Self Doubt! Not the best response to trading losses

Discussion in 'Psychology' started by Spectra, Jan 25, 2007.

  1. Poor trading days happen!

    True, the proportion of poor to satisfying trading days are proportional to a trader’s trading skills; yet every trader who has pushed that button to the door of wealth has had it slammed in the face.

    I have reviewed the Puretick written trading logs and discovered that traders have an almost uncanny ability to sniff out a bad day. My question is: “Do traders compound an uncooperative market into a series of poor trades?”

    Early in the trading day comments abound—chart points, resistance levels, trend parameters, ideal stops. A trade is put on and good things are about to happen. The big boys are going to add fuel to the predicted market direction. First targets will be easily achieved. There may not be a need to lighten up and take partial profits because one can make more money by holding for the home run.

    Then the unthinkable happens. The market does not cooperate and stops are hit. Very few comments are noted at this point. One can sense the elevated state of disappointment. Traders hate to admit it since most have been admonished not to believe they can predict market behavior, but they not only tried to predict the market direction, they depended on it.

    By the optimistic comments issued before the trade was put on, the traders also attached intellectual status to the risk they accepted. In this case many traders probably felt that they were not taking risk, since the trade was a sure thing. Mark Douglas and others continue to stress that before a trader can be successful that trader must accept that NO ONE KNOWS WHAT IS GOING TO HAPPEN ON THE NEXT TRADE!

    I will add that the only way for a trader to ever become successful is by that trader saying publicly and to him/her self, “I am becoming an extremely successful trader.” That trader must say that the very next trade may be a loser just as likely as win. A small edge, and that is what we can only hope to achieve is never noticeable on the next trade. Only time can produce the odds one is looking to reproduce. If a trader does not do that but only concentrates of the so-called “power” of that trader’s favorite indicator then I can “almost” guarantee (you will notice that I included almost) that this trader is financially doomed.

    So instead of hearing in the trading room things like, “Wow, the Buffet-Livermore-Fibonacci fan is completing its Kondratieff cycle around the seventh pillar of Hercules with a target of the moon, so I’d better hit the buy button and the speed dial to the Ferrari salesperson,” I’d rather hear things more like a pro baseball player. Say, “The odds say I will ground out next time at bat, and I have struck out twice, but this pitcher better watch out—I wonder which at bat during the next 10 coming up will be my home run pitch?”

    I would like to hear more remarks that help other traders rebuild their confidence. No more musing that the “pros” were out to get your stops, no more Bernanke did it again, no more I’d better not take this signal until the setup looks better. If you are full of self doubt you will do the opposite of one suffering from unbridled enthusiasm. You will have a 3 point profit and dump the whole trade because you will feel so “lucky not to lose.” Even on the stop loss side, when the market is going against your position you will just take the stop right here and why risk any more?

    So the best time to design a trading plan is when the markets are closed. When they are open the only thing you can do is EXECUTE.


    Alex L. Wasilewski
    Co-Founder & Head Trader
    Trades That Work
  2. Greast post. Thanks.
  3. I agree. Two steps to successful trading:

    1) When Markets are CLOSED, plan/design your trading strategy.

    2) When Markets are OPEN, then EXECUTE the trading strategy. Do not "second guess" or say "this time it is different".

    Do not confuse #2 with #1.
  4. From my point of view, traders must truly understand what a good trading day is. I do not measure a good trading day by the amount of money that I made. The days that I make the most money, everything goes my way. I feel my best days are sometimes the ones where I barely manage to eke out a profit even though it seemed every time I turned around the market was going against me. On these days my decision making was tested and my experience was called upon. I trade alone, and I have no emotional investment in sharing with anyone how much I made on any given day. My psychological disposition is entirely dependent on my level of self-satisfaction. But I know that I am a profitable trader because of the decision making that I employ when the market goes against me. Dodging losses when the market goes against you, will more significantly affect the bottom line at the end of the year more than bagging profits when the market is going your way. <p> I do not have a fear of the market because I have many years of profitable trading to reassure me that I have nothing to fear. Every day I expect the market to go my way, but I am always PREPARED for this day to be the day that the market will go against me. When the market has gone against me, I do not try force anything. I try to make the same trades in the routine manner that has consistently brought me profits. <p>As a former sports gambler, I learned many things. Monday Night Football was the biggest trap of all because that was the game when gamblers tried to get even from Sunday's losses. Traders can fall into the same trap as the trading day dwindles down by changing the way they trade to get even, instead of allowing the market to decide how profitable each trade will be.<p>Baseball can teach traders many things. Ted Williams said the most difficult thing in all of sport is to hit a baseball. That may have been a self-serving statement from a man know for his ego, but hitting a baseball looked pretty difficult when I saw Michael Jordan trying to do it. Trading is difficult as well. If one were to talk with major league hitters, they would probably tell you that their best days are not the ones when the opposing pitcher is throwing mediocre fastballs down the middle which are begging to be hit out of the park. Their best days are when the pitcher is hitting the corners and they hit the pitcher's pitch for a RBI single or even just a sacrifice fly. So it is with trading, the raw stats do not always tell the whole story.