How do you handle big draw-downs the next day?

[firscall]

Quote from Bolimomo:

Thank you all kindly for your comments.

I know I have lots to improve on my trading methodology, risk management, and psychology. As do many traders. I know my approach to trading is far from perfect. And everyday, every trade is an opportunity to improve myself.

But to immediately say outright that I don't freak'ing know what I am doing IS NOT USEFUL. Rightly or wrongly, I have been consistently profitable for the past 4 years and I have been making a comfortable living off it, far better than any professional engineer (which is why I quit my "day job" a while ago). Trading is my sole source of income.

We traders all have drawdowns. It could be a one big red day or even if I use a day-down-limit a series of drawdowns to accumulate to $4000 (by the way this figure is just a made up for the purpose of this discussion). I am interested to know the psychological burden on the trader in getting back up and how it affects his/her next move.

Those pit traders in the S&P pit: aren't they discretionary traders? They stand in the pit all day, waving their hands in the air while thinking on their feet how to do the next move, watchingout for any hint of a market direction change. Do they have time to nicely draw a line on a chart (what chart?), pinpoint their entry/exit/stop and their "R" before jamming in front of the next guy trying to catch the next order? Are you saying these traders are all failed traders (or doomed to fail?)?

When I suffer the type of DD that you described (DD due to not quiting for the day when you should or allowing a loss to run, basically an episode of poor discipline) I might not trade for up to a week and when I do start to trade I use smallest size possible for a few days.


PS. TradingSolutions is a piece of shit software application so don't waste your money instead buy Neuroshell!

 

[TraDaToR]

It depends if the - 4K day came out of an extraordinary event, like a fat finger or a surprise rate cut...In this case, you can maintain the same size, it just happens from time to time...

If you bleeded all day long and possibly felt that conditions are now different, you'd better pay attention.

For the discretionary Vs systematic battle,
I trade both way and they can be both profitable. You just have to be quite systematic in your discretionary trades and quite discretionary in your bot management...LOL

 

[firscall]

Quote from TraDaToR:

It depends if the - 4K day came out of an extraordinary event, like a fat finger or a surprise rate cut...In this case, you can maintain the same size, it just happens from time to time...

If you bleeded all day long and possibly felt that conditions are now different, you'd better pay attention.

For the discretionary Vs systematic battle,
I trade both way and they can be both profitable. You just have to be quite systematic in your discretionary trades and quite discretionary in your bot management...LOL

Regardless, it could still impact you emotionally thereby increasing the chance of revenge trading or some such mental affliction.

 

[Mr.Consistent]

Quote from Bolimomo:


Bet heavier to get back the lost ground. You lost big yesterday. But the market had shown you the real direction. You should correct the course. e.g. If you shorted and lost heavily yesterday, perhaps you should consider longing it with a higher wager to make it back quickly?

Let’s hypothetically say that the market has shown you a “real direction”, as you call it. The fact is that the market might go in any direction, so your assumption is incorrect. Do it couple of times in a row and say Good Bye to your account, plus you’ll become psychologically screwed (at least temporarily).

Quote from Bolimomo:

Be very cautious today. Reduce the bet size by half or 3/4. Slowly go at it. Your goal today is to not lose. Then you proceed to aiming for a $200/day the next day. And then $400/day the next day. Then back on your track to your regular goal?

Yeah, start very slowly, remove the pressure from trading. Maybe take a week off, and then paper trade.

I think the most important factor is to analyze what went wrong, not just on the surface but, what was the real root of the problem. Once you know why it happened, then implement some kind of safety mechanism into your trading plan in order to prevent it from happening again.

However the problem I see with your thinking is that your goal for the day is NOT TO LOSE. With a focus on not to lose, you’ll fear a loss, and you won’t be objective. Losses are part of trading, and you cannot eliminate them by focusing on NOT losing. Instead I’d recommend you focus on flawless execution according to your trading plan (once you have an updated/revised trading plan)

Quote from Bolimomo:

Those pit traders in the S&P pit: aren't they discretionary traders? They stand in the pit all day, waving their hands in the air while thinking on their feet how to do the next move, watchingout for any hint of a market direction change. Do they have time to nicely draw a line on a chart (what chart?), pinpoint their entry/exit/stop and their "R" before jamming in front of the next guy trying to catch the next order? Are you saying these traders are all failed traders (or doomed to fail?)?

Pit traders have totally different edges to retail trades and therefore are not useful as an example. Anyway the best traders are discretionary traders, but usually the discretion is subject to well defined objective strategies. Generally system traders are not capable to duplicate the profits and lower drawdowns of discretionary traders, therefore occasionally system traders get a cheap thrill out of putting discretionary traders down.

 

[lurefo]

Quote from bwolinsky:

Put in simpler terms: Discretionary=losing trader

You don't know what you are talking about.

Because you haven't seen one or haven't been able to be one does NOT mean they don't exist.

Think outside the box.

 

[DrEvil]

Quote from nukethewhales31:

if my winning days are 1000 bucks there is no way i would have draw downs of 4000 ... ur bleeding money.. are u using a stop? many traders when they start over trade cap their winners and let their losers run.. thats what it sounds like. my advice is cap the losers let the winners run and maybe trade slower and higher timeframes.

OP, this is some good solid advice. Don't underestimate it.

 

[gaj]

i have those from time to time. some is because of the nature of how i trade, some is because i still (even after nearly 10 years) lack complete discipline.

if i lose a large amount of money (relative to what my profits usually are), or am forcing multiple trades / forcing size where it doesn't exist, or doing things which are generally breaking my rules and discipline...

then i take the next day off. no ifs, ands or buts.

i've had times where the one "bad" day leads to a revenge day that's atrocious, and wipes out a lot of hard work. so i try and eliminate that possibility.

but if i have a large loser, and it's because of some rare event? as long as i'm in the right frame of mind, i'll trade the next day.

 

[nukethewhales31]

Quote from gaj:

i have those from time to time. some is because of the nature of how i trade, some is because i still (even after nearly 10 years) lack complete discipline.

if i lose a large amount of money (relative to what my profits usually are), or am forcing multiple trades / forcing size where it doesn't exist, or doing things which are generally breaking my rules and discipline...

then i take the next day off. no ifs, ands or buts.

i've had times where the one "bad" day leads to a revenge day that's atrocious, and wipes out a lot of hard work. so i try and eliminate that possibility.

but if i have a large loser, and it's because of some rare event? as long as i'm in the right frame of mind, i'll trade the next day.

punching bag gaj... works wonders... i use it even tho my dd are small .22% per trade sometimes ill hit 3 in a row and ill be mad emotionally ready to revenge trade... so i go to the bag.. pound away and come back happy

 

[bwolinsky]

Quote from Pa(b)st Prime:

A good post by an 18 year old who is grossing as much money as 99% of ET. There's a few system guys racking up solid returns managing money like my namesake Bill Eckhardt but neither have I ever known a system trader who achieved extraordinary, life changing personal returns.

This coming from a guy that said to sell on Monday. Great, got to pay attention to you pabst.

 

[bwolinsky]

Quote from youngtrader:

Dude no offence but you are a fucking idiot! Saying discretionary trading is a losing game is just stupid! Every successful trader I know (and I know a lot of legends here in Chicago) are all discretionary traders. Saying that you need a system to maintain discipline just explains how poor your discipline really is! Having a system is the worst thing you can do especially in this volatility......you have to be able to change and adapt as the market moves during the day. By being forced to follow a "system" puts you at an extreme disadvantage.

Yes, young trader, go spend years doing it. Nobody commits time to it, b/c they're looking for easy money.

I do perfectly well, and have beaten buffet since I started.

www.collective2.com/go/pairsqidqld