Thursday, November 3, 2011

OUCH! For real

An imaginary post-game interview with trader Grove Under...

Interviewer:  Grove, what happened today?

Grove Under:  I got crushed.

Interviewer:  Oh, I see. What would you say was the primary cause of getting crushed?

GU:  I had a bad day.

Interviewer:  Okay...any other specifics you can give to explain what happened?

GU:  After unintentionally trading my live account yesterday, I decided to intentionally start trading my live account today.  So I guess I was a little too "amped."

Interviewer:  Amped?  Well, any other particular insights you can offer?  Such as from your typical list of "excuses"?

GU:  Well, I actually felt good today mentally and physically and truly believed that I could get through this day with a solid performance, even after a tough start with a full stop loss.  And I'm still feeling generally positive, even with the mediocre outcome.

But since you asked about my excuses, I spent much of the morning pretty amped and trying to force trades, just so I can see how the fills are with the live vs. SIM account.  I also had some nervous energy from finally starting to play the real game.

And having a big loss on the first trade of the is also a weakness for me -- it usually triggers revenge type behavior.  All those factors cascaded into a mini-death spiral resulting in 33 trades, many that were not part of the system.  Yes,  rogue trades.

Interviewer:  Oh, it sounds like you sure did go overboard.  How did Renato's DS system and the trading room do?

GU:  The DS system had the first full stop loss in something like 16 or so trades.  Even Renato and others in the room said this was a tough market to trade today.  If you don't recognize a trend day early enough, you pay dearly in more ways than just money.

But Renato had less than a handful of calls that ended up being being slightly positive by the end of the day, even after the full stop loss.  He did a great job navigating the calls.  Many others in the room had a small loss to slight gains.

Interviewer:  And how did you specifically do?

GU:  Oh, I ended up, ummm.... [unintelligible]

Interviewer:  Excuse me, Grove, are you still there?

GU:  Yes, I'm here. 

Interviewer:  What was your performance today?

GU:  Uh...I was down -$950 gross.  Real money.  On the bright side, it was less than 10 points per contract [sarcasm].  And with 33 trades on 2 contracts, let's just say my broker is happy with their commissions.

Interviewer:  WHOOAH!  OUCH!!  Didn't you just have a big "solid day" on your fantasy SIM account to start off November?  And after yesterday's botch-up, weren't you going to "step up your game" during GAME TIME today?!?!

GU:  Easy...don't rub it in.

Interviewer:  OK, let's put it another way.  How are you going recover from this devastating setback on both your trading account as well as from all the pain from deep within the depths of your traumatized psyche?

GU:  Huh?  In the big scheme of things, this wasn't a disaster.  We're talking about a 6% loss on the portfolio, which is nothing to sneeze at, but it's far from blowing up the account.  I've definitely had worse days.

Now it's a matter of getting down to the basics and waiting for the markets to come to me, for the setups that I know work over time.  It's as simple as that.

One point that helps me to move on is recalling how Michael Jordan would usually recover and have a strong game after a mediocre one.  I truly believe it's the ability to recover from setbacks, such as this, that will help define how well I will succeed in the future. 

Interviewer:  Any other final thoughts?

GU:  Mistakes made, lessons learned.  This isn't the first bad day, and it won't be the last.  And now that I got all this "what will the fills from trading the live account be like" out of my system, it's another thing out of the way.

And yes, it's time once again for me to "step up my game." Let's do it!

* * * **
Thursday, November 3
Total gross profits:  -$950.00
Total trades:  33
Accuracy:  48.3% (excludes 4 scratch)
Contracts per trade: 2

NOTES: A tough, choppy, slowly creeping trend day that ended up being a chopfest for yours truly on the first day of intentionally trading the live account.  The ES opened gap up, went down to fill  the gap, and gradually stepped higher throughout the day.

In order to gain the sense of fills, there were many pressed trades that should not have been made, as well as many trades where I manually exited at breakeven or at a loss, when they eventually made their +2.00 targets had I just let them go.  If I had selected a profit target of 1.50, it would also have changed the outcome significantly in a positive direction.  And during the final hour, it's clearly evident on the P&L how I tried to force my way out of with less than favorable trade executions.


Matt said...

Sorry to hear how the first live day went, but based on your demo results you know you can count on days like this being made up for. My only advice is when trading a system it is important to trade the system. Your testing results say you will be successful if you follow the system, so don't take improv trades with a system that works. I'm still very early into the DS but before I take a sim trade I ask myself is this a confirmed conservative DS? If not then I can not take it because those are requirements for me trading this system and the success of the system is based on strictly following it. Remember discipline(take only confirmed DS) + patience(wait for the real DS and don't improv trade in between) = success

Greg said...

One sounds like you're upset but generally comfortable with a 6%-ish loss on the day. Would you still be comfortable if that was a 10% or so loss? I'm looking at the drawdown towards the end of the day.

I've always set a maximum stop-loss on the day at a level where I wouldn't have to drink whiskey and kick puppies afterwards. A level that was meaningful, but not disastrous to my emotional or financial capital should I lose that amount. And personally, I don't think I could cope with 10% in one day!

Anyway, food for suggestion is just to make sure you know when you'll stop during the day, and don't negotiate with yourself when you hit it.

Grove Under said...

Hi Matt:
Great advice on sticking with something that works through discipline and patience. It's so "simple" with regards to how to be profitable, which is to follow the proven system.

But what's so perplexing is why would someone (i.e. me) deviate from such a plan that has proven success?

If you do this, you'll get that.

If you don't this, you won't get that.

Seems simple enough?

Maybe I need to go see a hypnotist to find out what's lurking deep in my mind playing tricks on me. LOL!

Thanks much for the comment, it's a great reminder of what it takes to be successful.

Grove Under said...

Hi Greg,
At least right now, I'm not as uncomfortable with the loss today, since I still have confidence that the system will work to produce profits over the long term. However, if I continue to have days like this, then that will certainly be a different story.

But you're right, this loss doesn't feel good, and maybe I'm being a little too lackadaisical or tongue in cheek about it to lessen the pain. A 10% loss would have put me around the $2k mark, and that would most certainly be raising a lot of red flags! What's scary is that I really wasn't that far from it.

My risk management on about taking stop losses on individual trades and keeping them within certain % of my portfolio has always been rock solid. I have total confidence in my ability to control that.

However, what's interesting is that my overall account balance risk management (i.e. when to stop for the day after certain $/% losses) has always been less than certain. I don't yet have strong confidence to be able to quit and walk away when I'm down after a certain amount. My instinct is to get back up and keep trying - never give up.

But I believe the ability to stop trading after a certain daily loss amount is just as important (or even more so) as the risk management on an individual trade.

Your advice is certainly something I take seriously to analyze, implement, commit, and then never waiver when hit. This is part of being able to stay in the game for the long term. Great suggestion, thank you!

Greg said...

One idea I heard somewhere, and I unfortunately had to implement it a few times, is this. Say your max loss limit for the day is -$1200. When you hit -$800, just walk away from your workstation and do something else for 20-30 minutes or so. Go have coffee, take a walk...but do something. Then when you come back, evaluate whether or not you think you should continue trading for the day, and what changes you think you should make.

When I did this, it was probably 50/50 the times I resumed trading that day. The other days, I felt like I was just out of tune with the market and was better off waiting for a better environment.

The advantage you have is you have a system you trust that generates a lot of signals...which means even if you leave for a half hour, you're not throwing away the last opportunity of the day.

Anyway, I know you don't need me rambling on about this - but it was just something I wanted to mention!

Grove Under said...

Hi Greg:
This is a great example and something I know I can incorporate. What's nice is that it essentially gives you a chance to slow down and regroup, so it's not like 1 strike and BAM, you hit your account stoploss and you're done.

The other part you mentioned, which I tend to forget when my mind is running a bit too fast, is that there's usually a good setup right around the corner (so I should just be patient). Something I've also mentioned to Tom before.

Great examples and reminders. As always, much appreciated!

Tomross58 said...

Hey Grove,,

As you know I am not a consistantly profitable trader and the last one to give advice or tell someone how to trade when CLEARLY I have not mastered the markets or myself. Your blog has been great to hear your days activities and share experiences and just talk trading and bring up reminders that I really need to have sink in. So with that being said, you made a comment "I manually exited at breakeven or at a loss, when they eventually made their $2.00 targets had I let them go. If I had selected a profit target of $1.50 it would have changed the outcome significantly in a positive direction".
That is something that rings so true in my trading that it almost makes a persom ill. Of course when that happens we (I) am not thinking clearly or just so determined to not have a loss (but still trading) that I prove to myself that,,,"there I got some back",,,yikes. And then you sit back and see that that trade is working without you.
I remember a guy I think posted either on this blog or Trader-x's blog named Flowcastical. He did a post that I copied and saved,,,,somewhere but cannot find it,,, He said that he has lost ALOT of money,,,ALOT,,,And he has seen guys at the desk lose ALOT of money. The point he made was this,,,,You will have losers,,,many losers,,,,as soon as you know the trade isnt working get out. Why?,,,,,its YOUR MONEY,,,,,
WINNERS,,,,The successful traders know how to work their winning trades and push them (yourself). ITS THEIR MONEY (the markets money),,,when we are in a winner ,our PnL IS FINE,,,
Why do we hope the loser will come back and fear the winner wont hit our target?,,,,seems backward,,,,We should FEAR the losses will increase and exit and HOPE the winner will hit our target. Hope this rambling makes sense as it does while I am thinking about it,,,lol,,,My hope that the more I say the right things eventually they will sink in. Hope today is better,


Grove Under said...

Hi Tom:
Your comment totally makes sense! It's one of those behaviors that goes against human nature.

I recall hearing about those non-trading related behavioral studies where people in general are quick to take profits, but are then more likely to let their losses linger on.

So doing what doesn't feel right is in many cases (at least for trading) the right thing to do. Fighting human nature -- it's probably why trading is so simple in concept, but yet so difficult to master.

Thanks for the comment, and hope your second day in the room made a little more sense!

Anonymous said...

Tom, I'm humbled that my words had an impact on you.

The trading game is all about developing your edge and taking advantage of that.

If you have no edge you must trade small enough to develop one. The way you develop that edge is by studying your best trades every single day and creating cumulative effort by trying to repeat those types of trades. I would highly suggest creating your own private blog and posting one good trade per day. Over the course of one trading month you build upon those great trades. Understanding your method better, understanding yourself better, understanding the market better.

When you know your edge and you have mastered it, your winners run wild and your losers are cut without hesitation.

Grove Under said...

Just wanted to clarify that the comment to you just made was from Flowtastical.

Thanks for the great follow up comment!