I remember when I first began trading, I used to cheat myself out of profits all the time. How so? Due to the fact that I was extremely impatient. What I mean is that I would see a price setup that I like and I'd open my position in the direction I anticipated the trade to go. After that, I'd sit there monitoring the trade like a hawk and when the price retraced, I'd get nervous an close the position at a small profit....and then sitting back watching the market go in the direction I originally anticipated. Then I'd be highly upset with myself because I was right and I didn't have the patience to see my decision through. So here's how I overcame that. Actually, I never did overcome it entirely. Instead, what I now do is: When a price action setup that I prefer is occurring and I get in where I want, I set my stop and find something else to do! Whether its going to exercise, play sports, spend time with my child....anything to get me away from the screen monitoring my trade. If it hits my stop and takes me out at a loss while I'm away, so be it. I eventually realized...that you no matter how right I am, there's no money to be made by being scared. How many of you dealt with this sort of an issue? If so, how'd you overcome it?
Yeah, I know what you are talking about. I'm dealing with that right now. I have a planned setup with a stop and target. After entry, I do too much managing and messing with the trade. What I'm trying to do is just get used to the end result. What I mean by that is think about as if I was looking at the numbers and statistics of my trades in the past. Imagine looking back on your records of trading for the past few months. All you would see is the final profit or loss for a trade, day, month, or whatever time frame. You would just say oh I made this much on that trade and lost this much on that one. There would be none of the drama that happens when we sit and mess with the trade. What makes me fiddle too much is the fear of losing my unrealized gains. As you mentioned, many times I will lock in a small profit or take off some of my shares only to see the trade keep on going...to my target and beyond. Of course there are times when in turned out to be great to get out at that time, but I'm trying to just concentrate on the end numbers and tune out the drama. PLAN the trade and TRADE the plan. One other issue I've been having lately is taking on too many positions or shares at once. I'm not able to stay withing my daily risk parameters if they all go against me a bit. I end up having to liquidate, not allow the the wiggle room in my trade plan, and then eventually watch many of them play out exactly as I wanted them to. Painful to watch. That's more of a risk management issue, I need to clean up.
First off I'm a swing trader, but the principles apply. I spend a lot of time working out my system of trade management. That includes where to set the stop, when to move to break even, when and how to trail, when to tighten. Also when and if to add to an open position. Once I have all that, trading is easy. Just need to execute to plan as per system. While I'm working all that out, life is hell. Right now I'm working out that stuff for options (no hard stops though, just mental stops or points at which I recognize it's not going my way), so life is HELL.
"The big money is made by the sittin' and the waitin' not the thinking. ". "It was never my thinking that made big money for me. It was my sitting...Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after this that a stock operator can make big money. it is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of ignorance."
I will watch trade awhile since sometimes market is fast, other times I do the same set target and stop and try to walk around or watch TV.
when dealing with new traders at the firm i used to work with i often explained to them that the market will ALWAYS offer you an opportunity to lose money. if you want to jump at that opportunity you are welcome to do so, i prefer to sit back until i'm making money and then jump at that. impatience is a killer. i either puke or make money- there is no such thing as a "small loser" in my book and it took impatience out of the equation.
?.... ?? .... ! .... Jesse Livermore was a douchebag. He couldn't/wouldn't/didn't follow his own "advice".
Protective stops have to be congruent with the underlying's volatility so you can set them "just right" for optimal placement, instead of "too close" or "too far" away.
For me it was lack of confidence in my own trading plan - rightfully so as I did not have backtested it. When I realized that, I decided to systematically backtest, which led me to automated trading. I still had to walk out of my trading room for almost every trade for months - else I would override the system. I added a column to my trading log, "cost of error" in which I track the cost of these discipline errors. That helped me realize how big the problem was, and later it helped me monitor my progress on that front. Then, I decided to refund my account for the cost of each discipline error, if it led me to lose money vs the system's performance. It didn't take me long to think twice about messing-up with a trade - I couldn't afford that bleeding from my bank account. I slowly reached a point where I truly don't care if a trade outcome is a loss. I don't care either if it is a win, unless that win makes a new P&L peak for the system - those wins are still precious & exciting to me, because I realize they are the only trades on which I really make money. Of course, it helps me to know what my system stop is - that is, the max drawdown I am willing to let my system go through before I pull the plug on it. I am finding that it is psychologically much easier to be neutral to the outcome of a trade, when the current drawdown is small (say, < 25% of the system stop). In summary: - Having a verified edge, backtested on thousands of trades - Keeping track of the cost of my discipline errors, and refunding my trading account for the amount of each error - Knowing what my system stop is, and what % of that the current drawdown represents
DOM âI slowly reached a point where I truly don't care if a trade outcome is a loss. I don't care either if it is a win, unless that win makes a new P&L peak for the system - those wins are still precious & exciting to me, because I realize they are the only trades on which I really make money.â This is a sign you have arrived as a mature automated trader when wins and losses are just part of the business process. âOf course, it helps me to know what my system stop is - that is, the max drawdown I am willing to let my system go through before I pull the plug on it. I am finding that it is psychologically much easier to be neutral to the outcome of a trade, when the current drawdown is small (say, < 25% of the system stop).â Drawdowns are still my hang up from when I learned to trade automation years ago. I have the same type of system stop that you do with my mature backtested system. However, it does not prevent my emotional roots from nagging at me to want to stop the system prematurely. That is when I shut the monitors off and let it do its thing. I even have backup activities set up so I can regain my trading attitude before I go near the monitor again.