A little background before I dive into the topic. I am a discretionary trader who only looks at the ES, ER2, NQ - MD Trader windows on my TT workstation. I do not use charts. My objective is to be positive(profitable) everyday. I trade often and take my losers quickly! The examples are based on my experience, but are not true stories The topic I would like to discuss is the minds way of categorizing memories, and how this can be destructive to my trading. I will use 2 examples to explain the topic. 1.Lets say the last two weeks(6-5-06 to 6-16-06) I am down $500 after expenses. I have had 9 profitable days, and one large losing day(Friday June 9th). My average winning day was $500. The one losing day I lost $5000. I come in today and my mind is stuck on the fact that I lost $5000. The intensity of the negative thought overwhelms me. I cannot separate myself from the thought. It is almost like the other 9 profitable days did not happen. I cannot even feel good about having 5 profitable days last week. Monday's(6-19-06) trading day begins. I make a couple of small trades. After a half hour I am up $150. The negative tone to the day has not lifted. I begin to panic and put on a 15 lot long position in ER2 buying new highs. The trade goes my way by ten ticks. I am up $1600 on the day. My mind deducts this amount from the 5,000 I lost on Friday(5-9-06). In my mind the market only has $3400 more to give me. Well large selling comes in I freeze and do not take any profits. I watch as the market continues to sell off. I have many opportunities to take profits, but sit on my hands. ............... Finally I exit .........now i have another $5000 loss to stick in my brain!!! When I finally exit I am down $5000 on the day. 2. Lets say the last two weeks(6-5-06 to 6-16-06) I am up $12000 after expenses. I have had 10 consecutive profitable days. Last Thursday(6-15-06) I made $5700. I was lucky to be short when Bernanke warned about inflation. The market screamed down. For the entire two weeks I traded very disciplined. I exited losers very quickly. Over the weekend I keep thinking about the one trade where I made over $5000. When Monday(6-19-06) comes I am excited to begin the trading day. Trading goes well Monday, and I make $500. Tuesday and Wednesday are about the same. After three days I am up $1700. Even though I am up money I have felt panicky. I have been in a manic state all week. Then Thursday rolls around. I proceed to lose $6000. After the trading day is over I feel relieved. Almost like a weight has been lifted off of my chest. Almost like I can get back to trading again. The main idea I am trying to present in both examples is how the mind stuck to the extremes of both periods. The process is not remembered by the mind. I have come to the conclusion that the mind's memory banks are filled with false history. A history that can be destructive to my daily trading process. It seems the emotion attached to the memory can distort the way the memory is recorded. Thus when I take the memory off the shelf the emotional charge that is attached to this memory actually makes the memory destructive. In conclusion, I will change a common quote used by mutual funds "past performance does not predict future performance" memories can destroy future performance
These two cases are examples of the psychological crutches we create in order to deal with rejection/loss and our own insecurities. They are ways in which people lie to themselves, i.e. disassociate themselves from the reality about who they really are. 1. Lets say the last two weeks(6-5-06 to 6-16-06) I have gone out on 10 dates with women. I have had 9 good dates, and one awful date(Friday June 9th). My average good date made me feel good about myself. After the one bad date I cried myself to sleep due to the rejection. I go on a date today and my mind is stuck on the bad date and how it affected me. The intensity of the negative rejection overwhelms me. I cannot separate myself from the thought. It is almost like the other 9 good dates did not happen. I cannot even feel good about having 5 good dates last week. Monday's(6-19-06) date begins. I make some small talk. After a half hour she's smiling and we are having a good conversation. The negative perception of myself has not lifted. I begin to panic and I start lying to her about myself, from fear she will not like the truth about me. She is impressed and I get to second base. My mind deducts this from Friday's rejection(5-9-06), I associate lying to a woman with success. In my mind I convince myself I can lie and get laid. Well, one day she catches me lying, I freeze, I try to cover the lie. She slaps me and walks out. I feel strong rejection and go into severe depression for the next few days. 2. Lets say the last two weeks(6-5-06 to 6-16-06) I have had 10 successful dates and gotten laid a bunch. Last Thursday(6-15-06) I got laid 3 times. I was lucky to be telling the dates that I am an insanely rich Doctor. The women loved it. For the entire two weeks I got laid everyday. I never once felt rejection. Over the weekend I keep thinking about how my success was based on insecurity and lies. When Monday(6-19-06) comes I am excited to begin another date. Monday's date goes well and I get to third base. Tuesday and Wednesday are about the same. After three days I got laid twice. Even though I have been getting laid, I feel panicky. I have been in a manic state all week. Then Thursday rolls around. The woman I've been dating finds out I work at McDonalds and am not really a Doctor. After she slaps me and walks out I feel relieved. Almost like a weight has been lifted off of my chest. Almost like I can get back to McDonalds, dating and lying again.
This is an excellent analogy for the first example. after i reread the second example i see that i did not provide enough detail This is not quite what I was trying to get across with my second example. The second example I was trying to show an example of a trader who was doing everything right as a trader. He was making money consistently. He exited his losers quickly. He even got lucky one day. However he was still not able to control how his mind interpreted his lucky day. Instead of being happy with the extra money the trader sets up new criteria for his trading. Even though in the third week he is profitable for three days he is disappointed because now he thinks he should be making more based on his one "lucky" winning day. On the Thursday he loses $6,000 thus eliminating the gain from the lucky day. He is relieved because now that the money from the lucky day is gone he can go back to his daily routine of making $500-$1000. I guess the main idea from both examples is memories that have a large emotional charge can be destructive for the trader. The reason I use both examples is to show that positive and negative charged memories can have a devastating impact on the trader's p/l.
You may have missed my point. Negative and positive charged memories are one way of characterizing how we feel about ourselves - this is essentially an individuals concept of themselves, i.e. your self-worth (self-esteem). If you have a positive opinion of yourself - i.e. you are comfortable wearing your own shoes, you will NOT repeat self-destructive behavior (at least not to the point of losing a massive sum in one day). Losing 6k in ONE day while making 500-1k on average is a self-destructive habit. You brought something else into the market that has nothing to do with the market, rather, what you acted out onto the market is your own need to fail. You are either insecure about your ability to enforce discipline (i.e. a lack of willpower) or, you did not anticipate the "system's" drawdown. I do not think it is the latter.
This is where I think for this argument it is important to realize I am talking about the trading game. I agree in everyday life outside of trading positive charged memories can be an example of someone's self-worth(self esteem). I am not trying to make a broad statement about life. I am attempting(my examples might not be clear enough) to show that any emotional attachment to a memory can be destructive to a trader. Even a positive feeling about large profit can bring about negative outcomes if it is taken out of context. For example, thinking it should be repeated or raising expectations. I wanted to highlight this because you are saying what I have been trying to say all along. Any memory of past performance has nothing to do with the current market and will not help understand the current market. This is what I wanted the main idea for the topic to be. I understand you want to talk about self esteem and self destructive behavior as the main issue. (After reading my examples again I can see why). I really wanted to show that memories of past performance have no relevance in the present moment of trading. Good self esteem or bad self esteem --- self destructive or not --- memories of todays results will not help me with tomorrows trading. memories can destroy future performance
You're right scalper and I think that's why Douglas's The Disciplined Trader is so important. What he deals with is how to change your beliefs - and in doing so change what you focus on and what you remember. My own personal flaw is focussing on the money. Whenever I become to focussed on the money I cease working on being the best implementer of my strategy I can be and guess what happens - blowout! You may not be seeking solutions here but one thing you might implement is a daily stop point. I stop trading whenever my loss = 1.5 times my average winning day. This means that I never dig a hole that will kill the week and I don't build the level of pain that was possible before I did that. Best of luck.
Actually I should not have written the examples in the first person. If you notice the dates are the same thus neither are true at the present moment. One helpful tool has been writing on this board. I have used it as journal. Writing keeps me in the flow.
damn...I am a button pushing idiot..In a not a trader at all...let alone discretionary... If I did not have my system with rules to follow, I would not know how to trade. Funny, I consider my decisions discretionary though... sorry for the interupption..Thank you for this thread it has caused me to think as little... Michael B.
Trick yourself into reality .... :eek: If you have 500 winning days and 1 losing day that gives it all back, what was the point ? It still doesn't work !!!!!!!!!!! A successful trader is not one that has 1,5,10 or even 25 profitable years ! A successful trader is the guy who makes the money and doesn't give it back! Take 25% of any profit you make everyday and buy real estate or art or collectibles or leave it in a safety deposit box and as long as you NEVER give it back only THEN can you call yourself a successful trader. Devise a money management program that allows you to do this or quit trading !!!