I fought the tape, and I got killed. I was thinking that it had gone too far too fast, and I tried to get in for a quick profit. Well, the down wave was just getting started, and I lost 10 points very quickly. I reversed at 1486, and will hold this trade until I can come up with a suitable plan of action.
I'm sorry for not keeping up to date in the journal. I've had a difficult week, and I just wasn't in the mood. Here's a synopsis of what happened. On Monday I went long at 1496 and ended up reversing short at 1486 overnight. I figured that the market would go down to 1476 to wipe out the loss on the long trade. On Tuesday, the market went back up to the 1496 level. While I did exit the short at breakeven, I went long near the close at 1493.5. I figured that I was wrong about the market going down. I got stopped out of that trade at 1476. Today I lost an additional 1.5 points net (due to a 5 point loser in the final half hour). All told, I'm down 30 points for the week. I obviously didn't learn my lesson last week. I'm trying to figure out what I need to do to fix this problem. I am a purely discretionary trader. I do not rely on indicators, charts, or even a fixed set of rules. One thing that I really struggle with is something I call an evolutionary thought process. An example of this would be the following. Say you start out trading with a two point profit target and a one point stop. After a while, you notice that most of the time you could have gotten four points of profit instead of just two. So, consciously or subconsciously, you increase your profit target to four points. Then you notice that your stop is getting hit, even though the trades would have worked out. So, you extend your stop. Eventually, you have evolved from a two point target one point stop combination to a ten point target with no stop. At first, everything continues to work great. But eventually it all catches up to you, and you find yourself with a big loss. In trying to "fix" the loss, your mindset evolves again. Now you are trying to get back the loss as quickly as possible, and your target is equal to the loss. If by chance you should happen to recoup the loss, your mindset continues to evolve along the self destructive path. Now you may have another period of profitability, but eventually you will be faced with another large loss. At this point, you lose even more trying to recoup the loss, and this triggers desperation that ultimately proves catastrophic. Another thing that has hurt me is changing my idea about the trade after entry. If it isn't working out, I may give it more time. If my profit target is hit, I may think that I can get even more, and end up losing it. The solution to this problem is the following. It's time to throw reversals out the window. No more. I can't take it. It's also time to stop holding losing trades overnight. Doing these two things should solve 90% of the problems. Most importantly, I cannot let my future trading decisions be influenced by past winners or losers. I need to trade the same regardless of what my P/L for the day is. I also need to be more patient. I think that is where a lot of my problems start.
I just noticed that the NDX is down from 1,493.08 to 1,462.61 for the week (30 points). So at least I'm doing as well as the buy and hold crowd. I'm feeling so bad that this actually cheered me up.
You might try the easier approach. Use a system and then be discretionary off that system. That way you have a foundation of rules that will allow you to PRECISELY measure how well you are doing relative to the norm. --Cheers
I really appreciate reading a honest journal like you write, and have also been struggling with stop/target discipline. 9 times out of 10 when I have held a losing position overnight, I've gotten killed. But old habits die hard. Just wondering, how many contracts do you trade?
Hi AFterburner, Are you saying you don't use charts or are you saying you use charts to visually see the price but such doesn't have any impact on your trade decisions ? Also...are you saying you don't have a written trading plan for your strategies (whatever they may be...including tape reading) via saying you don't have a fixed set of rules. Some of the best discretionary traders I know or read about are robotic in their application of their trading plan (entry signals, stop/loss management, profit target strategy and contingency plans)... Simply...a discretionary trader can be a Proactive or a Reactive trader. Further, because you rely on tape reading and price action... As a price action trader...do you monitor how the market puts a lot of weight on earnings announcements after the bell ? I think when holding overnight...if you don't understand the effects of important after the bell earnings announcements... probably best to not take an overnight trade position ahead of such critical earnings reports unless that's part of your trading plan. Feb 3rd the big earnings news was CSCO after the bell. As a discretionary trader...you need a trading plan and a contingency plan. Note: You've already said you didn't have a contingency plan. In fact, I wouldn't trade any more until you have such. Out of curiousity...how do you decide upon your profit targets, initial stops and trailing stops? A few more questions...lets say your Short or Long via reading something in the tape...do you stop reading the tape now that your in a trade or do you continue reading the tape? Also, because you trade multiple contracts and because you have a problem with greed (trying to get more) when profit targets are reached... why not exit just part of your position when profit target is reached? Simply, you'll be banking money while at the same time you'll be satisfying that subconscious need or greed to try to get more... this is an easy solution for a trader that already trades size. P.S. Whenever a trader starts having trading problems (losses)...its time to go back to the basics. Trade only one trading style, one strategy, one methodology instead of trying to do more while under stress. This type of boring trading will allow you time to re-energize and become profitable again... while helping you to become patient because to be bored is to imply your patiently waiting for a trade signal. NihabaAshi
1. I have a chart that I use a memory aid. I can look at the chart and remember what the market action was like at that point. It can be useful to know how the market reacted to similiar circumstances earlier in the day. 2. I wholeheartedly agree. That has been something I have strayed away from recently, and I have paid the price for it. 3. I was aware. On May 8, 2002 I made a windfall on QQQ call options when following a CSCO earnings report, the QQQ rocketed from 28.70 to 31.77. There hasn't been an overnight rally this earnings season, and I rolled the dice on this one. 4. It becomes tricky. Tape reading is a very subtle art, and having a position can affect my judgement. I try to remain objective, but it can be difficult. Sometimes watching the price action will lull me into a trance. At that point I just need to do something/anything to break out of it, such as entering or exiting a trade. 5. Then it wouldn't be greed. 6. I agree. Hopefully I can get back into the good habits.
Since this is the second time this question has been asked, I am no longer comfortable disclosing information that can be converted into dollars and cents. That made me too paranoid.