Disciplined Trading - feedback appreciated

[rraman]

Hi everyone,

I am new to this group and have found the discussions here very useful. I would like to share some problems I've had with my trading methodology and was hoping to garner some feedback/tips from some of you who have had similar experiences.

I have been trading for the past 7 years, mostly Index options (SPX, OEX and QQQ) and more recently the E-Minis (since options spreads have ben really wide recently).

I did well in the initial years for obvious reasons, since the market was on a bull run, but in the recent past I have had lots of drawdowns.

After analyzing my trades I identified my top 3 trading mistakes. I've listed them below.

1). Averaging on losing trades.

2). Cutting losses most of the time, but find it hard to take the loss when the position size is too large.

3). Fighting the trend. Example: If the market looks overbought, I may go short with out waiting for a confirmation that the trend has changed.


I've read lots of books like for example "The Disciplined Trader"(by Mark Douglas) and "TRrading for a living" by A. Elder, but I still keep making the same mistakes.

I cannot manage beyond a week before I make the same mistakes and lose more than what I made.

I am very frustrated since I feel that I am basically good at what I do, but very bad at managing risk and discipline.

I've tried very hard to do the right thing but, when I'm trading somehow I break the rules.

I would appreciate very much your suggestions and ideas.
Sorry about the long post.

Thanks in advance.

-Ravi

 

[stock_punter]

Originally posted by rraman

1). Averaging on losing trades.

2). Cutting losses most of the time, but find it hard to take the loss when the position size is too large.

3). Fighting the trend. Example: If the market looks overbought, I may go short with out waiting for a confirmation that the trend has changed.

[/B]

I think you already know the solution to your problems:

1. Don't avg. losing trades, ever.

2. a. Enter open protective stop orders upon entry. If your broker won't allow open stop orders, find one that does. Better yet, find a broker who will put in your stop orders automatically upon entry (these are known as contingent orders)

2. b. Enter a very tight stop loss point -- a re-entry is just a commission away.

2. c. Trader smaller position sizes.

3. a. Don't fight the trend.

3. b. Eliminate the "looks overbought" stuff. Quantify overbought. Trade it if you must. Keep tight stops to get you out ASAP if you are wrong.

-- Punter

 

[liltrdr]

Your name's Ravi? Are you from India?

And regarding discipline, try reading Zen in the Markets by Edward Allen Toppel or Zen in the Art of Archery by Hugel. If that's not your style, read anything by Van K. Tharp or bandler's work on NLP. Try searching the web for NLP and see what you find. Hope that helps. If that doesn't work, try trading a strictly mechanical system or take some time off.

 

[lescor]

I don't remember who it was in Market Wizards that said that at some level, "everyone gets what they want out of the market", but I certainly agree with him. There's got to be a subconscious reason why you're repeatedly breaking your rules. At some level, you're satisfying a need.

Some deep introspection and total honesty with yourself would probably help. It's how I broke out of being a chronic loser, by getting a handle on my deep-seated beliefs about the market and what really drives me as a person.

 

[AAAintheBeltway]

You sound like a very smart trader who is well on his way to figuring out what is wrong. Look to yourself for the answer, not to gurus or message boards. Cut your size back to something that takes all the pressure off you, then make sure you do the right thing. Take some quick profits. Get the feel of ringing the cash register. We all go through these cold streaks, look back and wonder what the hell we were thinking. The key is to hang on to your money while you're getting straight.

 

[tom_p]

Ed Seykota was the trader who said "everybody gets what they want out of the market". rraman, all the previous posters make good points. The good news is that you're at least fortunate enough to be able to recognize your problems. The bad news is that it's very difficult to overcome - in fact while you're sitting there with the position going against you and feeling all the pain, you experience a multitude of conflicting feelings, one of which is that of helplessness (oh sh*t, not this again!). Just as an example, recently I had 23 consecutive positive (and disciplined) trading days, only to give half of it back in 3 days of stubborn fighting and total disregard for risk management. To be honest with you, I don't think I can totally eliminate this behaviour without NLP, hypnosis or some other help - maybe deep down I don't want to (perhaps akin to putting aside $1,000 for a bit of fun on roulette after having won $5,000 in 5 days of hard work at the poker tables). But what I have succeeded in is managing or controlling these outbursts (again this is not an excuse for such behaviour). I don't get angry with myself when it happens and just come to accept this without fighting it. It seems that my equity curve will forever be blessed with serious drawdowns, but I now have the confidence and ability in myself to know that it is 2 steps forward and 1 backward, rather than the opposite. Of course my goal is to practise disciplined trading with proper money management - till then I am both vigilant and realistic.

 

[Hitman]

Nothing can teach discipline, you learn it after enough blood is shed, or you die. No book, no instrutor, no one except yourself can control yourself, JUST DO IT.

 

[vikana]

Ravi,

the following may sound a bit simplistic to you, but it worked for me early on in my trading career. I wrote the rules for entry down and posted them on my monitor. Before every trade I checked that I was in sync with my methodology. More than anything, it teaches you to "automate" your decision process along your methodology. Same for exits, obviously. For me it proved valuable and helped me catch the situations where I was violating one or more of my ground rules.

 

[Magna]

tom p,

recently I had 23 consecutive positive...trading days
I'm very, very impressed. I don't personally know any traders who have managed to put together a string like that, particularly in recent times. Congratulations on whatever you're doing on the disciplined side.

Hitman,

JUST DO IT.
Hmmm, sounds like a Nike commercial. Seriously, what you say is true but when you're on the other side of that it's hard to see, and that type of advice usually just sails right by.

Ravi,

As others have suggested, try being downright religious about writing every single step down, every stop (especially stops, don't just keep them mental), every target. And commit yourself to following those written stops and targets, no ifs ands or buts. There's something about the act of getting it on paper right in front of you that makes it more real. When you veer from this, as you inevitably will, don't beat yourself up but simply return to writing it down, following what you've written, etc.

An alternative, if your software permits it, is to place simultaneous self-cancelling stops and targets immediately upon opening a position. IB allows it (called OCA), Cyber allows it (in their alerts it's called Close Position), many don't. Some permit you to put orders above/below (i.e., on a long position you can place both a sell-stop below and a sell-limit above) but then don't monitor it so that if one order is hit it's up to you to cancel the other one.

 

[Cesko]

It helped me what Tom Basso said. Think of every trade as one of thousands you are going to make. It somewhat decharges emotional response to every single trade, making it easier to follow the rules.