Quote from steve0617:
Trader Dave,
I have been dealing with and working to overcome the exact same problem. You say it works on paper but not in real life. You also say you're entering fine but then freaking and bailing when you've got a little profit, but then a full stopped loss hit and that one loss takes out 5-10 (small) winners (right?) You also say you're now hesitant to pull the trigger...
OK, here's what's going on and what I did to work through it.
1. Are you SURE (and I mean a robberâs gun to your child's head sure) that your method/edge is actually profitable - it's just that you're screwing it up by trading it badly? I'm going to assume yes.
2. Are you placing trades, making a few tics/dollars, then freaking and bailing as it's coming back towards your entry, thus giving back your âprofitsâ, and thus you jump out so you at least have SOMETHING of a profit? Because youâve been told (and believe that âyou never go broke taking a profitâ)? Again, I'm assuming yes.
3. Are you trading with stops that seem correct for the volatility of the stock(s) you're trading? And those stops are sometimes hit (even with paper trading) but not that often (e.g. #1 above is really true?) Thus, youâre happy with the probability? Again, assuming yes..
If so to all three, here's your problem and a possible solution......
1. You don't REALLY trust the probability results of your system. You know it can make $, but you're not a 1000000% sure it will, so you don't give it enough time to work in your favor. Example⦠Assume you play blackjack. You know full well can't remove your wager when you're actively playing a hand. The rules don't allow bailing mid hand. But ahhhhh, trading does. You're willing to wager XXX to play but when XXX actually turns into XXX + a little Y of profit, and then Y gets smaller, you try to get all your XXX back and that little (shrinking) Y. That's a problem. You're afraid to lose the initial bet. Ergo, you're trading too big for your comfort zone. If you play a $5 blackjack table in Vegas, you have no problems.. It's just a $5 max loss per hand. But can you go to Vegas and play the $100 (or even the $500) tables and not care if you lose it? Probably not. Same basic thing with trading. TRADE MUCH SMALLER for now.
2. You donât actually have any rules (and I mean IRON CLAD) rules of how you will trade, thus you have nothing to lean on. You play blackjack â you know the rules of the game and you must follow them to participate. The casino wonât adjust them just for you. Follow them or you arenât allowed to play. Simple as that. But since in trading you're both the blackjack player AND the casino (at least in wide terms of how your particular game is played) you're changing your personal rules each hand/trade. How can that be reliable?
3. You are not following (or are unaware) of how probabilities work in trading, just like in a casino. Why are casinos so ridiculously profitable? Because they know that over XXXXXXX hands, their game has a profitability factor. So they know statistically that even if they lose a few HUGE bets on their table games, enough hands will be played that theyâll make it back. What youâre doing is not giving your edge a chance to really work, plus you canât even bank on your edge because youâre changing the rules (and expectancy) of the system by not following it perfectly. You canât truly work the system because youâre not following the system and giving it a true chance to reward you OVER TIME. Youâre shortchanging the results by changing the rules mid game. Stop doing that. (I know, easy to say). But thatâs one BIG contributor to your problem.
4. You are hesitant to take trades. Of course. You have been burned enough times on the hot stove that youâre hesitant to keep cooking. Welcome to Psych 101. You need to kill off that fear. And the only way youâre going to do that is to trade more. Yep, you need to get over your fear of pulling the trigger. And the only way to do that is to pull the trigger (PERFECTLY) a whole lot of time with no concern for the result. Buy and sell ALL DAY LONG and not care at all about what the $ results are. Youâre gun shy. You canât read your way out of it. Youâve got to just keep shooting and eventually the pain will subside because you will stop looking at each trade as important. Think about it⦠Think every shot a basketball player makes weighs on him? Or each at bat for a baseball player? Or any one hand to a professional blackjack player? (Iâm leaving out no limit poker players since you can go bust on one hand easily) No â itâs just one shot/at bat/hand/TRADE in an entire lifetime of trading. One trade shouldnât mean a damn thing. Get to that point.
Now, how I did itâ¦
I decided that FOR ME, I need to just pull the trigger a lot. And I mean 40 trades a day to get past my fear of trading. By doing so, I stopped caring about any one trade because I know that many many more trades will occur during the day. And how did I do that? I tossed my old buy and hold method and started scalping. And I mean for nothing results. Once I got used to pulling the trigger, it stopped being a problem to do it when it came time to do so. So, instead of an intraday trader, I realized I had to make more trades, so now I scalp, and am doing much better. Of course, my stops have to be really tight too. Every time I place a trade, I expect to lose the ante. I expect a 2 5 with a dealer showing two face cards. So if I lose the max bet, I DONâT CARE! Just like I wouldnât in blackjack. Shit happens. Sometimes the dealer is good to you; sometimes not.
Will I always scalp? Probably not (it IS exhausting) but itâs helping me eliminate my fear of each tradeâs results. That is helping me realize that lots and lots of small winners with damn near perfect execution will reward me over time.
Also, read both of Mark Douglas' books 'The Disciplined Trader' and 'Trading in the Zone.' Explains a lot more that I did here. Trust me - two of the best books I've ever read.
My $.02.. Hope this helps.
EDIT: Just read a few posts in your blog (link in this thread has a comma at the end and thus is a dead link). You are absolutely placing too much life and death importance to each trade. Since you have a small amount of capital, you need to preserve ALL of it, while you're getting this psych stuff figured out. TRADE SMALLER! And make sure your commissions are nothing. Like IB nothing. Not some $9.99 per trade flat rate thing. Go cheap while you're learning. Trade so damn often that any one trade is of no concern to you. You're terrified you'll go broke before you 'make it' so you're making all the 'I'm scared' mistakes.
