My Obstacle to Trading Success

[James Austin]

I’ve been slowly learning to intraday index trade. The index, especially the smaller time-frames, is a difficult instrument to master. Overall things are sort of progressing. My technical knowledge is sound and the system I use is robust.

But I have recognised a significant obstacle to my success.

Surveying my trades I notice a reoccurring pattern. My trades can be nicely grouped into “technical trades” and “emotional trades”. My technical trades follow my rules, and demonstrate patience and discipline. My emotional trades in contrast, disregard my rules and are driven by hope, fear, greed etc.

My trading week just gone has been riddled with emotional trades. Just last night I was “certain”, (without any technical or experiential basis) that ABC would happen. I took a number of trades just like this one. Lo-and-behold, things didn’t go to my plan.

I seem to cycle through periods of pure technical trading, broken up by emotional trading. When this occurs my results swing form consistent profit to consistent loss. And so the cycle continues. It is frustrating to have a profitable trading system, comprehend the rules of that system and know how to apply them in real time, yet to be repeatedly undermining myself with acts of random trading.

As a rule I don’t consider myself overly emotional. In my life outside trading I tend not to get carried away emotionally. In fact, even as I write this I struggle to comprehend the impact emotion has had on my trading, because my emotional experience isn’t blatant. I’m not smashing keyboards, cursing monitors nor kicking the family dog. My emotion is far more covert than that, operating by stealth, unseen, unheard.

I am confident (or hoping!) that virtually all intraday traders at some time experience what I am experiencing now.

We’ve all read countless stories of successful traders losing $1000s or $100s of thousands of dollars, at some point in their trading career. J.Livermore is a classic example. Here’s a trader held in high regard who more than once went bankrupt because he lost sight of the rules that governed his trading. I assume this was in part due to emotion clouding the analytical mind.

I’ve read research concluding that functional sociopaths make the most successful traders because emotion doesn’t get in the way of their technical analysis. The sociopathic option isn’t a viable avenue for me (given lobotomies are no longer practiced).

Is there another way to weed out this reoccurring divisive pattern in my trading? I’ve spent a great deal of time patching the hundreds of holes in my trading dingy. But unless I patch this one, me and my dingy are going down.

I’d appreciate hearing how other ASFers who have experienced the same cycles that I now find myself stuck in. What was your experience? How did you move through this period of your development? Any tips?

 

[Trembling Hand]

As a rule I don’t consider myself overly emotional. In my life outside trading I tend not to get carried away emotionally. In fact, even as I write this I struggle to comprehend the impact emotion has had on my trading, because my emotional experience isn’t blatant. I’m not smashing keyboards, cursing monitors nor kicking the family dog. My emotion is far more covert than that, operating by stealth, unseen, unheard.

Well there you go. your not doing the right thing!

 

[Stormin_Norman]

treat the numbers are the score in the game, not money.

 

[Trembling Hand]

But seriously the bullsh!t about controlling emotion is wrong. We have them for a reason. MichealD put it very well recently,

Mostly, emotional decisions work, but when they don't, they fail spectacularly.

You shouldn't ignore them or try and "control" them. they are telling you something. You need to be able to recognise what they are and then use that info to your advantage.

We are emotional beings. accept it and use it. work on reading the market and reading yourself. What is the discretionary traders job? Finding info and acting on it. Not suppress it or ignore it. Get a video recorder or a tape recorder and watch/listen to yourself after the market has closed. There's patterns there just the same as in a chart.

I’ve read research concluding that functional sociopaths make the most successful traders

I would like to see this rubbish study. I bet its got more to do with cliched stereotype BS than fact. From the time I have spent around short term discretionary traders the quiet controlled ones are the 1-2 lot traders about to hit drop dead. The loud frustrated cursing ones are the big swingin' dicks flingin 40 lots.

 

[Trembling Hand]

your not doing the right thing

And I cannot spell!

 

[James Austin]

You shouldn't ignore them or try and "control" them. they are telling you something. You need to be able to recognise what they are and then use that info to your advantage.

i accept there is no need to be rid of emotion as a trader,
but there are emotions that will hinder

case in point,
yesterday i was quite driven by "hope" and then "revenge", when hope failed


but yes, self-awareness re my trading emotions and what info this is providing me is probably the lesson to be learnt here.


but TH, tell me you've lost the plot at least once! this is par for the course, right?

 

[Bobby]

Run us through one or some of your emotional trades , I'd find it most interesting comparing
As TH said ' don't try to suppress them ' ..

 

[Frank D]

James,

It’s called baggage and it’s hard to shake regardless how many years
you have been trading.

Some can’t take a trick when trading and continually take backward
steps. Others can’t pull the trigger because of fear.

Others can’t let profits run even though everything tells you that based
on probability that the market is going from point A to point B.

I’m in the latter.

Look at the chart below on the SPI. You can’t find patterns as
statistically reliable as those. Nothing is curve fitted, it’s simply
the movement of price over certain ranges within certain daily ranges:-
rotation and extension


But I still have a problem of holding my trades and exit far too early for
my liking.

Now what I have to do on most occasions is actually walk away from
the screen and not look at the market for a number of hours so that my
exit isn’t over ridden by some minor intra-day pattern.

That's because I started trading with minor indicators and taking small
profits.

That’s why I like the US markets, you place your trade and wake up the
next day and see how it went.

That’s also worked against me because I’ve been in profit over 100 points
on occasions only to see the market reverse and take out my stops and
then continue to where it was going in the first place. That’s a bummer.

Personally I prefer to use the 5-day highs and lows and place staggered
limit entries around those levels:- rotation

I did that with the Euro and GBP last night, woke up this morning and took
a loss on the Euro for 30 pips, but got the near top on GBP and exited for
a return 115 pips.

On most occasion markets will reverse around those highs and lows.

I had another staggered entry on the euro at higher prices but it failed
to reach by 15 ticks, which would have provided the same reversal
pattern down from the highs.

During the Asian timezone. I’ll use other patterns to trade that have
the same robust probability.

The same with the 5-day patterns in the US markets:- highs/lows and
50% levels.

Therefore James, you probably need to step away from the screen
and look at probability patterns on a number of different markets and
only trade when those patterns are confirmed with statistical
reliability.

Instead of staring at the screen looking at minor indicators to make
trading decisions, which is what most short-term traders do. Plan your
day and how you will trade before the trading day, don’t plan your
trade around an indicator.


Find statistical reliable patterns in the market and work out your trading
rules around them, which should be based around some form of support
and resistance and money management.

You'll soon realise that you'll have a method that is way over 50% expectancy and with a 1:3 Risk reward.

But you'll need to be patient until those patterns occur. That's why
you focus on a number of different markets & forex.

And use the concept of rotation and extension within the 5-day range.

cheers
Frank

 

[Trembling Hand]

Ok what causes these emotions once they are recognized.

By far the greatest cause is lack of skill. Causing distress and emotional responses. People trade H & S, EW etc without a friggin' clue weather they provide a probable positive result. Then they end up like shell shocked soldiers, pulling out of trades just as they are about to turn, always looking at the wrong thing, always on the wrong side etc. They are just crap traders and don't even know what they don't know - as the saying goes.

The other cause of emotions is around the frustration from mismatched expectancy and expectations. So you have an edge, you do know to some degree what the hell you are doing, but its not likely to every make you a million dollars this year and certainly not with the size you are trading. So its F...in' frustrating. Which leads you to deviate from what you know will make you money, chasing a bigger/better result. So there is your answer to the cause. Now to actually find the solution......

 

[Trembling Hand]

but TH, tell me you've lost the plot at least once! this is par for the course, right?

LOL, Hourly mate

 

[James Austin]

Frank

A few points:

1]

“It’s called baggage and it’s hard to shake regardless how many years
you have been trading.”


I think this is realistic. We don’t ever really get rid of the “baggage”, but it’s important to know what our baggage is and learn to manage it in order to be consistently profitable.

2]

“Therefore James, you probably need to step away from the screen
and look at probability patterns on a number of different markets and
only trade when those patterns are confirmed with statistical
reliability.”


Yes, I have found a correlation between obsessive screen time (over-enthusiasm) and excessive number of trades (in relation to the system I am using), and loss. Surprise, surprise!

The best trading weeks I have had, I’ve traded 2x 2hr lots a day and taken 5 to 10 trades in the week. (Vs 14hr days, plus 15 trades a day)

3]

"Plan your day and how you will trade before the trading day, don’t plan your
trade around an indicator.

Find statistical reliable patterns in the market and work out your trading
rules around them, which should be based around some form of support
and resistance and money management.

But you'll need to be patient until those patterns occur. That's why
you focus on a number of different markets & forex."


“Planning” and “Patience”. Two qualities I have been trying to emphasise as I learn the craft. I am working on each trade being calculated and intelligent, or “planned”, as opposed to the sometimes random and impulsive trades I like to take, and then regret.

And the “patience”. Sometimes difficult. An idle mind is the devil’s playground as they say. Less screen time and another market alongside the SPI should help.



Thanks Frank, there is a wealth of insight in your post, it will take some time to process all of it . . . . and the rest of my life practising the skills.

 

[James Austin]

Run us through one or some of your emotional trades , I'd find it most interesting comparing
As TH said ' don't try to suppress them ' ..

the chart may not make much sense because its Franks unique system.

but basically the red circle represents a high probability short on the ftse last night if the range bar hooks under the dotted pink line.

my rule is to wait for the hook and then go short, because all to often the range bar looks like it will hook but then reverses.

so,
deciding to break my rule i went short 3538, thinking "great, nice early entry, prior to hook completion".

16 seconds later, stop hit, trade closed. someone had other ideas.

all so easy and straightforward in hindsight; my most profitable form of trading; but dumb decision, been caught so many times!

 

[tech/a]

Well TH I dont agree.

If your running a business you do it without emotion.
I'm talking about the emotion which governs major decisions not the odd spit.
Emotion creeps in only if your outside of your comfort zone.
Iliminate this and youll eliminate the emotion.

Find out what it is that triggers your emotion and then deal with it so that it doesnt occur again.

Taking any business. Some of the triggers are.
(1) Undercapitalisation.
(2) In experience as you have said.
(3) Lack of proven plan
(4) Lack of risk controls
(5) To big to quick.

To name a few.
Any of the above and I'm sure others will have you second guessing and lacking in confidence.

On the flip side
Ask yourself why you dont panic in situations which you find a snap.
Spot the difference.

It can be done so that you go from one decision to the next with confidence.

 

[Bobby]

the chart may not make much sense because its Franks unique system.

but basically the red circle represents a high probability short on the ftse last night if the range bar hooks under the dotted pink line.

my rule is to wait for the hook and then go short, because all to often the range bar looks like it will hook but then reverses.

so,
deciding to break my rule i went short 3538, thinking "great, nice early entry, prior to hook completion".

16 seconds later, stop hit, trade closed. someone had other ideas.

all so easy and straightforward in hindsight; my most profitable form of trading; but dumb decision, been caught so many times!

Hi James,
Thanks for the example but before I comment just need a little more information to better understand this trade , what time range are those bars & your stop number ?

 

[James Austin]

Hi James,
Thanks for the example but before I comment just need a little more information to better understand this trade , what time range are those bars & your stop number ?

there is no time, they are range bars,
stop is often around 8pnts from entry.

that aside, the rule, "dont enter until hook complete" is tried and tested and its best if i stick to this rule once and for all.

there are of course exceptions, but there is plenty of time for "exceptions" when i have more experience (he says just hrs after making an exception!)

 

[James Austin]

Well TH I dont agree.

i do wonder if "scalping" lends itself to letting yourself go.

but other trading styles, particularly the one i'm using (dilernia's), may be more akin to ballet than rugby.

 

[Trembling Hand]

Well TH I dont agree.

If your running a business you do it without emotion.
I'm talking about the emotion which governs major decisions not the odd spit.
Emotion creeps in only if your outside of your comfort zone.
Iliminate this and youll eliminate the emotion.

Find out what it is that triggers your emotion and then deal with it so that it doesnt occur again.

Taking any business. Some of the triggers are.
(1) Undercapitalisation.
(2) In experience as you have said.
(3) Lack of proven plan
(4) Lack of risk controls
(5) To big to quick.

To name a few.
Any of the above and I'm sure others will have you second guessing and lacking in confidence.

On the flip side
Ask yourself why you dont panic in situations which you find a snap.
Spot the difference.

It can be done so that you go from one decision to the next with confidence.

Sorry tech what bit do you disagree with I can't see anything here that is in disagreement with what I was saying

 

[bunyip]

James.....Write down the rules of your consistently profitable technical system.
Let's say there are four rules to your system. When you think you have a trade setup, run your checklist of rules over it.
If your proposed trade passes rule 1, put a tick beside it. If it passes rule 2, put another tick. If it fails rule 3, put a cross. If it passes rule 4, another tick.
Don't take the trade unless you have four ticks.

This process won't take more than a few seconds and will ensure that you take only the trades that meet all the criteria of your system.

 

[Bobby]

Ok your like me , can't help myself from jumping in early.
Only trading the SPi day session at present , no stops placed - all in my head , watch the XJO like a hawk for direction then reverse when this stalls.

Hard to verbalize entry & exits , fight the urge to take a loss & will throw another contract or two at it .
Get myself in deep sh*t some days but manage to extradite most times , always exit before the close .

I know I'm going to get hit hard but that day is not soon as bias for risk is on the short side . :headshake

 

[James Austin]

James.....Write down the rules of your consistently profitable technical system.
Let's say there are four rules to your system. When you think you have a trade setup, run your checklist of rules over it.
If your proposed trade passes rule 1, put a tick beside it. If it passes rule 2, put another tick. If it fails rule 3, put a cross. If it passes rule 4, another tick.
Don't take the trade unless you have four ticks.

This process won't take more than a few seconds and will ensure that you take only the trades that meet all the criteria of your system.

thank you bunyip
this is practical and common sense advice.
i know to do this, its the "must" bit that i like to deviate from occassionally