My opinion is that people fail in trading for pretty much the same reasons people fail at other things every day. They are not willing to put in the work, they are not willing to be self critical <b> in a positive way </b> and they can't take the pain of loss to their ego's. Everything goes back to the mean in trading, and that would logically include the number of traders. The week of the 8th to the 12th, I didnt do anything right. I took 21 trades (which is more than I usually take) and took stops on 16 of those trades (much higher than my normal ratio) Obviously I was doing something wrong. <b>NOT THE MARKET, ME! </B>
Last weekend I had to evaluate my results. Anything less would be to let myself and those who depend on me to be at the top of my game down. Here is a brief analysis I sent out, and I hope that maybe the format, and the idea behind it, can help some of you who are having a hard time with "This market".
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As traders we are our own best teachers, and experience gives us most of our most valuable lessons. In particular, losses or a string of losses present us with excellent opportunities to access and evaluate. A trader can turn losses into a strength, or let them destroy him/her. This is what separates the pro and the novice.
Losses and strings of losses occur for one of two reasons. Mathematics, that is every system has an expected drawdown and the longer you use it, the more likely it is you will run into the loss cluster, or Discipline. When you loose focus and discipline, a drawdown will always follow. When in a drawdown, we must evaluate which of these caused it and take the appropriate action.
As anyone who is a member of the Live Trading Room knows, I ran into a loss cluster last week. At weeks end, I had two positive days and three negative days on my account. Net, I was produced a small loss (small because I realized I was not "in synch" with the market and reduced my size.) This weekend then, my job was to determine why I had this loss, and what I can do about it going forward.
The flip flop nature (up one day, down the next, choppy) of the market last week was very difficult for me. I hate it when traders say something like "This market is impossible" because its simply not true, you can trade any market, its simply a matter of having the discipline to do it. "Difficult" market conditions are NEVER an excuse for a breakdown in discipline no matter how much we wish it could be.
The biggest mistakes I made had to do with fighting the trend. One problem I have struggled with through out my career as a trader is that if I miss the first few swings on a trend day, then I have a very hard time going with that trend. Once I miss the first few swing moves, I have a habit of then trying to become a top or bottom picker. This is something I need to work on if I want to bring my trading to the next level. As we all know from experience trend days have a habit of becoming very overbought/oversold and then becoming more so.
I let a few losses distract me from my overall plan and confidence level. I lost my edge by loosing confidence. On five occasions I had a trade stop me out, and then almost immediately give me a signal to re-enter. I did not take any of them, and of the five only one resulted in a stop. Had I taken them all, instead of having a loss I would have had a near average week.
The next mistake I made was another that I have a tendency to make when I start to experience a drawdown, and it has to do with patience. This occurred on two levels. I was not patient in letting something I was in work out (Example, from Friday CAT short), and on four occasions I entered a trade before a proper setup had occurred out of fear that I would miss something.
I did do some things right, most of them related to risk control. Despite that fact that it was a "bad" week, my loss was less than 2 1/2 % of equity in my account. When I realized that I was not performing at peak levels I reduced my position sizing. Had I not done this, the loss would have been over 10%. This re affirms that risk management is THE SINGLE MOST IMPORTANT PART OF MY TRADING PLAN. Without a firm plan in place to handle loosing periods, I would have been taken out of the game long ago. Its also very important for a trader to maintain a positive attitude at all times, and I feel I did a good job in this regard. I did not blame "the market" for my mistakes, and continued to focus on opportunity and not adversity.
Coming into the new week it is important that I really focus on the basics, continuation patterns in bigger time frames, reversals in the shorter ones and Oops patterns. When things are going very well you can afford to try some fancy things here and there, but if you find yourself out of synch, you must get back to the basics. I also need to further reduce my risk profile until I get a few wins under my belt to prove to myself that I'm back into my game. Once I have done this, then I can go back to trading sizes that are more in line with my account size
Brandon Fredrickson
