Friday, September 16, 2011

Knowing when to call a "Time Out"

As I start approaching the 6 month mark as a developing day trader, I've noticed a disturbing pattern on the majority of my trading days over the past couple weeks:
  • My intraday P&L curve looks like a "V"
  • Down significantly (up to -4%) the first half of the day, and then a fight back to breakeven the second half of the day
  • The second half of the day consists of mostly solid trades with high volume scalping (usually net breakeven or slightly profitable)
  • Due to high volume of trades, ALL of my losses over the past 2 weeks are due to commissions (on a gross basis, I am profitable, but that means little)
  • I'm mentally exhausted from the psychological battle of having to dig myself out of the loss, as well as trading of the wicked action of TZA & TNA (although I'm getting somewhat used to it)

And then I tried to do "The Opposite"
Yesterday, I had another "V" day.  But once I got back to breakeven, instead of being smart and quitting like I did the other days, I decided to have a George Costanza day and do "The Opposite."  After telling myself I was done for the day, I decided my goal was to not stop at breakeven, but to keep going to make it decent profitable day. 

The result of doing "The Opposite"
Needless to say, yesterday ended up being a "\/\" shaped day.   Unfortunately, George's theory didn't work for me.  I'm "only" down about 4% for this week, once again, all due to commissions.  And I'm not yet at my "I've blown up my account" level, although I'm always close to that level by choice during my training.

But I feel terrible.  It's not due to the relative or absolute loss on my portfolio, but it's because I realize I've lost control of my actions.  It's mostly from taking rogue (non-strategy) and revenge (stopped by one tick, I'll get back in) type trades resulting in overtrading (surprise!).  It's the feeling you get when you're at the slot machine, mindlessly pushing the buttons over and over and over again, hoping for something good to happen. 

This type of behavior negates and trivializes the countless hours of researching I've done on what works for me and what doesn't.  It's so clear that I have the ability to see and take good setups that have positive expectancy.  Then again, it's also very clear that I have the ability to take absolutely terrible setups.  That part needs to stop.

Slow down, knowing when to call a time out
Like I have in the past when I run into these periods, I need to slow down.  I will stop trading for the next few trading days in order to have the time to evaluate my recent actions in great detail, and then work on my plan to improve self-control. 

When Phil Jackson was coaching the Lakers, he wouldn't take a time out as frequently as other coaches when his team played poorly.  He let them play through their challenges -- unless things got really bad.

I had some warning signs in the past week, but I played through.  But now I realize it's time to call a time out and be proactive before I hit my "I've blown up my account...again" level.

Every trader faces this challenge
The challenge I face is nothing new for any level of trader.  I've run across countless tweets, posts, and books about how waiting for your setup and being able to NOT trade is one of the biggest struggles imaginable.  In many ways, I believe they (and I) write about this all too important trading axiom to help them reinforce it in their own minds.

Doing nothing goes against the human nature of taking action to "fix" your problems and mistakes.  What's perceived to be initiative and decisive action in the corporate and political world can most certainly be ruinous to a trader.

On the bright side
During all of those "V" days, if I had totally avoided the first half of the day when my trades lost, and only traded the second half of the day that was profitable, I'd be having one of my most impressive weeks.  I would have gained 2-4% returns a day on my portfolio, risking only 0.30% per trade.

So it's time to hunker down and learn to stop taking sub-par setups.  Easier said than done, but I'm confident I will get there.

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