How many of you out there who have been trading for some time, have some kind of edge they know they can exploit day in, day out, which makes them generally or even extraordinarily profitable, and have confidence that they can continue earning profits almost each and every day -- how many of you in this category still go through that periodic day of destructive trading resulting in a huge drawdown (compared to your profitable days) simply because you can't stand dealing with a broken string of steady gains? I'm not quite there yet to able to say I have that confidence in knowing I can produce steady profits each day, which is perhaps why I still encounter big drawdowns every so often -- almost always coming after a winning streak. It seems that continued success will breed a kind of pride which makes accepting even small losses difficult, which can result in overtrading, overleverage, unreasonable profit targets to "make it back" etc. What's the best way to combat this habit if one trades without the benefit of automatic risk management precautions? Some ideas are: reducing position sizes after every loss, or shutting off screen after a max loss/day is reached -- yet it just begs the question if one's psychology can actually apply these rules when the problem is a seemingly irrational response to losses in the first place. Thoughts?
When I feel that I can definitely make a profit that day, I will trade but sometimes I may lose...but when I feel that I may not make a profit that day, I will not trade because I know I will lose.
if you fell off the wagon that's one thing, if it's a habit, you won't have to worry about how to combat it very long
I think we need to get into this subject deeper. In my experience it is the most important issue in trading. Personally, I seem to go through periods of greater or lesser discipline. I know from backtesting and bitter experience that a trade that goes a certain amount against me has a very low chance of coming back. Logically, I suppose the thing to do is reverse, but you sit there and know that some percentage of them will come back, and you are with the major trend , you hate to exit high tick, and it's already gone 4 bars and is due to turn, and maybe I will just hold it over because it will retest the lows tomorrow....and wham! you've gone from an irrelevant trade, a loss you would have forgotten 5 minutes later to one that will wreck your month if not your quarter. Why do we do it? Why? Is it pride or fatalism or some unresolved issues with our parents or that girl in the 10th grade or what? And how do we stop?
After exiting a trade with a profit, don't look at the trend continuing, and say "Darn! I could have made much more !!" BUT After exiting a trade with a loss, look at the trend continuing, and say "Dang! I could have lost much more !!" Cheers!!
My journal will attest to the problems I am having in this area. My method of combatting it is by introducing rigid trading rules which I seem to violate less and less these days. The philosophy behind these restrictions (daily stop loss, maximum number of trades per day etc.) is that, as a pure discretionary trader, if I am approaching or have reached these daily "limits", I am having a "bad edge day" for whatever reason, and therefore any attempt at continuing is a negative expectation proposition. I am not interested in delving into my past finding out why it is hard for me to accept a loss - it is enough glancing at an Excel worksheet of my past performance to realize that my only chance of survival in this game is by strict adherence to these rules.
I did not follow my rules and boxes this afternoon after FOMC meeting and gave back my weeks profits I am even on week but have no excuse for not following box rules :eek:
I overtraded instead of playing the range ... e minis toooooo chopppppy unless you are in pit or your squawk box guy is on the money or you are MM and know you have big order flow
A Train, A very, very excellent post. My name is Pabst and I am a lossaholic. The reasons truly are from childhood. My patterns severely repeat, from being late with term papers to overtrading. For me it's easier to solve these psychoses mechanically than psychologically. As soon as I don't stay fluid or have a stop point, the downside for me is unlimited. IMO besides the "market" reasons you illustrated, greed is a big part of it. I always felt as if losing money was akin to cutting off an extremity. Oops, there goes a piece of my identity with each lost dollar. I'll be brutally self honest. I know I was drawn into trading at an early age to get laid. Since i wasn't going to the NFL or since no big recording contract was awaiting me, how could an average guy get chicks. Well in Chi-town, the exchanges held that promise. I was never drawn to the game for purity.I have always disrespected the market in much the same way I disrespect myself. It really is a mirror, right? Show me a guy who can't keep his room clean, parties excessively, and is always late, and I'll show you a trader who is an accident waiting to happen. So AAA since we know the profile of guys like us, and the kind of days that can be so destructive, can we not at the first hint of hoping, know how futile such behavior is, and just try to live, so we may fight another day. Or are we so self spiteful that we get off on the pain. After being high for a few weeks dosen't a night of suicidal depression sound good? Just so we may validate what undeserving schmucks we are. Who am I to earn more than my Dad, or my friends? Yet on another level, lets face it, we think we're better than everyone else.Hah,those non traders don't know risk. That's why I stayed with that trade. Fuck the market. I'm the guy who makes money 18 days a month. You see bro, it's a circle, it never ends. We are ultimately never truly happy. Whether winning or losing. We are afterall mortal, well aware that in years or decades it will all end as it started.