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There are various ways this story ends.

One final sell preceded by days and days of “it can’t go any lower” along with the corresponding doubling down.

A cover of a position that couldn’t go higher but continued to do so anyway.

But most likely it ends with a margin call.

Today it’s not in the form from which the name is derived when an actual call would be made by a margin clerk.

Instead, your positions just go away. Evaporate, like your P&L, courtesy of an algorithm that doesn’t know or care that this is the final straw.

You’ll be lucky if you get a courtesy email beforehand.

Ultimately, the mechanics don’t matter. All that matters is that you’ve done it.

You’ve blown up your account.

Again.

Don’t feel bad. It happens to everyone at some point. It’s happened to me a couple of times.

It’s part of the process.

Or is it?

That’s the rub.

Sitting there, looking at the remnants of your account you’ve got a decision to make.

If it’s just to re-load after blowing out your stimulus check or a few grand, that’s an easy one.

But what if the numbers involved are significant? How do you know if you’re throwing good money after bad?

It’s not an inconsequential question and answering it wrong can be devastating.

I’ve seen it happen.

A few years ago an acquaintance of mine - who I’ll call “Kevin” even though his name is Greg – sold his very successful business and decided to become a full-time trader.

Initially, he did well, but then the market ran into a rough patch, and he blew his account up.

No problem, he had plenty of resources, so he reloaded, but this time with twice as much money.

And when he blew that account up one year later, he just repeated the process.

After he drained his savings and retirement account, he cash-advanced his credit cards and drew down the equity from his house.

It was a beautiful home, custom made in the Mediterranean style, perched high atop the hills of Turtle Rock.

Eventually, he lost it.

Along with his wife – who he’d kept in the dark the whole time – and once the divorce was final, any hope of a normal relationship with his three kids.

After the dust settled, he ended up moving into a one-bedroom apartment with a hot plate.

To this day, whenever my friends and I hear the story of someone who has fallen from financial grace, we say “hot plate dot com” as a verbal talisman and reminder that without risk management none of us are immune from Greg’s fate.

So back to your blown-up account.

How do you know if it’s time to quit trading?

As with all of life’s difficult decisions, there’s no clear answer, and though the choice you make will have a large impact on your future, like trading itself, it must be done in real-time.

Here’s how I see it.

Blowing up accounts is okay – assuming you’re doing so with reasonable amounts that won’t ruin your life – if it’s part of the process for you to form a methodology that will eventually sustain you.

But if you’re blowing up accounts by throwing money out there and not trying to refine and honestly evaluate what you’re doing wrong, then quit.

Because at that point you’re not trading, you’re gambling.

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It should go without saying - but I’ll say it anyway - all opinions expressed in The Lund Loop are my own personal opinions and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.

Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.

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