Becoming a Consistently Profitable Trader

Thank you all for you input on the forum and those that sent me PMs. Please do not get offended if I do not reply personally, but in the interest of saving time, below are three common suggestions:
  • quit trading because it is not for you
  • stop trading live and go through a period of sim trading to ensure the method that my trading method works, and to get emotions back under control
  • read Trading in the Zone, which will help me to deal with my issues
Short replies are below, as I want to jump to the journal:
  • I will give trading another shot, hence the journal
  • It is a good suggestion; therefore, I will be trading simulated account for some time to accumulate trading statistics and to work through my issues
  • NoDoji - special thanks for quotes & summaries from the book and you personal suggestions. I will pick up the book from Amazon
 
Simulated Trading - Day 1

Short note on change in plans - since I will be trading on the Simulator, I decided to trade ES, not NQ. I have never traded NQ, but have good experience with ES and ES options. I looked at NQ price action, and even though it is similar to ES and correlation to ES is high, it is nevertheless different. ES has been my favorite instrument - I lost most money trading it.

Number of trades - 1
ES Points + 1.5

Notes below is what I wrote down during the day as price action developed.
  1. passed a perfect entry / long trade as I was not in front of the screen. Price broke in pre-marked hours through overnight resistance of 1673, and it was the second pullback in the trend and first pullback in regular trading hours. I will not go into details why I was not in front of the screen, but it can be attributed to lack of discipline .
  2. price broke into a new high on a long-term frame, and got rejected. No action, just observing.
  3. price made a retracement all the way to prior correction low of 1673.50. The uptrend that started in the morning is over - we are either in consolidation or in the beginning of the downtrend. No action - let the price retrace and see where it starts consolidation.
  4. price retraces and start consolidating around 1677. Odds are in favor of downtrend or at least revisit of 1673.50. Enter into short at 1,677.25 Initial stop at 1680.25 - 3 points risk. Target is overnight low of 1667, if 1673.50 breaks. 1/3 risk reward.
  5. 1673.50 support is reached, moving stop to break-even. Don't like the price action at resistance - it should have broken by now if my thesis of revisiting of 1666 is correct, but I will sit tight as I have a "free trade" now, as stop is at break-even.
  6. 1673.50 breaks. YES! note to myself: experiencing euphoria, even in simulation . Moving stop to 1975.75
  7. Stopped out. I have a strong feeling of regret for not leaving a stop just above prior swing high at 1679 to give a "trade some rope" in case market dips overnight. Same emotions, but I am at least trading the plan.

attachment.php
 
I like the honesty in your post, but my only conclusion is that you are inherently and completely unsuited to trading and it will only harm your life if you do anything other than quit now.

Imagine if some scrawny 5 foot runt with poor hand eye co-ordination and a low pain threshold went onto a boxing forum and made a post about "becoming a net winning journeyman", then told a tale of 5 years of getting the stuffing beat out of him in gyms up and down the country, and described his leaky defence, glass jaw, no power, no timing, tendency to keep his chin up, and it turned out he had the speed of a garden snail. He would be laughed off the board and told to find something he can actually do half-competently.

"I have a gambling issue." - no one with a gambling issue will make it as a trader. In the long-run they will blow up.

"I need to work on my willpower and discipline." - willpower and discipline are inherent personality traits that don't change much after the teenage years. It is like saying "I need to work on my height". The good news is that willpower and discipline are not necessary to be a good trader (although they can help).

"Occasionally, I don’t take losses." - this is a classic blunder that will seriously compromise trading performance. If it's occasional then you can probably work on it and improve. But, 5 years with a mistake STILL happening is very discouraging and shows you are weak at rectifying your mistakes.

"I trade price action or at least I think I do, but I cannot get rid of a “need to know why price is doing what’s doing” addiction especially when the position goes against me." - yet another known mistake that you still repeat after years of losing with it. Can you see a pattern developing here?

"I trade against the trend trying to pick tops and bottoms of the intermediated-term moves. Without fail it leads to a big loss and then high-risk-no-stop trade to make up for a loss, basically the downward spiral described above." - another known error that you repeat time and again.

Your problem is that you have shown a total inability to rectify mistakes that you know you make, time after time. You also have poor discipline and willpower. You also for some reason seem addicted to making poor trading decisions. Therefore, you are unlikely to be able to change this in future either. To change it requires i) no predisposition to making money-losing decisions ii) enough discipline to alter behaviour consistently. You possess neither of these traits, therefore you will almost certainly fail.

Your plan should be to recognise that your psychological makeup is completely unsuited to being a trader, and to never speculate again in the markets. Take your savings and put them into a mix of a cash emergency fund, and a diversified low-cost index tracker portfolio split between stocks, government bonds, a bit of real estate and a bit of gold. I guarantee if you follow this advice you will have a far superior result both financially and psychologically. However, I am 95% confident you will ignore my advice anyway and continue to trade.
 
Quote from Tiras:

Simulated Trading - Day 1

Short note on change in plans - since I will be trading on the Simulator, I decided to trade ES, not NQ. I have never traded NQ, but have good experience with ES and ES options. I looked at NQ price action, and even though it is similar to ES and correlation to ES is high, it is nevertheless different. ES has been my favorite instrument - I lost most money trading it.

Number of trades - 1
ES Points + 1.5

Notes below is what I wrote down during the day as price action developed.
  1. passed a perfect entry / long trade as I was not in front of the screen. Price broke in pre-marked hours through overnight resistance of 1673, and it was the second pullback in the trend and first pullback in regular trading hours. I will not go into details why I was not in front of the screen, but it can be attributed to lack of discipline .
  2. price broke into a new high on a long-term frame, and got rejected. No action, just observing.
  3. price made a retracement all the way to prior correction low of 1673.50. The uptrend that started in the morning is over - we are either in consolidation or in the beginning of the downtrend. No action - let the price retrace and see where it starts consolidation.
  4. price retraces and start consolidating around 1677. Odds are in favor of downtrend or at least revisit of 1673.50. Enter into short at 1,677.25 Initial stop at 1680.25 - 3 points risk. Target is overnight low of 1667, if 1673.50 breaks. 1/3 risk reward.
  5. 1673.50 support is reached, moving stop to break-even. Don't like the price action at resistance - it should have broken by now if my thesis of revisiting of 1666 is correct, but I will sit tight as I have a "free trade" now, as stop is at break-even.
  6. 1673.50 breaks. YES! note to myself: experiencing euphoria, even in simulation . Moving stop to 1975.75
  7. Stopped out. I have a strong feeling of regret for not leaving a stop just above prior swing high at 1679 to give a "trade some rope" in case market dips overnight. Same emotions, but I am at least trading the plan.

attachment.php
More...

Problem: you get emotional over the near random results of one daytrade. This makes as much sense as a casino getting emotional over the result of one spin of the roulette wheel. You need to disassociate your emotions from the immediate results, and instead associate your emotions with following the process that generates those results in the long-term.

Not being in front of the screen was not a failure of discipline. It was a failure of interest. You have an addictive personality and you will never be disciplined, I know because I have a similar personality type. The difference is that you are highly emotional and I am the opposite. People with addictive personalities NEVER succeed by becoming disciplined, they succeed by turning productive things into 'addictions'. For example, an artist with an addictive personality could sit painting for 12 hours straight overnight and come up with something excellent. If they try to do 9-5 it probably won't work. So, you need to 'addict' yourself to being at work consistently. The way to do this is make it stimulating. This won't happen working by yourself.

Your main problem is you have, like most losing trader gambling addicts, turned the results into your source of stimulation, rather than the inputs. Since the results of no-edge trading are pretty much random, you are addicted to generating random results with inbuilt losses (commissions, slippage etc). Over time this will cause you to go broke. You need to become addicted to the process of successful trading, which is studying the markets (NOT trading them), finding patterns that repeat consistently, then designing a strategy and implementation tactics to consistently extract profits from the predictable portions of those patterns.

I don't see any signs that you have done this - you don't talk about any notable market moves over the last 5 years (quite astonishing when there have been many historic moves), you seem to have no interest in finance, economics, or market history, you don't talk about successful traders and how you try to emulate their positive traits. These are all things that successful people in any field do - they obsess over the field, they have a huge interest in it, they know the history, they know the big players and so on.

Finally, you don't seem to have identified any actual predictable patterns in the markets. You are trading random noise and trying to find profits in it. Did you ever consider that most of the time the markets are not predictable, and that you should stay out most of the time?
 
Cutten,

Even though I do not agree with everything you said, I appreciate you took time to reply to my journal. As I am trying to work through my issues, getting brutally honest feedback is extremely valuable. The reason I am still trying to stay in the game is that in a last five years I had two periods when I made excellent returns - X6 times initial capital in Q1 of 2009 and X4times capital in mid-2011 in about 9 months.

Two things I want to mention:
1) my family will not suffer if the speculative account is blown up. The "gambling issue" that I mention only applies to the money that I speculate with. I made sure that other investment accounts are protected in case I fly off the handle one day
2) I have not blown up since I started trading. I have nothing to show for it, as the balance is approximately the same as it was five years ago. Somehow I managed to pull through every time my equity went into significant drawdown. It may be just dumb luck, but on balance I am more or less break even financially with significantly drained emotional capital.



Quote from Ghost of Cutten:

I like the honesty in your post, but my only conclusion is that you are inherently and completely unsuited to trading and it will only harm your life if you do anything other than quit now.

Imagine if some scrawny 5 foot runt with poor hand eye co-ordination and a low pain threshold went onto a boxing forum and made a post about "becoming a net winning journeyman", then told a tale of 5 years of getting the stuffing beat out of him in gyms up and down the country, and described his leaky defence, glass jaw, no power, no timing, tendency to keep his chin up, and it turned out he had the speed of a garden snail. He would be laughed off the board and told to find something he can actually do half-competently.

"I have a gambling issue." - no one with a gambling issue will make it as a trader. In the long-run they will blow up.

"I need to work on my willpower and discipline." - willpower and discipline are inherent personality traits that don't change much after the teenage years. It is like saying "I need to work on my height". The good news is that willpower and discipline are not necessary to be a good trader (although they can help).

"Occasionally, I don’t take losses." - this is a classic blunder that will seriously compromise trading performance. If it's occasional then you can probably work on it and improve. But, 5 years with a mistake STILL happening is very discouraging and shows you are weak at rectifying your mistakes.

"I trade price action or at least I think I do, but I cannot get rid of a “need to know why price is doing what’s doing” addiction especially when the position goes against me." - yet another known mistake that you still repeat after years of losing with it. Can you see a pattern developing here?

"I trade against the trend trying to pick tops and bottoms of the intermediated-term moves. Without fail it leads to a big loss and then high-risk-no-stop trade to make up for a loss, basically the downward spiral described above." - another known error that you repeat time and again.

Your problem is that you have shown a total inability to rectify mistakes that you know you make, time after time. You also have poor discipline and willpower. You also for some reason seem addicted to making poor trading decisions. Therefore, you are unlikely to be able to change this in future either. To change it requires i) no predisposition to making money-losing decisions ii) enough discipline to alter behaviour consistently. You possess neither of these traits, therefore you will almost certainly fail.

Your plan should be to recognise that your psychological makeup is completely unsuited to being a trader, and to never speculate again in the markets. Take your savings and put them into a mix of a cash emergency fund, and a diversified low-cost index tracker portfolio split between stocks, government bonds, a bit of real estate and a bit of gold. I guarantee if you follow this advice you will have a far superior result both financially and psychologically. However, I am 95% confident you will ignore my advice anyway and continue to trade.
More...
 
I was sorry to hear that you do not realize all the time you have lost (spent on purpose).

It was heartening to see that you did not get in front of the machine most of the time since starting your journal.

I hope you do not use it over the weekend either.

You do have a zone; pleae do not trade in it.

As you move forward into another desired facet of life, consider spending time with your family instead of spending it at a computer.

You have proven you are a B/E trader. Don't be a B/E family guy.

Congrats on your impending decision.
 
Simulated Trading - Day 2

On Friday I made one trade. The set up was as follows:
- down trend on 4-tick range chart started at ~1689
- first pullback was to 1687 on Thursday which I did not trade as I was away from the monitors
- on Friday, second pullback was developing with strong resistance at 1682.

I shorted the continuation of the downtrend on the second pullback, but got stopped out at 1682.75. No emotions, as my mind was preoccupied with other work-related things, and I was just trading on auto pilot.
 
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