I'm a newer trader (really 6 months at it), and would like to share something probably common that I'm struggling with, but am determined to beat: I have a tendency after days of really great gains from deliberate and disciplined trading (ie in the 2k-10k profit range) to lose it quickly on bad negligent, impulsive, revenge traded, etc. etc. trades. I'll also admit I'm still at a phase where I'm enthusiastic to trade probably too many mediums: stocks, options, index futures, commodity futures, bond futures, etc. etc. I haven't yet specialized too much (although I am starting to focus most on bonds and nat gas). This may be part of the problem, where my options #s and stock trades are killing my total gains. PS - I am a discretionary swing trader who occasionally does several long scalps throughout the day. I'm not yet a high volume guy. My contract #s are in the 1-4 range usually. Anyway, it is killing my net numbers, and I am determined to get rid of this habit. The only thing I have figured out as a way to keep me from getting too out of control, at this point, is to pay myself well on my good days -- keeping my trading account smaller. But seriously, today is a perfect example. I am in on a long natural gas spread that is starting to dwindle serious payoffs. Additionally, I'm doing some kickass methodical and disciplined bond trades - but when I see the net profit numbers climbing higher and higher for the day, I start doing the unthinkable, making impulsive long and short trades on oil with WAY higher contract size than normal trying to scalp a little bit off the QM. We all know how this ends. I am giving back to the market on trades I never even intended to take going into the market I am becoming a good trader, but my psychology is my weakness, and I hope to overcome this. Remember, I'm posting this on a day I still did beautifully net, but I know regardless this self destructive trading (gambling) is an element that can lead to my demise, as I won't hold my profits. Since I want to be optimistic, please note two things: 1) I don't want to hear recommendations to cease real trading and go to paper until I get ahold of myself. Its BS - a different business. I paper trade on the side, and my 1m IB account is 1.4m after 3 months of occasional trading. A donkey can do better than real life trading hedge funds on paper trading because the psychological pressure is off. 2) I don't want this to turn into a discussion focused on failure that will drive a losing attitude in, where all of the ET lifelong losers chime in with their depressing anecdotes on how they lost everything and how no one really makes money in trading. This is true for many, most aren't cut out for trading, but few have the resources and potential abilities I have, so lets keep it positive and focused on permanently fixing a problem early on in a trading career. Successful guys who've -genuinely- battled and overall beat this demon, chime in.
4 ways: 1) in all fairness, some of those great days are from highly leveraged long options positions. so obviously it scales up more buying power than 1-4 lots (maybe 5-10 at most, but this is unusual). 2) much of these #s are from swing trades, so big moves are captured. 3) often i take successful multiple trades in the same day on 1-4 lots. multiple for me = 2-4 (not 5-10...). this trading usually doesn't give me too much of my gains, maybe 500-1500 max. but add that to my swing trades ... 4) in my spread trading, i scale up my size and sometimes use full size contracts, but still this contract amount. I figure the increased liquidity and smaller bid/ask spreads of full size markets actually can reduce percentage risk on spread trades. (although I am not taking on more risk than I would with minis.. I would be trading more minis anyway)
also I think perhaps my problem with so many options and stock trades failing is that I tend to fall in love with in attitude and marry a position to a company, which blinds me to the reacting to the technicals of the market. I have a hard time selling options as well, because the rational part of me sees this weakness, and believes breakout movements are often unrecoverable in the short term. So it to me seems too much risk for too little return to sell premium on so many companies. when trading futures, its much harder to avoid technicals and my marriage to a position is easier to part with. Anyone agree with this view?
You should try paper trading for a bit, and then come back to real trading when you have your shit together. ... just kidding. But in all honesty, if you want to be a trader, understand on an intellectual and emotional level the following: trading requires discipline, plane and simple. The discipline is on all levels; it's not just in terms of making a plan and sticking to it but also getting to bed on time every night, living a lifestyle where your brain is always in optimal conditions to trade, and of course planning your trades like a business. 95% of traders fail. 95% of small businesses fail. That just might be extremely significant to consider... Imagine you're a sporting good's store - a small business - and you're profitable. Everytime you make a lot of money and then have rainy day where customers don't come in, to make up the "lost" profits on that day, you decide to order some Steinway Grand Pianos; only you don't order them from a reputable source, you buy them on the spot from a salesman who is charging you 10% too much. When the implications of the situation kick you, you sell the pianos on craigslist at 80% of value, and now your sporting goods store's profits for the month are down the drain. I can only sympathize with people who want to help themselves. Understand that by trading lots of markets, you are bound to do that. Understand that trading more markets doesn't make you more of a market genius, and while it may be more "fun," ask yourself clearly if your goal is to have fun or make money. To clear your situation up, take the markets you are currently BEST at trading. Define them precisely, and then DO NOT TRADE ANY OTHER MARKETS. It is that simple. If you are trying to trade more markets than you can handle you will never ever succeed and have no one to blame but yourself. Then, when trading those markets, DO NOT TAKE POSITIONS BIGGER THAN YOUR TRADING PLAN SAYS. Define a trading plan like it's a business plan and like your life depends on it; read it to yourself every morning when you wake up, every night before you go to bed, and before you start trading. Do you believe trading more markets will make you a better trader? If you specialize in just a few markets, you won't have losses from markets you suck at and you will less likely to be inclined to take shitty trades. Why? It will seem too stupid, even emotionally - you'll have a good plan and be able to extract money consistently, and you'll know your attempts to take more than the market will give you just make your efforts worthwhile. Getting past this is what makes a trader a trader and separates the winners from the losers.
to make 10k with 4 options contracts [atm] u need the common to move more than 40%, with 10 contracts is 20%. sounds a touch far fetched if u ask me.
I don't think I was clear. I am equating lot sizes on future contracts with my avg position. Thats why I said lots. 4 QG = 60k, 1000 shares of 60 $ stock = 60k, 2 QM = 60k, 20 options of 60k stock = 120k (or if movement is small since delta is small, esp on OTM options) 20 options = 60k. So these are my trading limits. Most often I trade smaller sizes too, 300 shares of stock, 3-10 options. lets say 4 QG contracts control 60k worth of money. 4 NQ controls $120k worth of money. Volatility and risk is a different thing though. You could buy 1 ZQ (30 yr Fed funds) and control 1 million $, but since volatility is miniscule, your risk level is different. In times I've made a killing on options, I've owned 20-40+ on a company --- so thus controlling 2000 shares of $60 stock = 120k. they may have been gone OTM to ITM at the time, and delta movement may not match, but my point is a rough one. Buying 10 ITM options is like buying 1000 shares of stock, but minimizing your dollar risk to a predefined level with the tradeoff of a time limit. So I've equated 4 NQ lots with 20-40 OTM options. You can trade 2 QM at equal control to 10 options of $60 stock. See my point? The risk level and volatility are different, but the amount of dollar control is the same. Having a $5 point move over a day or two that makes 10 ITM calls go from $1.50 to $6.00 has happened more often, and add that to other trading profits and you see my point. So in summary, my option positions are usually between 3 - 30 on any one company or sector. but remember often the higher count options are OTM, so out of pocket cost (risk per $ is inverse though) is lower.
Your analogy is great. I'll admit being new to the markets and having great times (and poor) in quite a few, I am still attempting to define my niche. But additionally, I do have a hard time -staying out of the action-. I often feel like I'm missing out on something if I stay out (which usually ends up in losses). On the other hand, I intellectually know there is enough volatility for opportunity all of the time every day at lower risk. This is an emotional and intellectual conflict. Optimistically speaking, I'm improving my control - but it takes a lot of effort to NOT trade on reports until the dust settles and trends clearly define. This is all about control and discipline and I am improving, and it is clearly a personal challenge. Every so often though, its the sabotage trades I do that kill me the most. Its one thing to take a bad trade and lose $200, quite another to lose $4000. I appreciate the point though. I have already defined a trading plan and have a DO NOT list posted in front of me to attempt eliminating bad habits. Lot size and maximum risk per sector are on the list, part of my money management plan.
You seem to be an "excitement junkie". Try to reduce your trading hours a little bit and then get out of the house and spend some of your profits on excitement-inducing activities; i.e. skydiving, bungee jumping, paintball, bull-riding, shark-petting, leopard-petting, interracial dating et al. You seem to thrive on volatility too. The only way to get through that is to finally reach a point of exhaustion and realize that you'll have to smooth-out your results by reducing your position size and number of positions. Until then, stay profitable.
I will chime in with what I am doing RIGHT NOW. I had a real good 3 days of trading banking 10.77% on my equity with something new I am trying (I am not a new trader). Now that I have this unexpected buffer to work with, Next week I will scale down my trade size, add a few more instruments for diversification, and add another scale to my "scale in's". Call it profit avoidant...or just wave trading my equity curve Michael B.