So far in this thread there doesn't seem to be anyone who can attest to this. I actually have The Daily Trading Coach by Brett Steenbarger in my shelf and took a glance at it this morning, but it seems very tedious and dry. Not sure if I'm interested in reading it again. I may be more interested in reading one of the books by Mark Douglas.
I am a discretionary vol trader. I found self reflection on my emotional state to be really helpful. I study my trading portfolio in the context of how it affects my emotions. Where there is sufficient anxiety or emotional pain, I cut. Where there is sufficient thrill I also cut. Where there is a small amount of worry, I study like crazy and I scale up. I started this endeavor when I left Wall Street and became a retail trader/entrepreneur. It’s been ten years working on this mind muscle but I’ve found it to be very valuable.
Interesting. Why or when do you have sufficient anxiety or emotional pain? When you're in drawdown on a position? I'm sure your story about leaving WS and going out on your own would be interesting to hear more about if you were willing to share more on that. I imagine the psychological aspect or emotions are stronger when trading on your own versus trading for an institution?
So, September was a very good month for me with few and small losing days, but October was a losing month giving up a lot of my gains from September. Fortunately, I'm still ahead by a bit, but enough that it matters and needs to be addressed. I don't think good traders should have losing months or even losing weeks. I started October with a large losing day from sloppy and stupid trading which set the tone for the rest of the month. Funny thing is I was almost back up at equity highs a few days later, a few hundred $ short, but then dipped below that. For the rest of the month I've just been focused on getting back to that equity high QUICKLY and taking larger risks to do so. I suppose I got greedy, overconfident, impatient and complacent - not giving my trading the proper care, analysis and focus which it requires. Just being sloppy. The dangerous part is that I actually had some big wins from this kind of behavior, too. The positive thing is that most of my larger losses came from stupid trades and from trading when I shouldn't be trading like in the middle of the night or when juggling stuff at my day job. I think I just need to erase that equity high off my mind and pretend like I just funded a completely new account which I'm carefully building up with the same respect and care as when I started out in September. Isn't there a saying about how you shouldn't trade your P&L? I think that's a big sticking point for me and a major part of my failure in October. Admittedly easier said than done. Thankful for any tips if anyone have dealt with this.
This part really stands out. Being rewarded for putting on a trade you shouldn't is almost like going backwards. But clearly the reward is often enough that the behavior is reinforced. But I will say this, to completely contradict exactly what I just said above. Considering that any one trade, over the long run, will have maybe a 60/40 or 40/60 win rate, doing the wrong thing isn't exactly always the wrong thing in my opinion. I will tell you what I hate doing.... I hate shorting a swing low or buying a breakout of a swing high. These things will very often retrace, but you of course don't know how high they can go first. Maybe you can get 5 or 10 points out of it before it comes back. Now clearly buying every swing low won't work either, because that would be too easy. Sometimes you buy it, and it continues to drop like a rock, thereby making you think you should have shorted it, and now you're back to going against what you don't really want to do. So, what I'm thinking going forward, the only way to get myself out of my own rut, is just to realize that I'm predicting the future, which hasn't happened. Mark Douglas talks about this alot. No matter how good a setup looks, we are still predicting a future event that hasn't happened yet. I think our brains are pretty good about picking up on nuances, something very difficult to code, and especially after we have been watching price move for thousands of hours, which many of us here have. So when we put on trades that we think later we shouldn't, is it really so bad? Maybe we saw something good which made us want to override a firm rule. Saying all this, when we say we are doing bad things, like you trading in the middle of the night, is it really so bad when you consider that its not like you ever had an 80% or 90% chance of being right? If you're gonna beat yourself up about a trade you took that you shouldn't, does this mean that you knew deep down there was an 80% chance the trade would fail? Of course not. It just so happened that it did, and then you go looking for a reason for why you shouldn't have put it on, as if this would have saved you. The whole idea that we can stay out of bad trades is I think the fallacy. We can blame the time of day, blame our mood, etc., but so often, that trade will sometimes work and sometimes not. So I think in the end, the only thing we can really control is what are we gonna do about it. If you hang on too long, maybe that's the mistake, it turning into a big loss, but entering to begin with perhaps isn't so bad. Sure its nice to have 5 different things all line up before you enter, but does this really lead to a 90% win rate? And how long are we waiting for this perfect setup? I mentioned this before and I will mention this again. After putting 100 trades in a spreadsheet and tracking both what I got out of the trade and what I could have gotten, there was always a sweet spot of using something like a 5 point stop and a 10 point target. Some stupid trades maybe were instant losses, so my entries could have slightly improved, but the idea that I could forecast which trades worked in advance was a total fallacy. It was almost better to just place my bets and rely on my OCO orders to manage the trade. I think this way, you take emotion out of it, and by keeping the trade size small, and expecting to put on dozens of trades before you come to any conclusion, this is easier emotionally. (In my opinion you're trading way too big for your account size, so every trade outcome is important for you). We know that if you have only a 50% win rate but get 10 points profit for every 5 point loss, you will be absolutely printing money. But a 50% win rate will mean 5 or 6 losses in a row (which could be 25 to 30 ES points lost). These 5 or 6 losses are incredibly painful for high leverage, and it will make you doubt yourself, but this is 100% within the statistical expectancy of a 50% win rate system. I see this happen so often in a monte carlo simulation. After 200 trades, the system is printing money, but its easy to find a stretch of 5 or 6 losses in a row that would totally demoralize you. So if your drawdown comes from you taking on bigger losses than you should have, then perhaps this is the problem, but taking a trade in the middle of the night that looked good at the time but resulted in a loss is perhaps not the real issue. It could have just as easily won, and then you wouldn't think its a problem. Just because a trade lost money doesn't mean there is a problem after all. The real problem is when this loss affects the next trade, which it clearly does because you often say you're packing up early. And its just as bad to pack up early after a good trade, because maybe there were gonna be 4 more winning trades. I love watching @schizo post his trades because he just keeps going. I haven't added up his points, and he clearly might not be posting everything, but based on what I see, he takes his losses like a champ and just keeps going. It seems like he is doing it right.
Wow. That's a post closing in on War & Peace. It may be hard to respond to it all, so I'll just try to single out the essence of your post. To be clear, I'm differentiating between excellent and focused trading which still have normal losses and sloppy and unfocused trading when I'm not really in a position to be trading. An extreme example would be day trading futures from your phone while driving. I never did this of course. Small losses during normal trading should be accepted and considered a cost of doing business. Larger losses from reckless trading is unacceptable. Trading in the night is one thing, but I had another morning where I racked up losses too. I was supposed to go to the office that day, so I had no business trading pre-work when I couldn't be around. Just stupid really. Well, that's not quite how I do it myself. I'm very trigger happy. But we can all agree that you can beat random entry. So, obviously, waiting for the right moment to execute will reward you. There certainly are times where you can enter with a 5 point stop on ES, but other times where you need a 10-15 point stop just to stay outside of "noise". So, waiting for low risk entries are key, IMO. If you can eliminate unnecessary losses you can go a long way. I have no illusions of a 90 % win rate with my methodology, but I should be exceeding 60 % when I do things right. I agree. Well, maybe not on that last sentence, but my risk profile is perhaps a tad too high. I'm not running a risk of ruin by every 3-trade sequence like I've done in the past, though. But it's high enough that it can be an impact. That one is more tricky. If I pack up early having profited on the day I'm not sure that's entirely a bad thing in my position as I'm not a full-time trader. Often, I find that my biases/edge can get "depleted" once a major move already played out. So, sticking around after that can result in overtrading in choppy price action. Thanks, Noah.
I agree and Friday is a good example. Suppose you saw this action at where I have the dotted diagonal line. You see price wants to break 3850 after trying so much, and you even wait until price comes down to this line that seems to be forming support and go long there. Well, it goes right through, and its a full 15 points until it turns. Heck, technically it could have gone all the way down to the opening low and still not invalidated the up move. So bigger stops are sometimes necessary, but I find that if I keep it tight and lose 3 points on this, I'm better able to try again. If instead it never comes back and you exit on a break of the opening low, you're down 27 points. So on the one hand, I can be bullish on the day and hold, but on the other hand, if that rising channel breaks, maybe exit for a small loss and re-evaluate. Tough call. I do agree with this as well. But since I'm not looking for 20 points, I think 5 or 10 point trades can happen anywhere. So often people even enter at the very end of the day following a huge rally expecting some sort of retracement after the evening session opens. So in a way, if you don't expect a move to continue, is fading it another viable trade? It might not be a high confidence trade, but since every trade will fall somewhere between a 30-60 or 70% winner, it might be yet another win to add to the streak. I always try and think that if I don't see any reason to go long, a short should seem more viable. One of them will certainly win. Anyway, I too am struggling so who am I to say, but I just figured that removing as much from this as possible in order to bring confidence back and the ability to execute trades is what is necessary. For me, agonizing over what will happen next is a killer since I really don't know. I just need to focus on putting trades where they should go and then whatever happens, happens.
Yes. I mostly agree with that. 3 points may be too small on average in this volatility, though. But if your entries are good you should survive with a 5-7 point initial stop on average and at least be able to scratch it for a tick or a smaller loss. Technically, for Friday, the correct stop would have been below the opening bar, but that can be a mighty large stop if your execution was late. Proper stop sizing/placement is challenging. I have to disagree on this one, unless you're scalping for small profits. What we as traders ideally want is low risk entries and high probability (at least better than random) outcomes. These will typically be limited on any given day. Often, the market may make a bigger move and then spend some time chopping around in a zone. Just because a move materializes doesn't mean it's something that's easily predicted/anticipated in advance. There are times when the market seem truly random and uncertain to me and that's the time to sideline. I'm not always able to do that of course as I still have some gambling tendencies. Just my personal opinion of course.
%% Top 10% of pro money managers/fund managers\ so few are in that class for 10 years; so have to factor that in. But since we are NOT going to limit this to just public markets; yes. DR Van Tharp noted what the top 2 match shooters did to win. The number 1 winner did not interest me ; but # 2 did.[See Jack Schwager top Trader interview book for details] But with all the[fake] psycho babble in that field; i would call what DR Van Tharp explained = more common sense. So an added service business is another way for what IBKR founder noted. IBKR founder, in a pack of Yellow Cabs ,was riding a horse ; bottom line '' NEVER Chose an Ordinary Investment Vehicle'' [or vehicles,]
An excerpt from "The 21 Irrefutable Truths of Trading: A Trader's Guide to Developing a Mind to Win" (2000) The market is able to inflict massive pain on traders only because their beliefs about themselves and the market are being violated. The mind is constantly attempting to meet its four primary needs. One of the many beliefs held by novice traders is that the market can be predicted once it is understood—so they have a feeling of certainty. Most novice traders find significance by being a “trader.” Consequently the market can inflict massive pain on novice traders because of their false beliefs in certainty and significance. The truth of the matter is that the market is unpredictable in an absolute sense, and the market will never provide certainty. The certainty must come from the trader. The market will provide all the variety a trader could desire, so it does meet one of the four primary needs. The market will never provide significance or connection. So of the four primary needs, only one is being met. This is why you as a trader must become aware of the power of your beliefs and change them so that they serve you. There are four types of beliefs that people possess. The first type is an opinion. We link low levels of energy to our opinions, and we’re relatively certain that we are right—but we’re not absolutely certain. When we have an opinion we will discuss its validity without getting overly upset. The second type of belief is what we normally call a belief. We link low to medium levels of emotional intensity to most of our beliefs. Unlike an opinion, we are absolutely certain that a given belief is valid, and we’re closeminded about its validity. If someone challenges our belief and/or its validity, we tend to get upset. The third type of belief is a conviction. A conviction has a high level of emotional intensity linked to it. We are absolutely certain that our conviction is correct, and if our conviction is questioned we immediately get angry and defensive. The fourth type of belief is a rule. We use rules to determine if the virtues, vices, and emotional feelings that we value most are being met. We link a lot of emotional intensity to our rules. We are absolutely certain that they are valid, and we become upset if they are questioned. The important thing to remember about beliefs is that they can either empower or disempower our lives.