AFTER the fact it's too late, quality assurance is best: prevent it from occuring BEFORE if possible: A trick would be before commiting a trade to oblige you to write down on a paper WHY you want to take that trade. First is it in your trading plan for example . Also make a journal and note the FAILURES (by category if possible, for example execution phase: your plan can be good but you fail to execute it, note the reason you found). Then sort them by frequency and list the most important ones in red ink at the head of the paper above After that you can try to design a process of improvment. For example if you see that most of the time your trading plan is good but that you have execution failures, try to find some causes and then solutions for the cause. It can be you don't trust your trading plan because you lack statistical history, then build that history by paper trading even if it is on past datas just to get statistiscs. It can be your plan is not suitable for the scale you chose: too much fees and slippage then change the scale of trading. etc.
Break the same rule again. But double down. Keep doing this until you get lucky and it works Just make sure you have unlimited funds. Easy!
Come on. Rules and laws are made to be broken. If I have unlimited funding, I'll break all the trading rules, since I can always move the market later so that losing trades will become winners.
When A trader breaks his own rules, then he/she must learn from his mistakes. There is no other option to make it in the trading world gambling. But what is also important is how his risk is being monitored. I have been at a few firms and I can tell you that risk management can be much improved. Tons of deals on the street, which means that many firms are trying so desperately to get new influx of capital. You really have to becareful. I like it when a firm has the same rate for everyone. I am not found of someone next to me getting a better rate cause the ceo likes me better etc... So read the fine print of a BD so that your money has less risk than another. how much do they require, what is the minimum until they cut you off, how much can you lose in one day before they shut you off, what is your max position per stock? These are the foundations that you need to know as well as protecting yourself from a bunch of traders that break their own rules constantly. would you trade for a firm that only required you to put in say $5-10,000? that itself should tell you something.
For me, breaking a rule that I have agreed to or established myself, is a sign that I don't trust it yet. It may be my fault and the solution may be better discipline, or it may be the rule's fault and it should be changed. Therefore, the only thing that I have found to work in these circumstances, is backtest and/or papertrade the rule some more. Then, I either accept it deeper down and that helps my discipline - or develop a better argument how/why the rule should be changed or abolished. My belief is that I am the best trader I can be, not while I'm developing methods to trade, but when I'm actually trading. That's when all my skills and abilities are being exercised. Not in the evening or during a quiet weekend when I feel like philosophizing and kicking some new ideas around. Theory is of no use if I cannot put it in practice or if my subconcious rejects it when things get real hot. A rule that I will discard in the heat of the "battle" is highly suspect - and that's why I always go back to investigate and see what's really happening here.
When it happens, I understand it as they, the manipulators, forced me to do so. Then I accept it and forget about the rule.
WOW - Thanks Yannis! What an eloquent way to express this notion - this is exactly what has been happening in my trading - what really helps is trade notes/screenshots - then I find out what would have happened if I had executed according to plan. All of a sudden, I have become MOSTLY able to execute - it must be the "trusting the rule" thing. Because I saw the consequences of failing to execute correctly through backtesting and also the actual results. IMO If a person is a losing trader, they need to identify whether: Trading Method is good or bad - Execution is good or bad - Both method and execution good or bad - Without tracking it and backtesting, how do you really know? Then we are always trying to solve the wrong problems. Regards, Paul
Slapshot: Thanks for the kind words - and I agree with what you wrote, we think the same way. Now, a psychologist would be using different arguments why we break rules (e.g, potty training and the like...) but I was trained as a physicist
I couldn't agree more. I was a bad trader when I didn't have enough rules, so I made lots of rules. I never had a problem following them, but I still was not profitable. Now I have only one rule: If I wouldn't get into a position now, I must not stay in such a position. Seems to be working just fine. The only way I "don't follow" my rule is sometimes I procrastinate for a few seconds and usually lose another couple of pennies, but that's not really such a big deal, since I don't have to apply my rule that often anyway. Every few trades I do exactly what we all want to avoid: Buy a (micro-)top or sell a bottom. And sometimes I think to myself: If I had just held on a few seconds longer, that loser could have become a winner. But I don't regret those decisions anymore, because I know at what price I would save that occasional nickel or dime. When you have a large enough empirical sample of good trades and bad trades, do the math on it, and find out that you can either lose a dime a day or a few points every other week, the course of action becomes clear. But all these considerations kind of require a liquid market. I'm sure metooxx won't get out at the market whenever the market starts to turn against him, since you can't do that with US options. (Or can you?)