Quote from Samson77:
I would greatly appreciate any comments and feedback.
I was not going to say anything but since no-one else mentioned this I better do.
- There are some systems that have occasionally the big drawdown and the big runup ("the fat outlier").
- If your drawdown is too large in proportion to the size of your account then you are overtrading.
- It makes no difference if the drawdown is the result of human error, the market behaving differently from expected, a news spike etc. These things DO and WILL HAPPEN!. (If anyone else thinks different then they are not of this world, only the Perfect Being, by whatever name it goes, makes no mistakes) (PS if it exists for those who are atheists)
Therefor going to psychiatrists etc. is just throwing money away, it will not help you. Those people are (perhaps only marginally) useful for people who are "abnormal" but your behaviour is totally normal.
Besides trading smaller size you may want to make some additional rules to your system:
- Stop trading if the total losses exceed xx% for the day. Same for if you exceed yy% for the week or zz% for the month. First start with the longer period: Market may have changed and your "system" (mechanically or discretionary, makes no difference what it is) may not work too well in the new environment. Going towards the shorter timeframes you'll find that the market often plays less of an influence and the human feelings are becoming the major cause of the deviation of the "standard" results.
- Stop viewing the market as game of skill where the skill can be improved by taking more risk, getting in more often, trading "harder" or whatever.
The objective here is to realise that you will improve by standing back, as Roger Whittaker's song is about the gambler "You'll need to know when to hold them, you'll need to know when to fold them" Also: "don't count your money while you are sitting at the table, there will plenty of time when the dealing has been done."
- Realise that the traders highest duties are to preserve his (her) trading capital, you'll need to be able to have a stake to trade another day. As Sun Tzu mentioned in the Art of War: You want to win the war, the battle is unimportant. So too with the individual trade: The overall results are important and not the indivual trade results. Others say: take care of your loosers, the winners come by themselves.
- You may want to look at your financial results differently, many traders are, understandably, obsessed with how much money they make. The money is not important, following your rules are important. You can do things like " if I follow the rules every trade then I am allowed to keep xx% of the profits. If I do not keep the rules then I have personally to pay the whole amount (if it is both a winner and a looser) in my "contingency fund". The "contigency fund" is a fund that ideally should be zero and that only should be topped up, never any money taken out off. It will measure how well you are doing sticking to your rules and never exceed a certain percentage of your profits. You can see this as an emergency startup funds, a funds to be used when you are in trouble. Put it in some long term savings or bonds or whatever that will not enable you to touch it for 6 months at least. If it exceeds a certain % of the profits then you will have to take time off.
- You may also want to trade the money for someone else and not for yourself. I know someone who started to trade the money of his wife (he was a consistent violator of his own rules) and whenever he had a loosing day she thoroughly checks if he has followed his rules. If he has not followed his rules.......
- You may alternatively see the $$$ as a scorecard but your reward being tied to how well you followed the rules. I as a rule do not have up on my screen the profit/loss of an open trade or for the day. If a looser is bigger than a certain amount I am done for the day, I deserve the day off. If I have three loosers in a row then I am also done for the day. Anything "outside the standard deviation" and I go in "observe, papertrade mode".
Before I started with this profession I did meet some traders and found their reactions "abnormal": no emotions, no feelings whatsoever. It is not always easy to come to a balance there. But the important thing is to realise when this situation is coming up and then if you do notice it to go for a walk around the block etc. until that feeling has gone away.
Forget the psychiatric "help" from others, that will only screw you up. (are they trading, do they make money in the market, do they know what it is to be a trader?) Just realise where you stand and what you can do about it. It is like surfboarding: you can read all about it but you will still have to practise. Someone else can tell you how to do it, but you still will have to practise. You'll have to practise to stop trading when you break certain rules. Until then....you have not graduated as a trader...
Peace
