Monday, May 21, 2012

View from the time out box

Since the family life has gotten a bit busier, I've gotten a bit behind with updates to this blog.  However, this post is something I wrote mostly late last week, and just completed the final edits today. 


There have been a few times in the past when I knew taking a time out was the right thing to do.  Once again, I reached that point last week.  My psychological capital is running low, my day trading has gotten impulsive and undisciplined, and a "I don't care" attitude has taken hold a surprising number of times.  I feel good that I had enough self awareness to simply STOP.

Now that I've made that decision, I'm finally in the cool down mode and am at peace.  My goal is to take a couple weeks off to regain a clear mind, and work on my mental game as well as revisit and revise my goals and plans for the next chapter.

There were many warning signs.
  • Although my forex swing trading continues to perform well at over a 100% return year to date, my larger ES daytrading portfolio has lost over 50%, a big chunk of it from this month.  This is red flag #1.  The P&L speaks for itself that something was not going well.
  • Possibly due to boredom and greed, I started to experiment with scalping again.  I've always wanted to be able to put myself into and out of "scalp mode" on demand.  While I've found some setups that I've been able to execute well on the fast moving tick charts, the momentum of taking so many trades opened the door for revenge trading. 
  • I started to focus on recovering my losses (i.e. the money) instead of following the proper process to simply trade well.  I got fixated on getting +10 ES point days, which I did accomplish a few times.  But it's a recipe for disaster, because when the markets weren't moving, I still tried to force home runs, and struck out to the tune of more than 20 ES points.
  • Efforts on my daily journaling and overall analysis of my trades during this period went downhill.  It's as if I didn't care anymore.  I only wanted to hit home runs, and nothing else mattered.
  • When I started to look at my bread and butter forex setups, I started to feel impulsive and tried to justify and force setups that weren't there.  Or tighten up on stops way before my rules and get stopped out.  I had a completely different mindset and process vs. the successful process I used most of this year.
  • And worst of all, I could feel some trading stress spilling over into my primary role as father and husband.  I feel fortunate that I was able to catch this situation and stop it well before any flash point was reached.  Because that would have been absolutely inexcusable -- a clear deal breaker in my life.
A great relevant webinar
When I expressed my time out to some fellow traders, I received a great link to FT71's "Trader Intervention" webinar from Matt.  It's about a futures trader with about 2 years of experience who started with a $100k account only to see it get crushed down to $20k in several months. 

He regrouped by trading on SIM for a few months, and went back live to become consistently profitable for 2 months resulting in his $20k account growing to $33k.  Then he lost $32k in 2 days, leaving behind a $1k balance.  OUCH!  The monkey took control and won. 

Listening to this webinar was eye opening and somewhat painful, since many of the trader's challenges are so similar to mine, except my losses are peanuts compared to his. 

FT71's comments and coaching in this webinar was spot on -- including his first recommendation that he just needs to stop trading.  And FT71's question about how he was doing with his journaling during his binge made me crack up (because his assumption was right, the trader's journaling was nearly non-existent, as was mine).  It felt like FT71 was talking to me and his recommendations in the webinar further reinforced my decision to take a time out and regroup.

Where to from here?
Over the next 2 weeks, I'll be working on cooling down -- no more live trading.  That will open up the day so that I'll be revisiting my goals and plans.  Working on my mental game will also be one of the key areas of focus -- self-hypnosis, meditation, yoga, etc.

Another question I need to seriously consider is, if I'm doing so well with forex, why not just swing trade forex, size up, and forget about everything else?  That style of trading seems to flow naturally and is a strength of mine.  So yes, that's also in the picture.

And on a related note, I need to consider whether the method I'm using to daytrade the ES is in sync with my personality and style.  Maybe all this mental stuff is a symptom, not the cause.  Because if I felt 100% comfortable and confident with a system, would I be breaking the rules so often?  Something else I'll be evaluating.

I look forward to returning from my time out in June, a little wiser and better prepared.  And especially a step closer to becoming a consistently profitable trader.


Rod Casilli said...

Hey Grove --

As you suggest near the end of this post, your temperament may be better suited to other instruments and timeframes. But if you're gonna stick w/ futures, here's my 2cents:

For starters, stop trading the ES. It's crowded, messy, and far tougher than the $YM or $NQ. Use the ES as a guide to key trades in the YM.

Second, don't go back to SIM. It's useless once you've been a live trader and no one can apply the same discipline plus you'll get out of sync with the market. Instead, trade small, one contract (again the YM or NQ), no scaling or add-ons until you can make $100/day average for a month. IF you can't do this, then yes your system or how you apply it is broken.

Finally, if you feel you've gotta master the ES, consider options on the $SPY or $DIA as futures proxies. 10 contracts of a SPY weekly is the same as 2 ES contracts. I average only about $250/day with small ball futures, but have had over twenty $1000+ days this year with $SPY options using only a $10K account.

Hope this helps.

Rod aka The HomeHedgie

TST said...

to avoid that monkey feel, practise a positive visualization -this is critical:

Grove Under said...

Hi Rod,
Thanks for the great tips, this will be very useful as I put together my plans on how to move forward from here.

Also, I've never even thought about the weekly options. So once I got my head back on straight, I'll definitely take a closer look.

* * * * *
Thanks for the link to the great article on visualization. I saw Bubba's shot and was just amazed. And you're right, this is very valuable and applicable to trading, so I'll need to better incorporate this technique.