It goes without saying that every individual battles ups and downs throughout any career. There are fewer professions than trading that bring out these roller coaster (emotional) battles. Within these wild swings it is important to recognize that they are just a part of the game. When you double your account it wasn't simply because you "were awesome" and when you inevitably get smacked in the face it's not necessarily because you're a terrible trader.
I wanted to take a minute to put this write up together as I’ve noticed a slight shift in the psychology behind traders’ attitudes that I’m seeing. It appears that everyone and their brother had forgotten where we came from just two months prior. Worse off, it appears that where we’ve come has not been “enough”. This by all means is not a hit piece or a “Sky is falling” proclamation. This is simply a moment where I believe it’s important to exercise caution and add some perspective.
With the above being said, it is imperative that you have and implement a process. If you don’t have a process, you set yourself up for a flurry of woes that will tag along with your career. Worse off however is the trader that does not follow his plans but rather jump rom plan to plan.
In any experiment it is important to set the parameters of the experiment and allow the experiment to run to completion. Should you cut the experiment short or allow it to run to long the experimental results become flawed. Like cooking, running an experiment too few times gives you too small a sample size to have the process down. Running it too many times with different variables becomes a waste of time and erodes your ability to refine a process. That is why it’s important to figure out which “experiments” you’re going to run, the process in which you’re going to run them, and alllow them to run to completion.
During this process take notes of what worked, what didn’t, and run it again with a different variable. Once you feel comfortable with your experimentation process you’ll be able to set expectations for the variables you’re going to set.
For example, let’s say you are testing your strategy for breakout trading. Some of the variables you may want to consider are %Stop Risk, position size, when you enter the trade, and whether or not you scale into a position. It’s important in these tests not to deviate from the parameters you set prior to running the experiment. The reason for this is that your primary focus is not profit, rather, it’s the process you are setting.
Another important thing to remember is that you’re not just trading in a vacuum. Just as a chef is able to sort through his or her recipes finding the perfect one for the right occasion, you need to be able to find exactly which type of process you’re going to follow. And though a little deviation is okay sometimes, and I mean just sometimes, it’s important to remember that you need to stick to the process most of the time.
We are currently at an inflection point in the market that has many scratching their heads. The danger I’m seeing is that many individuals are looking to change their process in order to adapt. This out of norm is dangerous as more often than not it’s done in reaction to the results rather than the situation. Just like you wouldn’t bring a wedding cake to a funeral you should not look to try doubling down in a sloppy market.
Sticking with the cake reference, once the cake is in the oven, leave it alone until it’s time to check on it (price objective). Opening the oven over and over again to check on it only makes it worse than leaving it be. Secondly, once the timer goes off (Price objective) take the damn cake out of the oven. Just as leaving a cake in the oven too long will burn it, not taking your positions off once a price objective is reached will burn you. Two months ago most were hoping they could simply recoup some of the losses they suffered. Currently many of those same people are eager to “make more.”
Maybe reading isn’t your thing, or maybe you’re just not a baker. If either are the above statements are case, I’d like to point you in the direction of the latest podcast on my SoundCloud. Though the metaphor is different, the message is the same. Stay nimble my friends.
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