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Recovering from a trading error
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Recovering from a trading error

  #1 (permalink)
Elite Member
Chicago, IL USA
 
Futures Experience: Intermediate
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Recovering from a trading error

Ugh.

I rolled out of bed this morning and was busy checking my orders for a position that I had carried overnight while working both a protective stop loss order and a take profit limit order. I quickly determined that something was wrong. My trading platform showed that I had booked a sizable loss, but my trading model showed that I had made a sizable profit. Which was right? Which was wrong? What the heck had happened?

The realization hit me like a ton of bricks. In the rush of placing my orders after the market had closed yesterday afternoon, I had placed the stop order 10 ticks closer to my entry point than I should have. This error level was hit overnight, resulting in a loss, although the original, correct stop level (10 ticks lower) had not been hit. The market had then turned around and rallied, taking out my profit target level. When I discovered this, I felt absolutely crushed.

For a systems trader like me, taking a loss is not a sin - it's a part of doing the business of trading. The two cardinal sins of systems trading are: a) Not pulling the trigger when you get a signal (that is, over-riding the system) and b) Making an error in execution. One of the allures of systems trading is that it is supposed to take the emotion out of trading, and, in a sense, systems trading should make pulling the trigger and managing your trade a lot less stressful since you're not making decisions in a real-time environment. However, to be successful, you still need to be able to follow your trading rules correctly. It shouldn't be hard, right? Well ...

After I discovered my error, I committed myself then and there that I would never make this same mistake again. I told myself that whenever I have a trade from this system, I would check and double-check the exit levels to make sure they are correct. Period.

However, another worry crept over me. In the past, I've discovered that trading errors tend to beget more trading errors. What I mean is this: I've had situations in the past where I've had a trading error ... and in my frustration and disappointment, I've become so rattled that I actually have made additional trading errors. My mind becomes so pre-occupied with my original error that I forget to enter an order, or I double-click the mouse, sending two orders into the market, or I buy the market instead of sell as my system dictates or something else.

It makes me wonder whether I should have some kind of "cool down" ritual after making an error, so that I don't get so flustered that I screw up the rest of the day's trading. I imagine that it should be something that allows me to "let go" of my trading error and focus on the opportunities ahead. I'm not sure what form that ritual would take, but I'm thinking something along the lines of meditation or some kind of distracting activity.

What do other traders here do when faced with a trading error? Do they brush it off and just move forward, or do they temporarily stop trading to get their head together or something else altogether?

Any comments, suggestions or insights would be greatly appreciated.

Thanks.

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  #2 (permalink)
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  #3 (permalink)
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Hey Fury don't...


sweat it too much.



(hope that works)

Seriously though the type of mistake or error that kills you is the one you ease into over time by ignoring or "fudging" some element of your method. The gradual change that happens due to poor attention becomes accepted as part of the method when it is not.

Without fail, I set my exits upon entry. I think your platform will probably allow you to do that automatically too. The metric goes signal, indication, entries (opening and closing), check fill, check exits. That might be a universal intention. Sounds like you just got a little careless. Way better in the long run that you get smacked a little than allow a bad habbit to develop or subvert system rules. Make it objective by having the machine throw those orders oco and then just make sure your settings are appropriate to the conditions. I leave mine a little wide and then I use chart trader to real them in...I NEVER expand risk once position is on.

If I was a software guy I'd try to code those variable exits based on market condition and recent past preformance.

Hope that eases your frustration a bit. Just focus man and dont do an idiot thing whenever possible.

Trade well. DB

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  #4 (permalink)
Big game hunter
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furytrader View Post
Ugh.

I rolled out of bed this morning and was busy checking my orders for a position that I had carried overnight while working both a protective stop loss order and a take profit limit order. I quickly determined that something was wrong. My trading platform showed that I had booked a sizable loss, but my trading model showed that I had made a sizable profit. Which was right? Which was wrong? What the heck had happened?

The realization hit me like a ton of bricks. In the rush of placing my orders after the market had closed yesterday afternoon, I had placed the stop order 10 ticks closer to my entry point than I should have. This error level was hit overnight, resulting in a loss, although the original, correct stop level (10 ticks lower) had not been hit. The market had then turned around and rallied, taking out my profit target level. When I discovered this, I felt absolutely crushed.

For a systems trader like me, taking a loss is not a sin - it's a part of doing the business of trading. The two cardinal sins of systems trading are: a) Not pulling the trigger when you get a signal (that is, over-riding the system) and b) Making an error in execution. One of the allures of systems trading is that it is supposed to take the emotion out of trading, and, in a sense, systems trading should make pulling the trigger and managing your trade a lot less stressful since you're not making decisions in a real-time environment. However, to be successful, you still need to be able to follow your trading rules correctly. It shouldn't be hard, right? Well ...

After I discovered my error, I committed myself then and there that I would never make this same mistake again. I told myself that whenever I have a trade from this system, I would check and double-check the exit levels to make sure they are correct. Period.

However, another worry crept over me. In the past, I've discovered that trading errors tend to beget more trading errors. What I mean is this: I've had situations in the past where I've had a trading error ... and in my frustration and disappointment, I've become so rattled that I actually have made additional trading errors. My mind becomes so pre-occupied with my original error that I forget to enter an order, or I double-click the mouse, sending two orders into the market, or I buy the market instead of sell as my system dictates or something else.

It makes me wonder whether I should have some kind of "cool down" ritual after making an error, so that I don't get so flustered that I screw up the rest of the day's trading. I imagine that it should be something that allows me to "let go" of my trading error and focus on the opportunities ahead. I'm not sure what form that ritual would take, but I'm thinking something along the lines of meditation or some kind of distracting activity.

What do other traders here do when faced with a trading error? Do they brush it off and just move forward, or do they temporarily stop trading to get their head together or something else altogether?

Any comments, suggestions or insights would be greatly appreciated.

Thanks.

Ive been in your shoes a few times . Errors like that are rare for me but they happen once in a while . I make screenshots of all my trades and keep them in a doc file with notes attatched and I peruse the file once a week , usually on the weekend , when I do my weekly overview and prepare for the coming week . Then I think of safeguards I can implement realistically . All you can do is be more careful but if its an error I can re enter on or patch up Ill do it but if not its water under the bridge .

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  #5 (permalink)
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That's right Eric...

right back at it. Shake it off and step it up.

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  #6 (permalink)
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Thanks Wldman and Eric - those are both very helpful insights.

In effect, I *was* careless and I just can't let that happen again. On this particular system (which trades infrequently), I've only traded it three times before. In my head, I miscalculated the stop, and I shouldn't do that (I mean, calculate the stop in my head).

I could have (and should have) checked the indicator on the screen again to confirm the level, but I didn't.

That's not happening again!

BTW, that is a GREAT clip from The Office. Thanks again!

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  #7 (permalink)
Big game hunter
NY
 
Futures Experience: Advanced
Platform: Esignal, MBT navigator
Favorite Futures: Currencies
 
Posts: 2,526 since Jun 2009
Thanks: 1,397 given, 2,570 received


furytrader View Post
Thanks Wldman and Eric - those are both very helpful insights.

In effect, I *was* careless and I just can't let that happen again. On this particular system (which trades infrequently), I've only traded it three times before. In my head, I miscalculated the stop, and I shouldn't do that (I mean, calculate the stop in my head).

I could have (and should have) checked the indicator on the screen again to confirm the level, but I didn't.

That's not happening again!

BTW, that is a GREAT clip from The Office. Thanks again!

Glad to help . Im a manually operated kind of trader and I just take my fib tool and use it to calculate my stops and targets . In the pic of the swiss here the entry is the 0.00 level , the stop is the -1.00 level (1 x ATR) and target is the 2.00 level (2 x ATR ) . Anchor the 0.00 level to your entry price and project the rest .

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