Ok, I just closed a swing trade today and broke even. Therein lies the problem. My indicators (which have been profitable) flagged a buy yesterday. The stock jumped up 3%. According to my system, I am to close the trade if it's up more than 2%. As I was entering my sell order, the thing dropped like a rock and literally fell 5% in a matter of 5-10 minutes. This put me under 2%. According to my system (again), I am to place a limit order at a 2% profit for the following day. Well, when this morning hit, the sucker fell like a rock again ... now I'm down 8-9%. According to the system, I'm supposed to wait until the end of the day and close the order if I don't reach my 2% goal. Well, this thing started to float back and the next thing I knew, it was getting back above water (for the day). Unfortunately, this had happened three other times today, so the advance made me leary. I immediately got defensive and set a limit order at break even (figuring it probably wouldn't even make it that far). Of course, after the limit order was set, the stock shot up, my order was filled and it proceeded to shoot up to what should've been my "real" target at a 2% profit. Doh! Stupid brain locked me out of profits. Soooooo ... I have this system, I've backtested, I've been using it and it works but even with this firmly implanted in my brain, emotion still reigns and screws me up. So my question to folks, especially those who put "faith" into a system ... what keeps you from getting an itchy trigger finger? What are some techniques to manage fear and more importantly, keeping your expectations at a consistent level. What I mean by consistent is that I find my expectations floating w/ the price of the stock. So if I'm up 3%, I expect 3% or better, if I'm down 3%, I'd be pleased as punch with a breakeven proposition instead of the 2% I'm SUPPOSED to be locking in. Who knows, it may be as easy as walking away after the trade is executed. Just wanted to hear how others "cope". Thanks. I know, stick to the system, stick to the system ... easier said than done.
it aint that funny bill, What you did is a very serious mistake. Any trade you cut short was part of the system. Now, all the results of the system are out of line. Now, the results of your max drawdown, average per trade, average win, average loss, and retunr on equity are all suspect. When tweaking time comes, you now have no accurate data. "Oh yeah, it's a pretty good system when you sort of trade it when it feels right. Takes all the emotion out of trading, yep."
It's not quite that serious. The system is not backtested on what I actually do. Of course, my bottom line is. This isn't something I do all of the time, and most of the time I can fight the urge. I was looking to see if anyone felt themselves doing the same thing and see if they found better ways of dealing with it.
I think there are two issues here. One, you have to ask yourself if you have a system that you can trade. If you break out in hives if you even think about buying the high of the day, then a volatility breakout system is probably not for you. I don't know the logic of this sytem, but you either have to trade it as is, modify it so that you can live with it or just accept that you will be part systematic, part discretionary. Nothing wrong with that last choice, if you make money. Two, the problem with not following the system, assuming it works, is that most of us are terrible seat of the pants traders. We always sell the lows and buy the highs, cut huge winners short and give hideous losers more rope to hang us with. We also tend to abandon perfectly good systems just when they're about to start producing winners. That trade you decided to skip would have been the biggest winner of the year. Guaranteed.
Yep. I pay a guy that's just like that $5 an hour , and fade his every move. Worth millions. I think I'll give him a raise.
That's the thing, the system has been profitable and I have followed through the big losses and even the gains that seemed hopeless. Just every now and again, I slip, but every trade has its ups and downs and I was just wondering if some folks had ways of dealing with it. I guess I was just looking for tips to get through the rough ones. I probably made the problem sound more serious than it is considering I just got burned today. My main mission is to get my stupid gut reaction completely out of the picture. Just trying to "trade the plan" 100% of the time is all. 99% is not good enough. I actually found a suggestion that said "go play video games". This is the best thing I've heard all day. It seems that when I watch, the stock meanders or goes in the "wrong direction" and the moment I step away, it goes in the right direction. Of course, setting limit orders on profit targets would allow me to use the "go play video games" suggestion. I appreciate the responses.
Actually, no need to pay anyone, I find that the yahoo message boards are a GREAT place to find living, breathing contrarian indicators. "Stock dropped 50% today ... we're going to be back where we were by the end of the week". That's almost a sure sign to short that sucker in the morning.
Caution: My thought are based from you having a system with an edge. I go through with a lot Psychology threads and it may seem contradicting with other posts I've written, but I talk based on content of the question. OK, now that I said that... My answer would be hang in and just trust your system. Never abandon the system, you've asked how experienced traders put trust in their system, for me it's results and understanding the system well. I'll just add that with all your shaky expressions, you're still surviving. Yes, I think you have a big psychological deficit when trading but I think your system is helping you stay in the market. Think about trading a system that is not as good as the one you are trading right now, I think you'll be broke by now. I'm sure you'll do fine, just stick to the system as much as possible. Even if you make a mistake like the one you did, it's not the system to blame, it's you. Thank your system and keep on trading. Just try to be consistant with how you trade. I'm not a morning kinda guy, I have good mornings and bad mornings but doing extra reseach before market open makes my mind tuned to trading on bad mornings. Also, reading your favorite trading books helps me tune in. It also keeps my discipline in tact.
Thanks for the tips. You've hit the nail on the head. Without the system, I would be out of the game. The system talks me out of stupid mistakes a lot, but every once in a while fear will get the best of me. I think today had a lot to do with the fact that I had watched the position edge to a break even point only to have the bottom fall out. After doing that 3 or 4 times, I made up my mind that I wanted off of the roller coaster for today. When you're down 5% on the day, break even sounds pretty damn good. That's where I was talking about the expectations changing. I need to stay focused on keeping my expectations on the predetermined profit target. Reading books and playing video games sound like the perfect remedies. Thanks again.