  That was frustrating.

But it wasn't surprising.  From my backtesting, I knew that there were periods where the system traded flat for some time.  It was profitable overall, but I new what to expect.

Yet, I still insisted on forcing things.

This lead to me going from a little over 12% profit at my high point to almost back to 0%.  The green bars on the graph represent pips made and lost.  You can tell that I was trading poorly because the big losses in pips corresponded to a sharp drop in my profit percentage.

On the other hand, when you look back at June 2013, I lost 1,095 pips.  This can be seen by the huge green downside bar on the chart above.  But the corresponding loss on the growth graph (red line) was very small.

So let's take a look at what I learned from all of this…

The Lesson

I should have kept the current system in place and looked for another system to supplement it.  Or I could have stopped trading it altogether and took some time to find a new trading method.

But I ended up doing the absolute worst possible thing, pushing my system beyond its limits.

In hindsight, I should have stopped trading the system. If it wasn't showing consistent gains every month, then it wasn't a good candidate for trading for a living.

That is all there is to it. Imagine what the graph above would look like if I had kept the current system in place and just added the second system.

Conclusion

So if you are not getting the results you are looking for, take a step back for a moment.

Ask yourself if you can do one of the following:

• Can you keep your current system in place and just add another one?
• Do you need to stop trading your current system?
• Do the results of your current system match your backtesting results?  Did you even backtest?

Hopefully answering these questions will keep you from making the same mistake I did.

When have you gone on tilt and how did you fix it? I would love to hear about it in the comments below…

Disclosure: I do get a commission if you buy through the links on this page. But it does NOT cost you anything extra, it helps pay for my hosting costs and a portion of the proceeds go to my charity partner.