I spent most of April trying to learn as much as I can about the mental game of trading and thereby better understand my own trading. It has been a tough month and at times, mental nerves have been touched that I had never expected.
About 90+% of what I read and focused on last month revolved around trading psychology. So when I started to read the same messages and themes (from different authors written decades apart), I realized that I've probably dug into the topic as far as I can.
The biggest issue I have as a trader? Revenge / rogue / overtrading / impulse trades.
So that's why I'm very proud of my scratch performance today. I only had one trade -- on a big trend and reversal type day. These are the types of days that had a higher likelihood of hurting me in the past from trying to fade the big moves as well as overtrading.
Earlier in the morning before taking my kids to school, I was short, looking for a big move down with a initial profit target about +13 away, because I knew a bad 10AM news had the potential to juice the move. When I returned, I saw my position get over +3, only to get stopped out at breakeven by 2 ticks.
Revenge was totally on my mind, but I realized what was going on and did my best to let it pass. And of course, had I gotten back on board with a revenge trade, it ended up going up as much as +4.
Then the big 10AM news was released.
It was much better than expected and the market shot up. In the past, especially after feeling as though I was wrong (e.g. stopped out or missed trades), I would have tried to short the big move up, getting stopped out several times, trying to prove that my initial short thesis was right. This time, I sat, took no action, and simply watched.
I knew the 1397 area was key since that was the prior day's RTH high. I saw it break through and pullback to retest the level slightly, and thought about buying. But it wasn't a setup in my plan and instead of taking an impulse trade, I once again passed (and it eventually went up +15).
Then I decided it's time to call it a day, well before the lunch hour. Passing up all those impulse trades and then making the decision to stop trading early in a very active day, was huge. This is something I never would have done in the past. So this is very different. And I felt relatively at peace with myself based on this decision..
I feel very strongly about how this day, as minor as it may seem, was groundbreaking for me personally. One day a trend does not make, but if I'm able to consistently maintain this mental frame of mind of preventing revenge and impulsive trades, and only wait for the solid setups, the positive impact on my P&L will be considerable.
4 comments:
Why are you leaving an intraday trade, at the open and before an important econ report unattended?
Hi Anon,
I wasn't in the trade yesterday before news, I was already stopped out well before the news release.
But even if I was in the trade, I have strategy/bracket orders setup to automatically move my stop orders, so the trade is essentially on autopilot based on my trade management plan. Therefore, I don't really need to be around to see the outcome of the trade.
Big news doesn't bother me nor do they impact my performance based on my data over time. It's somewhat of a win/loss wash over time, so if I'm in a setup with 3:1 probabilities, I make money over time, assuming I take them all.
For example, today, I didn't get filled on the short at 1399.75 limit. News came out at 8:15 AM while I was out, it moved in my favor and my stop was automatically moved to b/e. This is the scenario I was also playing yesterday.
Sometimes an individual trade works, sometimes it doesn't. But over time from the aggregate view, even with big news, the setups have generated a positive outcome based on my particular stats.
Clarification:
I did NOT get filled on my short at 1399.75 this morning. But assuming I was filled, I would have let my strategy/bracket orders take over, knowing that the 8:15 AM big impact news was coming out while I was out.
In the comment section you sound so confident in your system. You speak of a "positive outcome" over time. So why do you get so tilted when you take a losing trade or multiple losing trades? Are you being honest with yourself about believing in your system? Or are you just saying it to yourself in an attempt to convince yourself?
IMO you are focusing too much on the psychological aspects of trading. This is a trap that I think a lot of newbie traders are falling into in recent years. It's like a Little League ball player seeking out a sports psychologist to help with hitting woes. The problem is not in the Little League'rs head, it's in mechanics and technique. Therefore working on the mental aspect is not going to help.
Based on your blog entries I'd say that your system does not work. Either that or you are not following it at all.
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