Thank you for your advice! I'm dealing with this issue by temporarily stop trading for several days, and when I come back I'll definately reduce the size of trading to a "I don't care level" as suggested bu Big Mike and other members.
I traded about 7 to 8 days after posting this thread, I had both big losses and wins. The flactuation is getting big as I was trying to focus on improving trading skill rather than earning money.
I'll try to write down how I overcome this issue once I feel little scare and be able to focus entirely on trading skill, and to share it with others.
I'm still working on that. As suggested by others, i'll stop trading for several days and trade small later. Emotionally I am not sure how will I be able to deal with it, I assume that time and exp will be necessary~
That's a good idea. Fluctuations will always occur, it's controlling the losing ones, and taking advantage of the winning ones that will help you to become further profitable.
I'm not quite sure I understand the bolded portion. If you are a trader/investor, your sole objective is to create profits. Being right and wrong is less important than generating profits. You can constantly make all of the right calls, but if you can't trade off of those ideas than you are not successful in this field. Similarly, if you are wrong 50% of the time, but you know how to properly trade around that right/wrong ratio, and generate a profit because of it, you are now on your road to success!
Yes, making profit is important, but, personally I'm not taking that as my goal now. The problem is that when I focus too much on profit, I probably cannot handle the emotion as I was doing. For example, when I loss a bit, I want to cover back, then I take every possible chance to trade. With my limited exp and skill, I always ended loss more...
I think emotion control is 50% for sucessful trading, and skill is another 50%.
Once I can completely control my emotion according to my trading size, I can focus more on taking profit.
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I wasn't trying to make it sound like you should only be chasing money wherever you can find it. What I am trying to make clear is that regardless of how often you can be "right" on an idea, if it doesn't end up making money, it is of no use.
I just don't want you to become one of the people who are obsessed with always being 100% correct, and through their obsession they get quite good at calling things and tell people about their great ideas leading others to make some money. Yet, through all these ideas, you never find it within you to follow your own advice!
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the inability to hold onto winning trades is very common with new traders and is commonly referred to in behavioral finance as the disposition effect which is also part of of kahneman and tversky's prospect theory. it is a risk-averse behavior that is the result of the conflict between the cognitive and emotional aspects that concern the way people organize their information. for example, if you were up $1000 on a trade and i told you that you stood a very good chance of making an additional $2000 on the trade, your cognitive reasoning would surely prompt you to hold onto the trade. of course, i couldn't guarantee that the market would keep on going, so your emotional side would probably overrule the decision. this is a classic case of myopic loss aversion. traders tend to frame every trade they make in isolation from all others, instead of framing the experience in an aggregated way- they look at each trade as a one-shot deal rather than one trade in a series of trades.
the solution to the problem begins with an awareness of the factors that distort judgement, developing an expected value mindset, understanding the role of time, and a focus on process over outcome.
traders are willing winners who occasionally lose, i.e., they risk their capital on trades where the odds are in their favor and subsequently have a positive expectation. they base their trades on observation, empirical testing, and/or actual trading experience. they occasionally get unlucky, and have losing streaks, but these traders incorporate that risk into the determination of the expectation. because their approach is reason-based rather than driven by emotion, they usually have disciplined programs for sizing their trades in order to get the maximum geometric growth of their capital given the characteristics of the return stream, and their tolerance for draw-downs.
one trade, one day, one week, one month, even one year does not make a career. so one trade whether a winner or loser should not matter in the overall scheme of things, as long as the trade was made for the right reasons. if it does matter, than your sizing is too large. so look at your trading from a long term perspective or a big picture point-of-view and your short term p&l will have less significance for you. frame your trades on an aggregated basis and not on an individual basis. Imagine making 10 trades a day, 5 days a week, 52 weeks a year, 250 days a year - that's 2500 trades in a year. As long as you are limiting your losses, and your winners are bigger than your losers, how is one losing trade or two or three losing trades, going to degrade your overall/ long term performance?
do not trade your p&l and do not focus on the outcome of your trades- focus on the process. making good short-term decisions/trades, managing the risk/ keeping draw-downs to manageable levels and occasionally turning short-term winning positions into longer ones.
Last edited by tigertrader; August 17th, 2014 at 03:02 PM.
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one must have a an understanding that expectation is different than distribution and that p&l should be viewed on total outcome basis over a period of time. in the case of not cutting one's losers, the implications are obvious. but when it comes to not letting our winners run, the negative ramifications might not be so recognizable, although they can be equally responsible for under-performance or even ruin. what makes trading so difficult is that one must constantly synthesize seemingly contradictory disciplines in the proper ratios and contexts, so that one can create upside optionality. risk is not only an inherent component in trading but a prerequisite for trading. therefore w/o a willingness to accept risk and the ability to estimate risk based on the information available, i.e., market context and market structure, one's chances of becoming a profitable trader will be inhibited.
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You need to work on your "Mental Skills". Here is a good place to start...
I watch this video every week. Every time I watch it, I notice a point that was made that I previously missed or I have a new thought. Trading is a journey not a destination. Always continue to work on your evolving skills. It is a never ending journey. The work never ends. Continue to hone your "process of trading" skills and your "mental skills' as you grow as a trader. Roll up your sleeves and get to work.