Justin Pugsley interviewed the legendary trader, Paul Rotter :

PR:
“The worst day I had was in 2008 when Socgen (the French bank) was liquidating contracts accumulated by their trader Jerome Kerviel (he lost Socgen €4.9 billion). They were selling his positions in the DAX and some other Euro stocks and the market dropped something like 1,000-1,200 points in 2 days.
So I bought into the market a couple of times and got hit badly, because liquidity was down. I think there was a US public holiday as well.”

JP: It must have taken you a while to recover from that?

PR: “Yes, I lost badly those 2 days. I was on my own, I didn’t really have risk management and I should have stopped and I just couldn’t believe what was happening so I would buy again.”

JP: What do you think separates moderately successful traders from very successful traders?

PR: “I think everybody would say it is the discipline and money management, which is actually very hard. Many years ago when I was at Daiwa and even when I went off with some other partners we always had someone who looked at our P&L. If you were down a certain amount you would have to reduce your position size and if you were down even more then you have to turn off your computer.

When I was trading on my own I didn’t have the benefit of that person enforcing discipline.
If you have someone to do that then it is fantastic because it is very important. Some days nothing works. And next day you come in and everything is fantastic.

I remember when I was at Daiwa and when I was having a bad day the chief trader would tell me “you have blood in your head” and tell me to go out and get “some fresh air.”

When you have blood in your head you shouldn’t try to make the money back or get angry.

I used to get angry with myself when I made a mistake or something went wrong. But if you follow your strategy and lose then it is bad luck. Sometimes I traded at times when I shouldn’t have traded because it was not my market , but I still traded anyway and lost money.

So in those situations, you must have strict money management, reduce your size or stop trading for a while.
So I think when you are losing it’s good to stop and get some perspective”

This interview points very well the critical need for a trader to have a human risk manager or a risk management software.

 

Learn more about Risk Management here