First ask yourself the following honest questions and answer realistically, doesn't matter how emotionally hard the answers may be:
Do you have the true "edge" in your trading? Are you consistent when you trade on simulated account with no emotions involved? If the answer is "yes", can you realistically reproduce the same execution on live account (can be an issue in case of short-term, particularly scalping, methods/systems)?
If you objectively KNOW the answer to questions above is "SURE, YES!" and still have a fear, then your issue is purely mental/emotional and the discussion should continue around the topic of trading psychology.
If you are unsure about the answer or deep inside feel there's something you probably are not so sure about your trading, then it's a problem of knowledge, so you need to go back to the desk and re-define your strategy/tactics (or probably gain more knowledge).
Anyway, wish you all the best in this (obviously not easy) challenge!
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I had a similar problem to the OP's back in the late 90's.
I took a huge hit, got the money back in a few months, and decided that I couldn't trade like that anymore.
I immediately took two weeks off, took a vacation, re-established a plan-of-attack, and decided to become a "grinder", or someone who is happy simply taking small bites out of the market, as opposed to having the aim of hitting a grand slam.
"Becoming a Grinder" meant that I would be trading far smaller, but it worked out in the end, and it was a comfortable transition.
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Oh man, I still endure bouts of that ....... where I'll supply a bunch of opportunistic setups in great detail over on an online journal I keep, but I won't trade most of them. Every time I experience a stretch like that I keep asking myself what the hell is my problem. How hard is it to just take the damn trade!!
At the present time I'm working my way out of a big hole I dug myself from December thru February. I lost control at that time because of an unforeseen financial situation and started getting overly aggressive in my position sizing. Suffice to say it was a complete disaster. I had to back off for a little bit to get my head right. I even took on a side job. The silver lining is it forced me to get back to basics. 95% of my positions are back to 1,000 shares in equities ranging from $10 to $50. If I trade anything from $50-$100 it's generally 500-750 shares.
Suffice to say I'm better mentally now, but yet I still run into times where I'm being a little too passive in my approach. As I said before I'm almost back to even and I know that if I continue to chip away (even at a slow pace), I'm going to be green again soon. However, It still irks me to no end that I look back at a week like this and know I missed out on 3-4 plays, which would've grossed around $4,000. Combined risk based on stop losses would have been $1900.
I'm debating making a pledge to no longer post analysis on a stock unless I'm actually going to trade it. I've got to somehow hold myself accountable in letting the averages work themselves out. Continue to chip away at the false pretense of needing the trade to be right.
Last edited by Rock Sexton; August 29th, 2014 at 12:47 AM.
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I think you are too focused on being perfect on every trade. Losing trades are a fact of life but if you analyze them for the cause of the losses then those trades are still worthwhile. You cannot be afraid of mistakes, if you never make mistakes you are being too cautious in life. Just make sure that you have a plan to make sure you mitigate the losses as much as possible and don't make another one right away just as a response to break even.
Just remember that the most successful baseball hitters have a batting average of about .400...in other words they fail to get on base over half the time that they step up to the plate. Do you really think that they are thinking about failure when it is their turn at bat???
Accept your loses and analyze their reasons, if you really made a mistake understand it and resolve to correct that approach. Sometimes though the loss was beyond your control due to market conditions...nothing you can do about that...just dust yourself off and execute your plan and step up to the plate and keep your eye on the ball.
hahaha...love baseball...a simple game, full of complexities.
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It's unfortunate. You will be able to come up with incredible ideas that end up being correct, yet you aren't reimbursed for your idea. Instead, you watch as your hypothesis is proved to be true and your bank account stays the same size!
It's sad but, many times failure is our key to great success. With your large set back in december/feb, you may have actually opened the door to incredible success for the future now. There is nothing wrong with needing conviction to place a trade, but we need to ensure we have confidence in ourselves first. Because without confidence in your own greatness it will be very difficult to trust your trading ideas when they come!
Ya that situation last December helped me find a better "comfort" zone for the capital I'm using and for my mentality. I let my financial situation and the influence of a money manager sway me into getting aggressive. This is a guy who trades big and admits to living with major discomfort every minute of the day. I just don't want to conduct myself like that. Can't imagine doing this for 30 years like he has feeling that way.
Keep in mind my comfort is on a singular trading level. When it comes to putting on multiple positions I still don't have the confidence I need yet. It's purely psychological too. I still think irrational thoughts like "Well I don't want to take another trade on in case it eats into profits of a trade I already have going." As I've inched my way closer to break even on the year you can see how that thought might fester a bit. It's ridiculous though. We as traders always have to take the next trade. Singular trades don't matter, only the net cumulative outcome does.
I won't lie, sometimes I get really upset that I'm putting out great analysis that others are benefiting from except I'm not in the way that I should be. It reminds me that it doesn't matter what the method is, it boils down to the mentality of the person implementing it. Still trying to find that zen level of confidence. I've got another job opportunity coming up and I'm hoping that the potential salary will ease my mind a little bit. I want to just focus on executing trades, not prioritizing outcomes.
Then maybe one day when I've got a nice chunk of reserves built up and the right head space, I can perhaps get back to trading as my primary source of income.
Last edited by Rock Sexton; August 31st, 2014 at 12:23 AM.
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First thing first you need to embrace that losing is a part of trading. You cant avoid loses in trading. The reality is that once you place the trade you don't know if its going Win or Lose so don't stress yourself over something you can't control.
The only thing that you can control is when you enter and where you set your stop loss. Which leads me to my next piece of advice. You have determine what stop loss size is good for your psychology.
I was trading a system that had a stop loss of $400. The day I lost that much money in less than an hour I knew that I had to make some adjustments and tighten up my stops to suite my emotional/mental profile. I have now decreased my max stop loss all the way to $120 and I'm still earning a minimum of 2:1 on my trades.
Since I have decreased my stop loss to $120 I am now comfortable and am more tolerable when I have losses because I know my loss is'nt going to be a big loser. Of course this is relevant to account size. Some traders that have big bankroll do not see $400 as a big loss but for a person trading with 5k that is def a nice size loss.
If I were to keep that $400 stop loss I would blow my account pretty fast. Last but not least.
It is very important that you start thinking in probability. The sooner you understand that you need to focus on series of trades rather than "one trade" you will start to be relieved from the WIN / Loss mindset.
I highly recommend Trading In The Zone. That book was a huge contributor to changing my mindset.
One last tip. A habit that I recommend you start to develop is that habit of placing your stop loss as soon as your order is filled. Don't wait!