Hello all, Here is my problem. I am in a trade. I am breakeven or close to. Several signals (technical, news, crowd psychology etc.) come and go. Then I get stopped out with a reasonable loss. As soon as I have exited the trade with a loss I realize that had i not been in the trade the signals would clearly have told me that the position was not going to work and I could have exited the position either with a small profit or a small loss. But because I was in the trade I was biased and did not listen. Now here is my question - are there any exercises that I can do to correct this bias. I know all the cliches about not getting married to trades and the various market sayings - so please dont waste your time and mine repeating that. If you know of any actual exercises to correct personal bias, I would appreciate it. Thanks.
Be careful about "retro" analysis, everything looks much clearer in hindsight. For example, the futures tank yet a stock holds it's ground for the time being. Now looking back, either the stock eventually shoots up and you'd say "obviously, it was holding up even while the spoos collapsed", or it falls and then it's "well the futures were telling me the market was going down" etc. The same bias that will make you stay too long in a trade is the same filtering of information that will cause you to think "it was obvious I was going to get stopped out", once you've been stopped out. You say you take a "reasonable" loss on your stops -- I think that's just about as good as it gets. You can regret not saving a few ticks on a losing trade, but think about the times you'd get out before your stop is hit and then the trade takes off. As long as your stop continues to "makes sense" given your setup (and that includes giving things enough room to work) then don't worry too much about bias -- you can't trade without one imo.
Your mind has a huge influence on the success of your trading. The human mind is not trained to do what it has to do in trading. That's one of the major obstacles in becoming a good trader. I had the same problems so the only thing you can do to change this is to reprogram your mind so that in future it will follow STRICTLY you tradeplan. You must replay trades in the past to prove to yourself that it was best to follow the tradeplan. In fact you have to force your brain to not do automatically what it normally does, but to give control out of hands to the trading system. Don't underestimate the difficulty. I have know an excellent tradeplan designer, but he was not able to trade it himself. Each time you do not follow your tradeplan you should, after the close, analyse the trade again and show to your brain that it made a mistake and that it should listen in future to the trade plan.
I don't know about "exercises", but the first question you have to ask yourself is whether or not you care what the result of the trade is. If you do, then ask yourself why. Perhaps you have not yet accepted the fact of loss, that not every trade is going to be a winner, that whatever you feel is somehow going to influence the trade. Consider talking to yourself before, during, and after these trades as a coach. Demand that you justify these trades to that coach, explaining orally (perhaps into a tape recorder) or in writing just why you're entering the trade, why you're managing it the way you are, why you're exiting it as you are. Then let the coach tell you where you're going wrong.
Had to throw in a few cliches Stocks are like your children, you never know what they are up to but you have a pretty good idea. Your emotions are often a reverse indicator of what you ought to be doing. The ability to see that some things cannot be foreseen is a very necessary quality. Whatever your weakness, the market will find it. Experience is what you get when you dont get what you want. The art of technical analysis is to extrapolate the current trends into a scientific wild-ass guess as to the future direction of equity prices. For those cashing out the equity in their homes to buy foreign gee gaws, you might want to take note: the same crazy wave of financing that whipped its way through the Tech and Telecom craze and subsequently devastated your retirement fund...is now setting its course for your home. Opportunity is missed by most people because it is dressed in overalls and looks like work.
Your in love. Here's an analogy. You have to become a man who sleeps with girls just for the sex and sheer enjoyment (no emotional attachment). Your not there to be nice to her, give her flowers, or hope that she will change her ways and become the girl of your dreams. You are there for one reason, your personal satisfication and you will do whatever you have to get what you want and nothing will stop you in reaching your goal. If she's not willing to give you what you want then you move to the next one. Hope kills. In this game you kill or get killed. Simple as that. Good trading to everyone. ozzy
follow up comment on spikes suggestion. Try this simple exercise, I use it everyday before starting my trading day and it works for me. Eliminate all distractions. sit calmly. Concentrate on your breathing. Now count your breathing back from 21 to 0 (this is a quick way to enter your subconcious mind). After your zero count, visualize a recent trade that you did that went really well because you followed your trading plan ( incorporate everything as detailed as possible. eg. a good trade could be one where you stopped out for 10 ticks thereby saving your account a subsequent 100 tick loss when the mkt quickly went away from your entry). After closing the trade count back from 8 to 0 to clean out your subconcious. Now visualize in detail your trading plan. Once done, visualize the rewards you want/get by following the plan correctly. Hope that helps. I found mastering the setups and acquiring sufficient knowledge about each particular market is the easy part. To move to the next level you have to learn to master yourself.
I have two different suggestions: 1. I have found that the best trades are the ones that are most difficult to take. So if a trade is "easy" to put on, you should be cautious. I realize that this is somewhat of a recursive statement, but anyway ... 2. you should test your ideas to see if they work in the first place. If you cannot make it work with the benefit of hindsight, you'll most likely not be able to make it work in real-time. Imo, those are the two "hardest" conclusions I've reached over the years.