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What I learned by stepping away from markets

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What I learned by stepping away from markets

For those who remember me, hello again! For those who don't -- hi! I last posted here about 4 years ago, back before it was futures.io. I've come back a couple of times and said hi to Mike, and I've kept in touch with Gary, both of whom I revere and have the utmost respect for.

I've been casually trading equity index futures, and crude oil futures, for the last few weeks. Here are some things I've learned in my time off from trading. I'm listing them here as much for my own reference, so I can look back at this when I need to:
  • Being properly capitalized is a prerequisite, or, "money shouldn't matter".
    Why? If I'm not properly capitalized, I'll be afraid to lose. When I'm afraid to lose, I do two things which make it impossible to win: let losers run for fear of "taking" the loss (or take many small losers, which has a similar cumulative effect), and cut winners short, because I fear giving up profits. If it's money I would truly hate to lose, I shouldn't be trading with it. This is hard for most people to swallow.
  • Growing capital should be the main reason to trade.
    If I'm trading because I'm bored, or seeking fulfillment, or for any reason other than to grow my capital, there are many better ways to do these things. Spend time with family, play a game, donate to charity, build something useful--these all bring relief from boredom, and can be fulfilling. Don't let emotions, self-worth, a need to belong, etc., enter into the picture.
  • Objectivity is a must.
    The minute I find myself wanting the market to do something (like, go up when I'm long), I've already lost objectivity, and I'll do things like "hope" that it goes higher, despite clear evidence that it's not doing that. Having no clue about what is happening, and thus taking no action, is better than formulating an opinion and sticking to it no matter what. Similar to this is:
  • I don't know what will happen next.
    Sometimes we get in a trade and want it to work so much (this trade would make my day!) that we lose the ability to see clear evidence that it's not working. No matter how great the scenario, a trade working for me depends on other people paying a higher price than I did. If they don't, it won't go higher, plain and simple.
  • FOMO is a dangerous trap.
    Fear of missing "the move" causes me to get into trades too early, and causes me to hold a trade too long when it isn't working. See "Objectivity is a must" above...
  • Never add to a losing trade, ever.
    Doing so becomes an excuse to get sloppy with entries, and is linked to FOMO above. Before you know it, you're at breakeven (or worse, underwater) with a size you shouldn't be, hoping it goes your way just a little so you can lighten up. Adding at a worse price than your initial entry means you were either too impatient to wait for the proper entry, or somewhat wrong in your assessment of the market. Put another way: don't throw money at ideas that have not been shown to be at least a little successful already.
  • Take the easy money on strong directional days.
    Markets/products which have traded "too far" in one direction will definitely revert, but trying to determine this in real-time is a loser's game. Shorting on super strong days, or trying to catch the falling knife on a liquidation day is folly. Go with the flow. If a market is strong, look to buy it. If it's weak, look to sell it. Don't try to be super precise with an entry if it means you don't get in. Get in and stay in as long as it's working. Fighting days like these often mean "game over, see you in a few years when you save up more capital."
  • Too much information is the enemy.
    Within 5 seconds of looking at a chart, I should have some idea of whether I want to be long, short, or unsure enough to just stay flat. I used to look at tens of data points. I convinced myself that they helped. They didn't. For every time they'd help me get into a good trade, there were another two times they'd cause me to get out of a trade too early, or get into a bad trade. Keep it simple. Have core tools if necessary, but keep it so that everything can fit on one screen. If I need more than one screen, there's too much information.
  • Stop losses usually do more harm than good.
    Having a stop very far away from the entry price can protect from catastrophic failure, and should be used in the event of catastrophe, technical failures, etc. Other than that, stops are mostly a bad idea. If the trade is bad, or the market is changing character, just get out. Stops don't prevent you from getting right back in a trade, so they don't really protect you; they just take control of when you exit out of your hands, and make it easy to get shaken out of a potentially good trade before it has a chance to work.
  • After a profitable morning, consider closing shop for the day.
    Sure, money can be made in the afternoon. But often enough, a good morning is followed by the lunchtime lull and afternoon chop, and rarely does the extra profit that might be made (though morning profits are often reduced by afternoon trading) warrant another 4-5 hours at the screen. Preserve capital and enjoy a more balanced life by doing something else in the afternoon.
  • Take politics out of trading.
    It doesn't matter how much I hate or love the current Fed chair, President, or Treasury Secretary. It's a great way to blind myself to reality, and has no bearing on anything.
  • There should be a reason to get out of a trade.
    Whether it's a winner or a loser, have a reason. And the reason should never be "because if I take my profit here, I can get back to flat on the day."
  • Don't discuss trades with other people during the day.
    Doing that is a great way to become married to an idea, because we don't like to be wrong. Conviction is good, but inflexibility is not. Don't post trades. Don't read what others think will happen. Don't listen to trolls, and don't troll anyone else.
  • Tools are important, but not that important.
    Whether my chart background is "gray" or "light gray" doesn't matter. Spending time and energy to make my setup pretty takes my focus away from what's really important.
  • If I can't take a break for a day or two, I'm addicted
    It's time to step away when I can't stop checking markets and charts. This is indicative of impatience, and usually accompanies behavior like getting into and out of trades too early. Take the test: don't turn on your computer the next trading day. How does it feel?
  • Stop seeking the adoration of others
    The desire for others to admire me is indicative of ego, and lack of humility. Release this desire, because it clouds my objectivity if I begin to think I'm invincible. The minute I think I have this "figured out," I'm sure to have a humbling experience in the near future.
  • Stop trying to coach people
    We must all figure out relationships, jobs, markets, and life in general for ourselves. Mentors help us progress more quickly, but there has to be a time and place for this. It's not my job to teach people, help them improve, or do anything for them, because they will learn what they're ready to learn with or without me. Instead, focus on doing my personal best, and don't worry about others.


Last edited by josh; March 9th, 2018 at 02:43 PM.
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