Mincer #11
The first unsuccessful start with $1050 and a plan to increase capital with NQ scalping to $2100, which would then switch to Vintage system trading ended February 6 from $44. Two things killed me: 1. The disproportionality of the NQ volatility and the size of my account; 2. High commission on MNQ when trying to control risks.
February 12, I replenished the account:
While I tormented the demo account and wondered how to start the market, it changed dramatically. The original plan to trade Vintage was postponed indefinitely. Also, at the end of February, I changed the time zone - now the NYSE session does not end at 04 a.m. in my time, but only at 23 p.m. Which is much more beneficial for the body and the state of the brain. I began to sleep at normal hours and got enough sleep.
Having twisted a couple of days of demo in a volatile market, I began to manually trade 1-3 MES contracts. And now I ran into an internal psychological problem associated with some fears. Therefore, in order to understand, I am writing this post - restoring the chronology of events and looking at the nuances I will pull the problem out of myself and be able to move on.
The expansion of volatility always tears the usual balance of risk-reward. Moreover, such an extension is more than 4 times. according to my feelings, I do not remember such a swing even in 2008. Extension of the foot is a necessary fact. The extension of the take is required to compensate for the loss and the natural desire for profit when there is 2-5% movement in front of you. Consciousness and psyche become excited and begin to take their breath away - like a transition from a children's swing to adults. Such volatility can forgive you a lot of mistakes at first, but then it can severely punish you. Unprofitable averaging will be especially tough and quick to punish.
In such a market, entry accuracy is reduced and the criterion of "why are you trading?" Is tested for viability. When you trade on the system, everything is simple: there is a signal - there is a deal, there is no signal - there is no deal. You do not determine how much and how you need to trade, but your system. As soon as you start to trade discretely, i.e. creatively, the criteria are blurry. You can’t trade a little or a lot - the quality of transactions will decrease and you will get a torpedo below the waterline. You need to trade as much as you want. I don’t feel like trading now, that's why I am writing these lines. Now the market is giving out money - take as much as you can, so you need to trade as much as possible. But some kind of fuse has blown inside me or I have erroneous criteria, now I’ll figure it out and repair myself.
With discrete trading, the main thing is to choose the right target in order to try to fully absorb the energy of the market. But for this you need two things - trading skills and psychological potential in order to remain in the mind when this energy fluctuates. Often the condition of a small deposit imposes a significant limitation and pressure on the consciousness - "you can not lose and fly into." The risk of significant loss in discrete trading is much higher than in system trading. Therefore, instinctively, with an increase in volatility, we reduce saises more than mathematically needed. It’s just scary for us and we are moving away from possible pain. But at the same time we miss the profit potential. Why are we doing this? We are not confident in our trading decisions and in the stability of our ability to make these decisions. We are a very fragile system at a long distance, even the presence or absence of the sun outside the window can influence our decisions.
So what is the criterion to take as the red line for the most effective long-distance trading?
- %% deposit changes per day/week?
- $$ arrived on 1 contract per day/week?
But these are artificial sides on the bowling alley. When the market is bad, in an attempt to reach and scrape the rate, you will trade the “gray” setups. The driving force in you will be the awareness of "necessary." It turns out that you will show excellent trading activity in a bad market. And if the market is magnificent, then you will leave earlier and significantly shorten possible profits. This and that is bad. There should be a balance of your trading activity and market quality. And if you will trade less than the norm in a bad market and significantly exceed the norm when the market allows, then why do you need this %% / $$ norm? It ceases to be a key and decisive parameter. Our brains need such a norm in order to connect their current efforts and mental stress with the model of the interpolated future. We are going to the mirage, because the future will be different. “Everything will be wrong and not even the other way around” (c). But when we move within the planned corridor, we gain inner peace, the psyche relaxes, allowing the preferential cortex to play its intellectual games more productively. This is a good psychological crutch as long as it works.
Obviously, with non-systemic trading, past successes only give more confidence in the future, but do not guarantee it. Even in the near future. In the event of a failure, we will be forced to respond by stopping or changing our trading and reducing the risk. Often growing up from small deposits and fighting for profitable trading, our psyche gets used to think / act in the face of problems, in the face of a negative emotional state. And when we get a positive result, the psyche gets dopamine and relaxes and starts to work differently - not so hard and mobilized. Which in the conditions of discrete trade leads to the fact that the assessment of the situation begins to occur only by the preferential cortex, which leads to simplification of decision-making and, consequently, to a decrease in the quality of transactions. There is a swing. It turns out that with the wrong choice of the basic criterion, we can lay mines for the future ourselves.
So which criterion is correct? Obviously, the most important thing is the harmony of your decisions with the actions of the market. If you trade discretely, then your actions should adapt to the current market. For long-term trading, you must be very flexible. You should not have rigid parameters and principles. It is incredibly complicated and requires a lot of money given to the market for training. We are slaves to our limitations. Another problem is that the market is volatile even within one day, and our brain is not so flexible. On the one hand, doing many trades per day (>10) with a small stop, we significantly improve the risk curve and improve the quality of equity. On the other hand, when a person makes 1-3 transactions a day, his brain can better adapt to the current state of the market. Everything rests on the power and quality of the trader’s neural network. And this network is affected by food, sleep, oxygen, the chemical balance of harmonics, etc. .... A very fragile system.
Let's move on to practice.
I had, as usual, a brilliant plan: start with one MES contract to disperse the risk, then increase the size +1 contract for every $300 profit, while the planned rate of return is $150/1 contract/week.
Why $150? I do not know. On the one hand, it seems not enough for such a market, but on the other hand, such a rate of return already gives 10% per day.
It seems that the plan is balanced by market conditions and risks, but something is not right. Another mathematical table of a brighter future. The main problem is that now the market can be so sharp that in an instant it will knock out 6 points and goodbye to the daily rate of return. The liquidity is thin, the stop will work at the end of the squeeze. Increase profit margin? Therefore, expand the amplitude of the take? And it turns out to leave the probabilistic approach in the amplitude? But if we dance from risks, then we need to predict not where the market will go, but where it will not go. In general, thin limit liquidity makes its own adjustments ...
What happens in fact?
This is equity for the first one and a half weeks (I) and for the last three days (II). My MES equity with maximum commission. After the quality of the solutions (MFE/MAE) I did not like (I) (1-3 MES contracts) I switched to scalping (2 MES contracts).
Of course, it is much better to trade ES, but for some reason I decided for myself that this is a lot of risks.
Recent deals were on Tuesday. Tuesday was in some kind of strong psychological stress, there was a feeling that you were walking on a rope over a red-hot abyss. Most likely this is due to the fact that in this style there is a significant imbalance between the amplitude of the stop / take and the current market volatility, coupled with its ability to change per unit time. Most likely his POSSIBLE rate of change unnerved me. Also, at these speeds it is uncomfortable to use MES's DOM.
In order to understand what is happening to me, yesterday, Wednesday, I decided to bargain all day for a demo. Starting from $3,000 with one ES contract. Then I increased the number to 5 and also traded FDAX. In the end, I ended the day with $19,000 in net profit. Here it is the potential of the current market - 600% per day with adequate risks per transaction (MFE/MAE~1) ...
What turns out:
- I still see the market;
- In real life, the MFE/MAE coefficient is worse than in the demo;
- The point is in psychology. What bothers me? An imbalance in the amplitude of orders and market volatility? Thin liquidity and instant market movement? Reluctance to lose this deposit in force majeure? Distrust of one’s hands and sobriety of thoughts?
“The point is some fear.” I feel it from the sensations in the stomach, limbs. But fear of what? Lose $300? It’s ridiculous. To be wrong in a deal? Funny amid hundreds of deals. Maybe the fear and panic of investors is transmitted to me? I understand well what their losses are now and I feel their sadness. But this is not the first disaster that I see and in which I participate.
- Probably the main nervousness is delivered by the terminal, which can freeze on fast powerful movements. But on the other hand, the channels of the data feed and orders are divided and the orders at that time pass well, the stop is placed on the exchange.
- It is unpleasant, of course, that the base has already shifted to 2600. When everything normalizes, it will be harder for the market to “breathe” and the intraday range will be lower. But when it still will be - before this we still have to live.
As a result, nothing else comes to my mind - I feel dizzy from the wide open unusual opportunities)) Roller coaster - both literally and figuratively. Everything is as usual - to pull yourself together and just do it.
Upd: In fact, I want to trade ES and FDAX, but the current volatility does not allow me to do this comfortably. From there the discomfort is in me.
