Trying to overcome some rough spots...

[Jack_Larkin]

I'm working for a prop firm here in Toronto and love the job but seem to have hit a wall when it comes to my trading performance.

We do intra-day trading with equities in Canada and the US. Since most of my trades are scalps, this puts a lot of emphasis on keeping a cool and level head while trading since buying and selling decisions have to happen pretty fast.

I've identified the following patterns that I'm having trouble breaking:

1) When I see action (big moves from news, or price action beyond the norm) I tend to impulse trade. This has lead to some significant gains, as well as losses. Eventually with enough experience this type of trading could be very viable but currently I'm still new to intra-day trading so I gotta stick to a set plan... somehow I keep taking the odd impulse trade though.

2) Revenge trading. This is my biggest problem.. I let frustration get the best of me and it kills my P/L

3) Proper size management. I start each day thinking I'll only up my size once I've got a little profit to play with (ie, more buffer atop my daily loss limit) and it works unless I take a lot of losses at the start of the day. Mentally, I get behind a few bucks and somehow I end up upping my size to make up for the bad start... that just compounds and makes it worse... I gotta break this habit.

4) I'm too focused on my P/L, if I take a small loss, I'll over-trade to try and recover from it.. this hurts me if I'm ahead for the day or down. I also get fixated on P/L levels.. like the first $50 or $100 P/L level for the day can be a pain to get past. If I get just over that amount and then take a small loss, I'll struggle and make bad trades trying to get back over.. often sending me down quite a bit.

Anyhow... I know this problems are common, and 'normal' for traders to experience... but normal doesn't work in the markets, so I MUST break them.

Are there any exercises, mental tricks, thought processes, etc... that I could try to build better trading habits and address these issues?

Any advice?



(also, long time lurker, first time poster on ET, so go easy on me )

 

[Lucias]

In this current market, buying momentum has been getting me killed: so I can understand that.

You have to think about what advantage you have as a day trader. Your advantage is you can watch the market intently all day and you should have lower costs being at a prop firm.

Given that, you need to stay nimble -- in and out. But, also scalping is a very difficult style to master. Paying attention to the big picture and holding trades that can continue to work until the end-of-day may help.

I'll give you some tips.

* Look for places where longer term market participants might look to enter, i.e around long term trend lines. Try a moving average exponential ribbon.
* Master trading the open. This is when mot of the activity occurs.
* Focus on taking every opportunity. If you are focused on taking the best opportunities then this should cut down on revenge trading.
* Limit trading or choose strategy based on TIME-OF-DAY. Most of the activity is at the open and into the close.
* Trade small and don't even look at profits.
* Find markets that fit your personality.
* Focus on factors that drive your market.
* Maintain meta cognition. If you feel confused, wrong, or lost then just stop. This is a sign you are out of the loop or on the wrong side of market. I don't know a single time when I lost money that I didn't know it ahead of time.
* Monitor multiple markets.
* Find your bread and butter trade. The trade you can always do well.
* Maintain constant position sizing until you develop consistency.
* Read "The Logics" here. Message me for "My Favorite Edges" report link.

 

[wrbtrader]

Quote from Jack_Larkin:

I'm working for a prop firm here in Toronto and love the job but seem to have hit a wall when it comes to my trading performance...

3) Proper size management. I start each day thinking I'll only up my size once I've got a little profit to play with (ie, more buffer atop my daily loss limit) and it works unless I take a lot of losses at the start of the day. Mentally, I get behind a few bucks and somehow I end up upping my size to make up for the bad start... that just compounds and makes it worse... I gotta break this habit...

Any advice?

(also, long time lurker, first time poster on ET, so go easy on me )

First of all, I think it's sad that someone trading at a prop firm can't get help with these types of questions from others they trade side by side with in the same office. Heck, evening out for dinner or a weekend barbecue with those you work with can be a great time to discuss these things.

Don't you guys help each other with stuff like this especially since these questions has nothing to do with someone revealing their trade method.

Regardless, I can help a little with the position size management question. Assuming you have an objective trade method or have backtested your trade method...you should review your method's performance with changes in volatility. Thus, let volatility decide your position size. For example, if your backtesting reveals that your trade methods perform better in high volatility or increasing volatility conditions...you want to have at least a normal size position instead of a small position. Just the same, if your method performs poorly in high volatility or increasing volatility conditions...your position size should be decreased dramatically or you should be on the sidelines (no trading).

By the way, I do consider position size management a way to manage risk exposure.

Yet, if you don't have an objective trading method...you have an uphill battle assuming you're a losing trader or inexperience trader.

Mark

 

[1765hillwood]

In all reality you have to work through it once, the tough part of trading is the psycological part, one soultion is to stay a way from open till you have a set plan and confidence for it, it's tough mentally to come back from a bad open I've been there. My solution was avoid it till I had enough knowledge/education(hardknocks), to trade it. And if ur p/l is at a stand still, try different trade mangement, lastly what the hell does ur firm do for you if you have to bring these questions here.

 

[jlancaster]

It's all about keeping a cool head. I like to start my day with a daily trading webinar to the day's markets put on by my broker. He spends 30 min talking about the market and things to watch out for. Then he streams trading signals all day long. I find it reassuring and it keeps me focused and in the zone. Hope it helps!

Quote from Jack_Larkin:

I'm working for a prop firm here in Toronto and love the job but seem to have hit a wall when it comes to my trading performance.

We do intra-day trading with equities in Canada and the US. Since most of my trades are scalps, this puts a lot of emphasis on keeping a cool and level head while trading since buying and selling decisions have to happen pretty fast.

I've identified the following patterns that I'm having trouble breaking:

1) When I see action (big moves from news, or price action beyond the norm) I tend to impulse trade. This has lead to some significant gains, as well as losses. Eventually with enough experience this type of trading could be very viable but currently I'm still new to intra-day trading so I gotta stick to a set plan... somehow I keep taking the odd impulse trade though.

2) Revenge trading. This is my biggest problem.. I let frustration get the best of me and it kills my P/L

3) Proper size management. I start each day thinking I'll only up my size once I've got a little profit to play with (ie, more buffer atop my daily loss limit) and it works unless I take a lot of losses at the start of the day. Mentally, I get behind a few bucks and somehow I end up upping my size to make up for the bad start... that just compounds and makes it worse... I gotta break this habit.

4) I'm too focused on my P/L, if I take a small loss, I'll over-trade to try and recover from it.. this hurts me if I'm ahead for the day or down. I also get fixated on P/L levels.. like the first $50 or $100 P/L level for the day can be a pain to get past. If I get just over that amount and then take a small loss, I'll struggle and make bad trades trying to get back over.. often sending me down quite a bit.

Anyhow... I know this problems are common, and 'normal' for traders to experience... but normal doesn't work in the markets, so I MUST break them.

Are there any exercises, mental tricks, thought processes, etc... that I could try to build better trading habits and address these issues?

Any advice?



(also, long time lurker, first time poster on ET, so go easy on me )

 

[NoDoji]

Quote from Jack_Larkin:

1)I tend to impulse trade. I'm still new to intra-day trading so I gotta stick to a set plan... somehow I keep taking the odd impulse trade though.

Do you have a written plan, based on your own (or your firm's) thorough research? If not, you need one.

Quote from Jack_Larkin:

2) Revenge trading. This is my biggest problem.. I let frustration get the best of me and it kills my P/L

"Stop it right now!" - Mom

Quote from Jack_Larkin:

3) Proper size management. I start each day thinking I'll only up my size once I've got a little profit to play with (ie, more buffer atop my daily loss limit)

Your day's P/L shouldn't influence size. Trading is a game of odds, and you want odds in your favor. By randomly changing size based on something that has nothing to do with probability (how many wins or losses you have will not affect what the market does on the next trade), you mess up your "edge".

Position size should be determined by your account size, what you're willing to risk per trade, and the price action parameters a given trade presents. If you see a setup presenting itself on a $30 stock, you calculate the survivable price at which your stop loss will be placed, calculate the position size commensurate with the max loss your plan allows you to take on a trade, ensure that the expected target price zone offers enough to make the trade worth the risk, and go for it. Day trading requires that you perform these calculations on the fly and react in a timely manner to avoid missing the entry.

Quote from Jack_Larkin:

4) I'm too focused on my P/L, if I take a small loss, I'll over-trade to try and recover from it.. this hurts me if I'm ahead for the day or down. I also get fixated on P/L levels.. like the first $50 or $100 P/L level for the day can be a pain to get past. If I get just over that amount and then take a small loss, I'll struggle and make bad trades trying to get back over.. often sending me down quite a bit.

Don't even look at your P/L. Focus on trading all valid setups in a timely manner and executing your trade management professionally according to your advance plan. Every trade is brand new and deserves a full chance to prosper on your behalf. If you have a trading plan with positive expectancy, and you execute your plan throughout the day, the profits will naturally follow.

Quote from Jack_Larkin:

Are there any exercises, mental tricks, thought processes, etc... that I could try to build better trading habits and address these issues?

Be sure to read "Trading in the Zone" (I read it three times so far).

I'm also reading a fantastic book recommended by someone here on ET (I believe it was Jokepie) called "The Power of Now".

CornixForex posted this on his blog:

"I have read the book recently, about psychological training of professional athletes, particularly pro shooters. The most interesting point for me was, that to limit stress (which is fatal factor for any serious competition), professional shooters give themselves the right to make mistakes.

More exactly, they set their goal to make a correct shot technically, not to hit the target. They even inspire themselves that outcome is not that important at all, but correct technique is what only matters.

And that little trick leads to great results. Shooter stands, focuses on the pleasure of the technically perfect shot and does it literally without stress, being focused on the process, not the outcome. Ironically, the chance of target being perfectly hit increases dramatically in such a case.

If pro shooter's mental focus was to hit the target, he would get overstressed and likely have the opposite result vs. desired.

This is a proven technique used by pro shooters, power lifters and in most other kinds of sport to limit stress during the competition.

Something for us, traders to learn here, don't you think so?"

There's no way for me or anyone else to convey the importance of this concept to you; you have to plan, trust your plan, and then experience the power of trading this way. Once you've experienced it several times, you become hooked on it. Losses are normal and no longer bothersome. If anything, they make you excited for the next setup, knowing that the positive expectancy of your trading plan puts the odds in your favor.

I remember a day when this concept really started to sink in. I took a counter-trend short position off what appeared to be trend a reversal signal and ended up selling the pivot low, with my stop loss 1 tick above the high of the day. So I doubled my stop loss to reverse to a long if it was hit, only to end up buying the high tick!

Normally that would've thrown me into disarray and I would've either revenge traded or sat on my hands feeling like the market was out to get me. But I kept calm and carried on and as soon as I was high-ticked my brain fed me very key information ("failed breakout") and I instinctively shorted for gains that erased both losses and left me with a very nice profit.

http://www.elitetrader.com/vb/showthread.php?s=&postid=2964924#post2964924

Interestingly, I'd just replied to someone asking about breakouts and failed breakouts, then I was trapped in a failed breakout and was on my toes to take the other side immediately.

It took me a long time to get to that level, and it didn't mean I stopped making dumb mistakes, just less of them over time.

Good luck to you

 

[Jack_Larkin]

Quote from Lucias:

In this current market, buying momentum has been getting me killed: so I can understand that.

Heh.. yup, plenty of talk about how HFT has crushed out short term trade plans of late.. but that hasn't been too much of a problem for me. I actually rely on the algos to chase the price around on two ETFs I focus on, so HFT algos end up helping me by making the market more liquid and keeping the price efficient.

Quote from Lucias:
You have to think about what advantage you have as a day trader. Your advantage is you can watch the market intently all day and you should have lower costs being at a prop firm.

Yes, the costs are a significant advantage. I hadn't done a lot of research into fee structures before I started at this firm but when I sat down and realized I can get paid from ECN rebates for each of my trades instead of paying commissions to my broker, well, let's just say that was one huge light bulb going off above my head.

Quote from Lucias:
I'll give you some tips.

* Look for places where longer term market participants might look to enter, i.e around long term trend lines. Try a moving average exponential ribbon.

Looking for help on the psychology/emotion side, less trade plans... but for this, I always keep 9, 18, 40, 100 EMAs up and plot out support and resistance levels each morning.

Quote from Lucias:
* Master trading the open. This is when mot of the activity occurs.

Aside from open reversals, I've had no luck trading within the first 30 minutes so I usually just stay flat. That might change as I hash out more trade ideas that work during the open.

Quote from Lucias:
* Limit trading or choose strategy based on TIME-OF-DAY. Most of the activity is at the open and into the close.

This was mentioned (in slightly different words) later on in this thread. Makes sense, I'm going to start looking at what strategies work at various times of the day for my watch list.

Quote from Lucias:
* Trade small and don't even look at profits.

Also mentioned by others in this thread. Thinking of hiding my P/L and just focusing on trade execution itself.

Quote from Lucias:
* Maintain meta cognition. If you feel confused, wrong, or lost then just stop. This is a sign you are out of the loop or on the wrong side of market. I don't know a single time when I lost money that I didn't know it ahead of time.

Yup.. flat is a position too.. no risk. I've been trying to identify when my mind is in 'revenge' mode, or 'frantic make up for losses mode' and just step back from the markets.

Quote from Lucias:
* Maintain constant position sizing until you develop consistency.

I kinda agree with this, but the head trader at my firm (and my manager) is pushing us to keep upping our size once we have a little profit. He insists that having buying power and not using when the chips are up is just as bad as taking shitty trades. His style is to build on profits if a strategy is working, that way a tight daily loss limit can put a small cap on risk while still having a decent upside with the right trade plan.

Maybe I'll just pick a blend between the two approaches.

Quote from Lucias:
* Read "The Logics" here. Message me for "My Favorite Edges" report link.

Found them, bookmarked for later.

 

[Jack_Larkin]

Quote from wrbtrader:
First of all, I think it's sad that someone trading at a prop firm can't get help with these types of questions from others they trade side by side with in the same office. Heck, evening out for dinner or a weekend barbecue with those you work with can be a great time to discuss these things.

Don't you guys help each other with stuff like this especially since these questions has nothing to do with someone revealing their trade method.

I agree... The firm has some great talent to learn from but there's some areas of training that are left lacking.. next week we have a full time trainer taking over for our floor manager to oversee my group of new traders, so I hope that will help turn things around.

Quote from wrbtrader:
Regardless, I can help a little with the position size management question. Assuming you have an objective trade method or have backtested your trade method...you should review your method's performance with changes in volatility. Thus, let volatility decide your position size. For example, if your backtesting reveals that your trade methods perform better in high volatility or increasing volatility conditions...you want to have at least a normal size position instead of a small position. Just the same, if your method performs poorly in high volatility or increasing volatility conditions...your position size should be decreased dramatically or you should be on the sidelines (no trading).

By the way, I do consider position size management a way to manage risk exposure.

Yet, if you don't have an objective trading method...you have an uphill battle assuming you're a losing trader or inexperience trader.

Mark

Yeah, working on new trade plans this week... it's a constant process. Thanks for the advice.

 

[Jack_Larkin]

Quote from NoDoji:
Do you have a written plan, based on your own (or your firm's) thorough research? If not, you need one.

I'm always revising my written plan(s) for the stocks I focus on... the firm doesn't provide plans, but does make sure we are working on our own.

Quote from NoDoji:
"Stop it right now!" - Mom

But MOM!?!?

heh... yeah, it's easy to say, but I gotta work on discipline here since in the heat of the moment I still make bad choices.

Quote from NoDoji:
Your day's P/L shouldn't influence size. Trading is a game of odds, and you want odds in your favor. By randomly changing size based on something that has nothing to do with probability (how many wins or losses you have will not affect what the market does on the next trade), you mess up your "edge".

Position size should be determined by your account size, what you're willing to risk per trade, and the price action parameters a given trade presents. If you see a setup presenting itself on a $30 stock, you calculate the survivable price at which your stop loss will be placed, calculate the position size commensurate with the max loss your plan allows you to take on a trade, ensure that the expected target price zone offers enough to make the trade worth the risk, and go for it. Day trading requires that you perform these calculations on the fly and react in a timely manner to avoid missing the entry.



Don't even look at your P/L. Focus on trading all valid setups in a timely manner and executing your trade management professionally according to your advance plan. Every trade is brand new and deserves a full chance to prosper on your behalf. If you have a trading plan with positive expectancy, and you execute your plan throughout the day, the profits will naturally follow.

I agree. Someone else also mentioned not to even look at my daily P/L and I think I'll hide it from view for now on.

As for size, my direct manager and head trader at the firm tends to push us to use our buying power after scaling up our profit a bit... I'll have to find a compromise.

Quote from NoDoji:
Be sure to read "Trading in the Zone" (I read it three times so far).

I'm also reading a fantastic book recommended by someone here on ET (I believe it was Jokepie) called "The Power of Now".

CornixForex posted this on his blog:

"I have read the book recently, about psychological training of professional athletes, particularly pro shooters. The most interesting point for me was, that to limit stress (which is fatal factor for any serious competition), professional shooters give themselves the right to make mistakes.

More exactly, they set their goal to make a correct shot technically, not to hit the target. They even inspire themselves that outcome is not that important at all, but correct technique is what only matters.

And that little trick leads to great results. Shooter stands, focuses on the pleasure of the technically perfect shot and does it literally without stress, being focused on the process, not the outcome. Ironically, the chance of target being perfectly hit increases dramatically in such a case.

If pro shooter's mental focus was to hit the target, he would get overstressed and likely have the opposite result vs. desired.

This is a proven technique used by pro shooters, power lifters and in most other kinds of sport to limit stress during the competition.

Something for us, traders to learn here, don't you think so?"

There's no way for me or anyone else to convey the importance of this concept to you; you have to plan, trust your plan, and then experience the power of trading this way. Once you've experienced it several times, you become hooked on it. Losses are normal and no longer bothersome. If anything, they make you excited for the next setup, knowing that the positive expectancy of your trading plan puts the odds in your favor.

I remember a day when this concept really started to sink in. I took a counter-trend short position off what appeared to be trend a reversal signal and ended up selling the pivot low, with my stop loss 1 tick above the high of the day. So I doubled my stop loss to reverse to a long if it was hit, only to end up buying the high tick!

Normally that would've thrown me into disarray and I would've either revenge traded or sat on my hands feeling like the market was out to get me. But I kept calm and carried on and as soon as I was high-ticked my brain fed me very key information ("failed breakout") and I instinctively shorted for gains that erased both losses and left me with a very nice profit.

http://www.elitetrader.com/vb/showthread.php?s=&postid=2964924#post2964924

Interestingly, I'd just replied to someone asking about breakouts and failed breakouts, then I was trapped in a failed breakout and was on my toes to take the other side immediately.

It took me a long time to get to that level, and it didn't mean I stopped making dumb mistakes, just less of them over time.

Good luck to you

Thanks a bunch for the advice!

I've already heard a lot about the books you pointed out, and now have "Trading in the Zone" ordered since you're probably the 20th person to recommend it.

Some things are just going to take time and experience, but stuff like your post still helps.

Cheers.

 

[Jack_Larkin]

BTW, I've written out replies to most of the people who've responded but they aren't showing up... maybe it goes through a spam filter since my account is new? Not sure why they don't appear...