Maintaining Self Discipline

[studentofthemarkets]

Didn't take a trade today, but that was because I wasn't able to get to the charts until later in the morning,not because I was afraid of losing. I almost took a trade (around 10:10 to 10:13 CT), but thought it could chop or drop, so marked up the 5 min chart instead of taking a trade and put the target on it (400 ticks lower, based on reading the chart, not a random target)....and what do you know....it went right to the target and kept on going. I kind of like drawing what I think will happen on the charts to test if I can read what price will do because I don't have to risk any $ to do it.

This was definitely the best week I've ever had trading. Although I had some nice profits from last week and the week before in some of the accounts, those came after large drawdowns. So, for a full week, this has been more profitable, and also, better because I traded it very carefully, whereas the previous 2 weeks my trades were not taken carefully and I had a lot of stopouts. I was definitely overtrading. I am now an Overtrading Overcomer. At least I hope I am.

One week doesn't give enough data to be sure that there is a pattern in the statistics, but for this week, the Scalping account did horribly. Only $125 in profit with a 30% winrate. I would have thought that scalping might have lower profit but a higher win rate than the other accounts. Trading the Open had $1,280 profits with a 77% winrate and Catching a Trend made $1,480 with a 60% winrate. If this pattern keeps up, I won't try to scalp anymore. I'm wondering if it's because I'm much more selective with the "Catching a Trend" entries and in the Trading the Open account, price moves quickly, so it might be easier to trade. A few more weeks of data should make it clearer.

 

[studentofthemarkets]

Trading the Open Demo Account: $285.00
Catching a Trend Demo Account: $660.00
Scalping Demo Account: $30.00

I'm very relieved to have profits in each account. I was kind of worried over the weekend that my usual losing streak would show up and I'd start of the week in the negative and any profits made the rest of the week would just go towards making back losses.

The trades I took and the trades I missed could all be improved on. When looking at the charts after trading it's really obvious that I'm not getting the 5 minute chart trends at all. A day like to day had so much more potential than I pulled out of it and hopefully, with some more work and practice I'll get those trades too someday.

 

[studentofthemarkets]

Well, I knew a day like this was going to happen. I lost $3,895.00 (836 ticks) in the Trading the Open Demo Account. I took 146 trades and had a 24% winrate.

I thought I'd journal my thought process because I'm still a little shook up over it:

I began treating each trade like I was using Monopoly money....entering very quickly after being stopped out. I justified it by saying to myself that I was learning how to move my stop loss quickly to break even when the market wasn't cooperating, but I actually didn't learn anything and kept taking losses before I could move to breakeven because of entering carelessly. I have a problem here that needs to be dealt with before I can trade live. I have traded like this in live accounts in the past. Actually, that is the pattern I have when losing money in a live account. So I have to treat this problem seriously and not listen to any excuses.

What were my excuses? Well, I kept thinking that I should practice it to get it better. That's like a very destructive 1/2 truth. Yes, I do need to practice the mechanics of entering and getting very little risk as early as possible, but this isn't the way to do it. I can work on it in a sim replay account after trading and I can study charts to observe the patterns and I can count how often something works and how often it doesn't. But to practice in my trading account isn't allowed.

Another excuse was that I hadn't set a limit for the number of stopouts in this account....but I was so busy taking losing trades that I forgot that I actually do have a loss limit for this account. All 3 of the accounts have a daily draw down limit of $625 to allow for about three 2 contract losses. The loss management system didn't kick in. I had previously decided that when it doesn't work to shut down the platform that I will stop on my own after a $625 drawdown for each account, but I forgot all about this.

So, what am I going to do about this? First, I have to calculate all future gains by including the losses....as though it were a live account....no erasing the losses. Second, I have to be completely determined that I will stop in each account after my predetermined loss amount. Third, I'm not letting myself trade anymore the rest of today. I will work on trading related things, and study it, but miss out on the live action (which I hate doing). This was a hard decision to make, but I'm trying to fight the urge to "revenge trade" and make the losses back in the other accounts. And fourth, I'm being honest in this journal and showing my losses. It's hard to do this. I hate losing and I really hate that I lost because I went back to my old habit of overtrading. And I hate having to write it out here for anyone to see. But if I don't go through all of this, it will be much harder for me to change my overtrading habit. When a habit is this destructive and is so engrained in me, I have to deal with it seriously and recognize it for it's potential danger.

What is the good that can come through this? Well, I think I do see the overtrading as more of a problem than I thought it was. What's really sad is that I've written this before. When trading during my "overtrading" episode, I remember coming up with excuses for it and saying I wasn't overtrading, but as I continued overtrading, eventually I listened and realized that I was actually overtrading. It was kind of this emotional process of denial, then becoming aware of it, then being stuck with the decision of what to do about it....was I going to continue to trade or stop? It was a little like a fast moving train coming to a slow stop, but I did.

So, maybe one thing that will help in the future is to be aware that I need to be quicker at recognizing when I'm overtrading, and call it that and be prepared emotionally, that no matter what nice trade I'll miss, or how badly my account is down, I have to stop immediately. I'm only going to make it as a trader by very careful, consistent trading. For me, trading isn't about the big trades that use a lot of risk to get into. It's about selectively finding low risk trades that can be consistently profitable. And it's also about controlling myself so that I will trade in a disciplined way.

Oh, I see another problem with my trading from this morning. I thought that a nice way to make back the losses was to move the 1st target much farther away....about 100 ticks but this goes against what I just wrote that I don't want trading to be about getting the bigger trades with more risk. By moving the 1st target that far away I was increasing my risk of a stopout for larger gains. I don't have a problem with anybody who wants to learn to consistently trade with a high reward to risk ratio like that, but that isn't in my plan right now. I trade using the first target close by so that it reduces my risk. I'm now making a new rule that I will not move the first contract target far away. I might try 1:1.5 r:r, eventually, but if I change it, it needs to be planned, not a recovery strategy.

I haven't given up on myself yet. I think I can learn to trade with self-discipline. I know that if I can't control myself, I need to quit trading.

 

[studentofthemarkets]

I've been thinking that maybe I should spend some time in the next few days figuring out plans for dealing with losses. My emphasis has been on finding a good entry and trying to avoid risk and losses, but I don't have mapped out in my mind how I'm going to deal with losses as they come. Generally, I think if I reach $625 in losses in one account, then I will stop trading in that account for the day. But I haven't thought through specific things, like, should I go into a "recovery" mode of trading single contracts, or stick with 2 contracts? What about beginning a losing streak after making profits, will I let all the profits be lost? Maybe after some wins, I should reduce the contract size to single contracts to avoid losses. Maybe I should never adjust the contract size, because it's kind of a matter of probabilities and I need to let them play out. One factor that influences the probabilities is market conditions. Maybe I should only trade using one contract in certain market conditions....and what are they? Anyhow, if I think through a clear plan for how to handle losses, it should help a lot with being consistent and methodical. Another thing I like about developing a clear plan is that I'll be able to see if the keep track of how the plan is working.

 

[studentofthemarkets]

Tonight I spent some time demo trading the 1 min chart trying something that I've been using a little bit to base trades off of, but haven't made it the main focus. I think it has some potential and want to try it tomorrow but because it's experimental, I won't be using my regular demo accounts, but a ninjatrader demo account. I'm changing the rules, just for tomorrow (Wednesday) to try to allow for the best results. Although I'm not wanting to overtrade again....really need to be sure I don't succumb to overtrading again, I will allow a maximum of 1 trade per 1 minute candle, although I hope to only trade every 15 to 20 minutes. I'm not concerned if a large drawdown happens because I want to see how well this new emphasis works. I have a plan I intend to follow and will be making entries according to it and nothing else. I plan to use various stop loss sizes. Since I don't have chart trader it will be difficult to manage the stop losses. Thought it was best to write out these changes ahead of time because I want to be careful not to change plans while trading.

 

[studentofthemarkets]

Turns out I can use chart trader with the SIM license key on Ninjatrader. That should help with setting the stop loss at a good location. I don't know if I'll keep a preset amount as I usually do for tomorrow.

 

[studentofthemarkets]

I plan to use the same Ninjatrader account and trade the 1 minute candles tomorrow as well. I think it's helping to focus on just one chart. Each trade was preset to 2 contracts with 40 ticks for each stop loss. I had planned to adjust the stop loss to the nearest support or resistance, but didn't really see the need to today.

 

[studentofthemarkets]

Made a decision to work on trading 6E (Euro) futures, so trading NQ has been put on hold. Today I worked on not over trading by waiting for the next 5 min candle or longer to place the next trade. I took a total of 16 two contract trades. I usually used 10 ticks for the stop loss with 10 ticks and 20 ticks for the 1st and 2nd targets. Net profit after commissions was $40 and I had a 56% winrate.

This is actually really good because many of the trades that didn't work were from the differences in the way the NQ moves vs. the 6E and I think I can easily adjust my entries to reflect those differences. I never could seem to trail the trend on a 5 min chart with NQ, but today I did, just briefly, for 3 five minute candles, although the trade only lasted just over 10 minutes. The temptation to settle for scalping on the 6E is going to be hard to overcome. I suppose if I am profitable with the scalping, then that's not really a bad thing. I hope my main emphasis will continue to be to find and stay in the trends on a 5 minute chart.

No charts today...I'm still trying to figure out what works and what doesn't for the 6E. When I have a better idea of how entries should look on the 6E then I'll start posting charts again.

 

[studentofthemarkets]

The problem is that our brain evaluates dynamic graphical models by the left right hemisphere, and makes decisions by the right hemisphere. The perception of the left hemisphere is strongly influenced by neurotransmitters (dopamine, cortisol, etc.). Only the right hemisphere can calm the limbic system. For this, the right hemisphere needs a clear logic and decision-making algorithm. This algorithm should be confirmed by a statistical series of transactions. 500-1000 transactions made according to one template! The brain needs a binary evaluation criterion - whether it made the right decision or not. Correctness does not depend on the outcome of the transaction. Our brain cannot work with long statistical series; it gives more weight to more emotional events.

Without a statistically validated algorithm, trading is pointless. How many template transactions are needed to achieve your goal? 500? 1000? 10000? With the left brain, you will not do this series. This can only be done with the right hemisphere.

Now you see the problem in self-discipline. But this is a mistake. Self-discipline occurs automatically when your brain is confident that what it does will lead it to a given goal. Self-discipline for the brain is a procedure for reducing energy costs. Now the brain needs to be given a clear decision-making algorithm with unambiguous criteria. The first step is to create such an algorithm. The second step is to create the habit of its fulfillment. First a scientist, then a soldier.

The algorithm creates the right hemisphere. For its normal operation, there must be a normal chemical composition of the blood. Therefore, it is better to create an algorithm on a demo account or paper. In this case, you will spend only one resource - time. If you create an algorithm in a real account, then you will not only spend money, but also will not create an algorithm because of unhealthy emotions.

In order not to create bad reflex arcs and muscle memory, I recommend not trading on a demo account, but keeping statistics on paper. I recommend the following steps:
1. Create an algorithm by making paper records.
2. Trade this algorithm on a demo account.
3. Real trading.

I ask you to understand that there is a specificity of the human device. Do not burn money - they will still be useful to you.

All of the above post contains really good advice. This part stand out in my mind as the best plan for tackling the problems I'm facing right now:

"In order not to create bad reflex arcs and muscle memory, I recommend not trading on a demo account, but keeping statistics on paper. I recommend the following steps:
1. Create an algorithm by making paper records.
2. Trade this algorithm on a demo account.
3. Real trading."

I've switched over to a new market (6E) and need to learn to read it.....but I struggle with an addiction to overtrading.....there I called it what it is......yet, how am I going to learn to trade it without overtrading it? I need work on Evgeniy's step 1 before moving on to steps 2 and 3.

Also, I've been strongly warned by someone I really respect about my overtrading. I've known for a while that the reason I haven't been profitable is due to overtrading, but it's been hard to really grasp the reality of just how destructive it is. I always justify it by thinking I need to practice to get better. Somehow, I need to think through how to end this behavior and never let it come back.

I haven't completely thought through what I'll do about it, or how I'm going to stick with a plan to stop....and what's hard is that I've tried to stop before, and I do for a little while, but then the problem comes back and I forget or maybe choose to not stop.

Some ideas I'm working on are:

1. Always show the trades I take in this journal. If I take them correctly and they don't work, I have nothing to be ashamed of. If I took bad entries and don't like posting them, that's a sign there's a fundamental flaw with how I traded.

2. For the learning curve of trading the 6E instead of NQ I should not be trading, but studying it, backtesing it, etc., following this advice:

"In order not to create bad reflex arcs and muscle memory, I recommend not trading on a demo account, but keeping statistics on paper. I recommend the following steps:
1. Create an algorithm by making paper records."

My hope is that with some very clear patterns in my mind, I will be able to identify the beginning of trends lasting a minimum of 10 minutes on the 6E and limit myself to capturing just those trends....or maybe one trend a day, depending on what I find as I study it. I hope that by making the goal to trade only a trend, I will develop patterns that will help against my inclination to scalp and overtrade. One thing I'm concerned about is that it seems like it will be hard to distinguish between the beginning of a trend and a smaller move that can only be scalped.

So, until I have mapped out in my mind exactly what I'm looking for with trade entries on the 6E, I won't be trading it.

I plan to keep an update of my studying on here.

 

[studentofthemarkets]

So, I've been having a recurring thought throughout the years of having a system of trading that rarely goes into drawdown for the day by allowing for the trade size loss potential to be equivalent to less than profits already made that day so that if all is lost, only profits are lost. I couldn't think of a way to make it work like that with NQ, unless I traded the premarket, which was difficult for me. However, the 6E appears to be perfect because it seems to provide several opportunities throughout the day to enter accurately....well, that's just based on studying today's price action. I'll have to check other days. I'm still keeping in mind that I don't want to over trade or be a scalper. Anyhow, just wanted to document my thoughts here so I remember to work on this.