Using Irritation as Inspiration to Become a Better Trader

A system to turn the bad times into good...

I’ve had a rough past 10 trading days, seeing my account swing a matter of 10% equity in just a single trading session (thanks $CRDO).

While not ideal, the situation called for some reflection on my end. Here is my main takeaway:

You have to use irritation as inspiration to become a better trader.

Yes, I was (and still am) irritated by the massive hit to my account and less-than-ideal first two months of performance in 2023. But, irritation can be a powerful motivator if channeled correctly.

Rather than getting down on yourself, you can use these emotions and energy to make some serious strides as a trader and come out better on the other side.

Here’s the framework I’ve been running through over the past couple of days:

1. Identify the problem and your associated emotions (irritation)

2. Take time to reflect & look for the root cause

3. Once root causes are understood, look towards a path that resolves issues (inspiration)

Adopting this mindset has allowed me to use irritation as inspiration and implement some new rules in my trading, which I hope you can learn from/apply immediately as well. Here they are:

Be more in tune with the percentage of revenue/business that other companies represent to the company in your portfolio.

For example, CRDO’s top supplier represented over 40% of its revenue for the quarter. If for any reason, this top supplier decides to pull out of a deal with CRDO, catastrophe is on the horizon (and that is exactly what happened last week…)

Here’s a great tweet from Matt Caruso earlier last week, highlighting some potential risks of recent leader AEHR:

Matt Caruso, CFA, CMT @Trader_mcaruso

Smaller cap stocks can offer big opportunities. But, as we saw with $CRDO there is added risk. You need to do your due diligence. People like $AEHR because the stock is hot, BUT its 5 biggest customers = 98% of its sales. Lights out if one leaves. $ON alone = 82% of $AEHR sales🚨

This is largely my most applicable takeaway after the whole ordeal.

The point is, make sure you have a good grasp on clear risk factors that could heavily deter the financial outlook of any company you put your money into.

Now onto the next rule:

I just got gapped against. Do I sell immediately or wait for a rebound?

I saw this question asked a bunch on Twitter and think my takeaway after the fact is pretty simple:

At any point that the technical story takes a massive hit, completely changing the chart, I want to be out at any price. Traders seem to cling to the thought of getting some dollars back by waiting for a bounce - but in reality, a massive gap down is likely to continue down as institutions start distributing in a big way…CRDO is no exception.

By selling out immediately, you can sever the ties to the position and begin to reflect & look for better opportunities elsewhere.

---

Some Final Thoughts

Even though it sucks to lose money, there are some pretty serious rules that have come out of this situation. And, long term, I think these rules will save me much more money than I have lost over this recent cycle.

None of this would have ever been possible if I would have let myself be down and out, not wanting to find inspiration through irritation.