We're all currently immersed in this global COVID-19 pandemic. It's still too early to tell how bad it will get, and more superficially: how bad it will affect the economy.

Superficial or not in comparison to the human suffering, financial concerns — both personal and business — must be addressed. Without money, we can't pay for the obligations we have, or even the food that we need. This is a catastrophe about as bad as it could get.

And, unfortunately, because our governments are consumed with trying to deal at the national level to assist us, we, as individual citizens of our respective countries, must act independently to treat our lives and our families as a business.

As retail traders, we need to step back from all of this panic environment and reevaluate the processes we implement in our trading in the context of business, and not just making trades.

What drives business? Profit, right? Well, it's the same for trading, so what's the deal?

It's classic Wall Street logic: Greed looks for profit where fear manages risk.

In trading, it's easy to forget the fear part because we're sitting at the trading desk to make money, not wring our hands worrying about what might happen if the Fed drops rates again....

In business we take insurance out to cover potential loss. What sort of insurance can we use in trading?

Our insurance policy in trading is summed up in one simple statement: Take an immediate, small loss.

That advice works great under 'normal' trading conditions.

But what about when the spread goes from an average of 1.2 pips to 14.8 pips as the GDP/USD pair that I trade has done numerous times in the last few weeks? Then what?

At times like these — times that may only happen once in 10 years — there is no greed or even fear in trading. How could there be? Who's trading? Everyone is scrambling for the exit doors where the 'norm' has become an environment of total fear.

That's not trading: That's panic.

But I didn't panic because I was out of the market when the shit first hit the fan. As a scalper, my goal is to be flat at the end of the day.

I was out because that's my plan, and so far during this crisis — by following that plan — my account was up about 19% for the first 6 days I had traded that month.

So, when I came down as I usually do around 3:00 am ET just to see what the market was doing I was glad I had followed my rules.

Good thing because if I would have held onto my last position, even though it was showing a 2% increase on my bank with all indications that would persist to further gains, my account would have been severely damaged as news of the severity of the COVID-19 virus was becoming better known.

In the morning, with coffee at my side, I looked in amazement at the monstrous retracement price had undergone. If — like as in 'if the bear wouldn't have stopped to shit in the woods the hunter wouldn't have seen him to shoot him' — if I would have stayed with that trade, I would have been wiped out long before that reversal would have paid off.

That's like the poker player looking at all the money in the pot but opting to take that last card for the inside straight, and beaten out of all of his stack to 4 ladies....

At that point, what I should have done was to just push back from the table and let somebody else throw the dice.

But I didn't. I took a sip of coffee and began to evaluate the situation.

I have some guidelines about how to gauge momentum and volatility such that my rules enable me to make what I consider sound probabilistic determinations of best actions for me to take.

Volatility was so huge though that you couldn't even look at the 1 minute chart — it was all big body doji candles that painted through 20 pips, whereas 3 pips would have been a normal ATR.

Even the 5 minute was a mess. I went up to the 1 hour to get a better picture and from my analysis made some trading plans that I then began to execute down on the 15 and 5 minute time frames. As Sun Tzu put it, "In the midst of chaos, there is also opportunity."

I did great, racking up about 4% gain against my risk for the day as my analysis turned out to be spot on.

The next day, I was up almost 2%, though the following day was a small loss of 0.2% going into noon.

I should have shut down and called it a day. I didn't.

I went back in with a few successful trades that threw no particular cautionary alert that conditions were about to change.

My next trade started out fine, though price just hovered around my take point. Then it shot 2% against me in 1 minute. In the next minute I was 8% out. Then 12%.

It got worse from there....

"How much worse than this could it possibly get," I asked myself, not really caring to take heed to the answer. I knew the answer because I've written extensively on just this scenario in books and courses that I have.

In fact, because of what happened to me in this discussion, I wrote about it in another blog post: How Bad Can It Get?

So, how far did I let this thing go?

All the way. Alllllll the way. All the way to the wood, a 140% hit.

It was 140% of my risk, but I had other money in the account so that's why it was 140%. If I count the other money that I wasn't using in trading, my loss would still be 48% of all available funds.

Huge. Huuuuge....

Why? Because:

You simply should not trade during times of crisis manifested by extreme spreads and volatility.

Why?

Because it can go very badly for you if you do.

And it was going very badly for me now....

I have a risk management recovery process that is designed to never be used. Why? Because if that goes wrong, my losses will be so big that it goes beyond a margin call event....

So why have such a dangerous process then? Well, at the point where I'd exercise this option my account would be so far gone it really doesn't matter.

Besides, if I've been stupid enough to get myself into a situation like this in the first place, and this doesn't work, then I deserve to be wiped out.

And I was in a really bad situation — 48% bad....

It's like treating the dying patient with a new and totally unproven drug: It won't matter if it doesn't work because the patient, for all practical purposes, is already close to certain death anyway. But if it does work....

And so I implemented my risk management recovery process, and the patient looks as though it might make it through, though I'm well over a month working it. We'll just have to see how that plays out....

Not that I deserve to have that trade turn around. I don't. I got myself into that mess by being stupid not following my rules.

The moral of the story is that though there's a huge amount of skill needed to implement a risk management recovery process, it should never get to the point where it has to be used because:

When it doesn't work, the result is absolute financial death.

You simply should not trade during times of crisis manifested by extreme spreads and volatility.