Turns out that the market IS out to get you
- Thread starter Vespasian
- Start date
I've considered giving up on trading many times before and have! Then I end up coming back. I think eventually you realize that you simply know too much about how easy it is to make money trading that you won't be able to give it up. Maybe you'll take a break, but you'll be back.
You should watch the paul tudor jones youtube documentary. There is a candid moment where he loses around $5 million on a trade and is calm about it. He said he got it from watching an old trader he worked with who lost money and was very calm about it. He said that there is nothing wrong with getting emotional about winning or losing on a trade. He said it's a natural human reaction that you'll get angry at times.
He also points out that he went on to get that $5 million back plus some.
You should watch the paul tudor jones youtube documentary. There is a candid moment where he loses around $5 million on a trade and is calm about it. He said he got it from watching an old trader he worked with who lost money and was very calm about it. He said that there is nothing wrong with getting emotional about winning or losing on a trade. He said it's a natural human reaction that you'll get angry at times.
He also points out that he went on to get that $5 million back plus some.
The market was out to get me on Friday with some heavy option ex manipulation...
http://www.elitetrader.com/vb/showthread.php?s=&threadid=179532
http://www.elitetrader.com/vb/showthread.php?s=&threadid=179532
Vespasian, I completed the first quarter with a 53 winning days, 8 losing days and a nearly 34% return on my trading account. I then commenced to give back 37% of those profits in one month, losing almost 10K in a week in April.
I've spent the months since then trying to work through the psychology that led to that, trading only the smallest position size (100-200 shares) and doing a lot of sim trading to work through various issues I have and mistakes I repeat again and again.
My top rules that have now come out of this are:
1. Max loss per trade/max daily loss. On a $53K trading account, my max loss per trade is $250, but 99% of the time my stops are placed between $50-$100 loss. My max daily loss is $500. At that point, I'm done for the day. That only happened once in the nearly 6 months since I lost my trading mind.
2. NEVER average into losers unless you are building into a TRENDING position and your PRE-TRADING plan for that particular trade has specific price levels to build in at, a maximum position size and a hard stop level that does not exceed the max loss per trade. So for example if you are building into a long position as price pulls back from a new high down to the RISING moving average, and your full position size is 500 shares, you might build the position 100 shares at a time as it pulls back, with a hard stop at the price that would break the trend line.
3. Wait for setup to complete before putting on the trade. In a way, this is the most important of all for me. I have no problem placing my stops and accepting them without cheating. I don't average into losers. But I do tend to enter trades too soon because I'm afraid I'll miss the move, take some heat on them, then exit way too soon because I'm so happy to see green. And I also have had a bad habit of taking a good chunk of a price move, exiting the trade, seeing it move a bit further my way and getting back in, when in fact the chart clearly says a reversal is very likely and I should be getting in the other direction. These end up turning into scratch trades or small losers and do nothing but eat away good profits.
Vesp, the max loss rule (my $500 rule for my account size) is really the key. It gives you room to have a totally f'd up day, which we all do on occasion, without blowing too much.
Well, first of all, let me be clear here:
While I have done this little exercise a few times myself, the truth is that I never had to struggle with this problem nearly as much as you or some others do. There were times earlier in my career where I traded in an emotional state and lost money, but it didn't take more than a couple of these incidents for me to realize how to get around it.
These days as I trade, I am constantly monitoring myself.... half the time I am sitting there monitoring the market, and half the time I am monitoring myself. In fact, looking at myself is the more important of the two activities. Every time I take a losing trade, I look at what I did and evaluate whether that was an "acceptable" loss or not. If it was acceptable (i.e. in accordance with my plan), I continue on and keep trading. If it was NOT acceptable (i.e. I did something a little dumb or got a little too aggressive), I notice that and step back for a couple of minutes to mentally regroup. I walk away from the PC for a few minutes, grab a drink or whatever, and then come back with a fresh mind. Sometimes it will take a couple of dumb trades before I walk away, but never 5 or 10. I am a scalper so I get plenty of opportunities each day and each loss doesn't hurt me much, which is one reason that it's easy for me to walk away and come back 5 minutes later.
Experience has taught me that you have to always be on top of your own emotions and habits, or they will sneak up on you - so I have trained myself to deal with these issues as soon as they arise. In that way, I am never taking huge losses or getting really emotional. If there was ever a day where I kept coming back to the PC and continued to take dumb trades, I would just quit for the day and regroup. Then I would spend the rest of the day analyzing myself and asking myself "Why did I just do that? What circumstances made me a worse trader today than yesterday?" You have to be able to analyze yourself the way that a psychiatrist would analyze a patient, and the better you are at it, the better trader you are going to become. I happen to have a lot of talent at looking at myself (and other people) and knowing exactly why they do what they do, and that helps immensely in trading. In fact, it is probably the single most important quality that you need to become successful. Those traders that fail are invariably people who cannot analyze themselves - they keep making mistakes, but they can never figure out why. They try to exert discipline to "force" themselves to act correctly, but in the heat of the moment that always fails.
(continued in next post...)
Fear and anxiety are caused by the lack of a plan, and lack of preparation. I am sure that you prepared yourself for dealing with circumstances that would arise when you took trades according to your plan, but what you did NOT do is prepare for a circumstance when you would be deviating from your plan. You essentially set yourself up for "perfection". You expected to be perfect, to never do dumb things... and so when you started doing dumb things, you were now in "unexplored territory", so to speak. You had no plan for what was going to happen when you started getting emotional. That lack of a plan caused you to continue acting emotional with no idea what to do to get out of it, and therefore things got even worse.
Everyone has different "weak points" in their game, and the idea is go and focus on exactly where you are weakest. Most people after a bad loss like yesterday will not want to think about it. They will try to forget about it, and concentrate on trading well next time, and that is why they will lose. You need to go into the problem and deal with it, not run away from it. So today's exercise (and tomorrow's, the next day's, until you get it) is to figure out what "triggered" yesterday's episode. What EXACTLY happened that made you trade differently yesterday than all the previous days? The market wasn't doing anything especially different. So what made YOU different? When you understand that and all the triggers that caused your behaviour, then you can recognize them and deal with them.
So, here are the steps you need to take:
1. Look back at yesterday and analyze the circumstances that led to your blowup. What specific conditions existed that made yesterday any different than last week for you?
2. Decide now, objectively, what actions would be appropriate to take when you find yourself in that circumstance again. It will certainly involve walking away from the PC, but add any other details you can think of.
3. Now visualize this very specific scenario. Start with yesterday all over again, only this time, visualize yourself doing the correct set of actions. Repeat this until you feel confident that you can do it well. I can't tell you how often or how long to do this, only you will know that. Do it every day if you have to, and constantly be on the lookout for emotional states within yourself.
If you ever find yourself in that cirumstance again, it may take willpower to walk away. Realize that, and don't expect it to be easy. But remember that your ONLY goal in that situation is to walk away. There is no other goal. Once you walk away, your mind will naturally calm down and you will be able to take the correct set of actions upon returning.
Everyone has different "weak points" in their game, and the idea is go and focus on exactly where you are weakest. Most people after a bad loss like yesterday will not want to think about it. They will try to forget about it, and concentrate on trading well next time, and that is why they will lose. You need to go into the problem and deal with it, not run away from it. So today's exercise (and tomorrow's, the next day's, until you get it) is to figure out what "triggered" yesterday's episode. What EXACTLY happened that made you trade differently yesterday than all the previous days? The market wasn't doing anything especially different. So what made YOU different? When you understand that and all the triggers that caused your behaviour, then you can recognize them and deal with them.
So, here are the steps you need to take:
1. Look back at yesterday and analyze the circumstances that led to your blowup. What specific conditions existed that made yesterday any different than last week for you?
2. Decide now, objectively, what actions would be appropriate to take when you find yourself in that circumstance again. It will certainly involve walking away from the PC, but add any other details you can think of.
3. Now visualize this very specific scenario. Start with yesterday all over again, only this time, visualize yourself doing the correct set of actions. Repeat this until you feel confident that you can do it well. I can't tell you how often or how long to do this, only you will know that. Do it every day if you have to, and constantly be on the lookout for emotional states within yourself.
If you ever find yourself in that cirumstance again, it may take willpower to walk away. Realize that, and don't expect it to be easy. But remember that your ONLY goal in that situation is to walk away. There is no other goal. Once you walk away, your mind will naturally calm down and you will be able to take the correct set of actions upon returning.
As another example that might help to illustrate this point, let's look at what happens when an addict goes to an intervention:
When an addict is confronted in an intervention, the family and the interventionist have only one goal in that meeting: to get the addict to agree to go to rehab. That's it. They don't try to solve any long-standing problems right there, they don't try to get the person to agree to quit drugs... they just try to get the guy to step away from his habit and go somewhere else where he can sober up. They do this because they know that once the person is in rehab, THAT is where the true moment of decision will come, when they are in a clear state of mind. Some people will get off drugs and some won't, but NOBODY will be able to do it in the intervention room. Only after they step away for a while and are thinking clearly (and cleanly) can the mind be in a state where it can act appropriately.
This is how you need to think of yourself when you are trading in an emotional state. You are like an addict with a fix at that moment, at the computer. The only goal is to "go to rehab", which means walking away. Everything will naturally take care of itself after that.
When an addict is confronted in an intervention, the family and the interventionist have only one goal in that meeting: to get the addict to agree to go to rehab. That's it. They don't try to solve any long-standing problems right there, they don't try to get the person to agree to quit drugs... they just try to get the guy to step away from his habit and go somewhere else where he can sober up. They do this because they know that once the person is in rehab, THAT is where the true moment of decision will come, when they are in a clear state of mind. Some people will get off drugs and some won't, but NOBODY will be able to do it in the intervention room. Only after they step away for a while and are thinking clearly (and cleanly) can the mind be in a state where it can act appropriately.
This is how you need to think of yourself when you are trading in an emotional state. You are like an addict with a fix at that moment, at the computer. The only goal is to "go to rehab", which means walking away. Everything will naturally take care of itself after that.
"I've had enough of this BS after 5 years and I wish you all good luck and farewell."
How long is your farewell going to take?
I'm not sure I understand why you're quitting. Are you saying you have a positive expectancy trading method but are emotionally unable to execute it? Or, are you unsure if you have an edge and therefore you are always second guessing yourself? If you don't have an edge, papertrade until you get one. If you have an edge but are unable to execute, maybe it's time quit.
Quote from Vespasian:
Good bye cruel world ... I am leaving trading for good.
When your life is a rat race, the best thing you can hope for is to be the fastest rat.
I've had enough of this BS after 5 years and I wish you all good luck and farewell.
