while I don't disagree with having a pnl stop out per se, you should analyze more than just a week's worth of data. The pros of this method are being able to be taken out of trading during an unprofitable regime. The cons are that you may hit the 350 pnl stop and be taken out of what might have ultimately been a profitable day. Both could be answered by analyzing your open pnl over say the past year of trading.
Instynct, you are a great trader. It's just a matter of one small tweak in the operating system that's running your decision making process. Art is right, do the historical inquiry, and then rerun through the last 2 Wednesdays, bar by bar. Re-feel what it would have been like to stop out at say -$350 or -$400. Make peace with that feeling. Then move on to the next two days, Thursdays and Fridays, repeat the analysis and 'see' yourself coming out nicely ahead at the end of the day. You will be ready when this week comes.
Thanks for the input guys. Right now the thing that can affect my trading results the most in a negative way is my mental state. And the thing that affects my mental state the most is taking consecutive losers. 3 seems to be the magic number of consecutive losers that trips up my brain and clouds my judgement. If I'm under this state, it doesn't matter how good the set up is, or how perfect my entry is, I will find a way to mess up the trade. At this point I am no longer trading the price action, I'm actually just trading to get myself out of a fustrated state of mind. That means I'm most likely taking poor or invalid setups, or if I do get a good setup, I'll end up mismanaging the trade. The cost of 3 losing trades can be anywhere from 200 to 600 dollars. So thats why it makes more sense for me to shut down after 3 consecutive losers, rather than 3 or 400 dollars max drawdown. Its the losing trades that trip me up, not the dollar amount. I know that if I take that many losers in a row, there is something about price action for that day that is not conducive to my trading methods and tactics. So why not just wait it out until the next day for better opportunities... I have what, another 30 or so years to trade. There's really no need to bury myself in one day. Like you say Mav, I need to be at peace with those losses and walk away. Take the day off, refresh my brain, and start the next morning with a new slate.
Hi Instynct I'm reading an impressive book " The Willpower Instinct". I know the author spelled Instinct wrong. http://www.amazon.com/gp/product/1583334386?ie=UTF8&ref=aw_bottom_links&force-full-site=1 It explains the science of willpower, and it opened my eyes. It is well worth the read just for the science of the mind alone. Here's a link with an interview with the author. http://twit.tv/show/dr-kikis-science-hour/135 This is a book I think almost everyone could find useful for many aspects of life.
Something I think would be interesting is to see how you do trading all-in/all-out for a bit. I only say this because I personally find it extremely difficult to properly size trades in real time, so I do better when I hold my size constant. Too often I end up too small at the best times and too big at the worst times. Of course this doesn't apply if you're already sizing trades mechanically. You're consistency has been great. If you can keep that up as you size up, you'll be a real killer.
rdg, When I traded single lots, which is in reference to your trading all-in/all-out, it was really stressful for me. I knew that I had only one shot to get it right, and if the trade went my way I was usually too protective of the profit and ended up taking the profit too soon because I did not want to see a winning trade turn into a losing trade. Of course I would then watch price move another 10, 15, 20 handles without me which is also pretty frustrating. If instead the trade went against me, then I would take a loss on a full position (single lot). When I trade now, I wait for my setup and enter my first contract, let price do its thing and I focus on what price needs to do for me to exit this initial contract for a loss. The reason why I focus on getting out is because even though there is a setup, there is sometimes an initial period where traders are still unsure which way the market wants to go. So I focus on the exit because I want to be mentally prepared and not be like a deer in headlights if the setup doesnât work. Now if the trade starts to work and moves in my favor, I determine what price needs to do in order for me to add more contracts. Once I add, I plan on holding the full position until my price target area is reached. (Sometimes if I feel that price is losing momentum before reaching the price target, then I will start locking in profits and scale out earlier.) Iâm going to get setups that work and ones that donât work. The idea is to lose on one contract and win on a maximum position. With this method I am more comfortable at taking a loss on 1 lot, because I know that once I catch that winner, itâll be on a full position and it will pay for all the small losses I take plus some. Prior to trading multiple lots, I used to think that doubling my size (going from 1 lot to 2) would be doubling my risk or cost of trade. So if Iâm willing to risk $100 dollars on one contract, then trading two would cost me $200. This is what held me back from trading multiple lots for a while. I found that not to be the case at all. Instead I focus on the price action and I find that itâs very comforting to add more contracts when the charts tell you that you are in a winning trade. One mistake Iâve been making is adding too soon before price fully confirms itself. This is what accounts for my big losses. This will no doubt be worked out over time as I become better at incorporating this new risk management strategy with the price action reading process.
Instynct, thanks for such an in depth reply. Trading at constant size for me was really a compromise. It was an easy way for me to stay sized up for the really big moves, and that more than made up for the larger losses. If you can do that, while also eating smaller losses, by all means continue. If I could do that well in real time, I certainly would. Your journal has been fun to follow so thanks for posting!
My approach is purely discretionary. I rely greatly on my ability to sense the price action in real time and determine it's objective as to where it wants to go. I have to trust myself that I will do the right thing and serve my best interests. Scaling in allows me to be flexible so that I can minimize losses and maximize gains. On the other hand, if you automate then you rely heavily on your backtest results and stats to do the trading for you. In that case I can see why you don't want to pick and choose which trades you go heavy and which are traded lightly. Just keep the sizes constant and let your edge do the magic, because your proof is in your backtest. Either way, I enjoy exchanging conversations and learning from people of different backgrounds including yourself. Good luck next week!