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How to fix big down days?


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How to fix big down days?

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  #1 (permalink)
 creamyyy 
Brisbane, Australia
 
Experience: Intermediate
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Trading: CL, ES, DAX, Crypto
 
Posts: 26 since Aug 2020
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I'm hoping to get some advice on a longstanding problem of mine.

I consider myself a momentum trader.

Over the past 12 months or so, I've been a breakeven trader. It doesn't matter which session or style I trade. I've been able to consistently make money slowly but steadily, however I'll often lose a week of gains in a day.
If I exclude the big down days, I have a win rate of 57% and a profit factor of 1.67 over a couple thousand trades.

These big down days skew the expectancy completely and as a result I hover around breakeven. This happens regardless of size.

I've analyzed and know the exact pattern that causes these big down days, which is:
  1. Limit order doesn't get filled (Buy bid/Sell ask).
  2. Debate chasing, decide too late to get on board (FOMO)
  3. Price chops around soon after I enter, second guess myself and get chopped out. Usually around VPOC.
These days are often easy to see in hindsight, but hard to see in a trade.

This used to be followed by a long drawdown period, however through a lot of hard work, I've been able to reduce this to 1-3 days.

There are multiple issues that I can see.
  1. I don't have big winning days to offset the big losing days. This is likely because I don't like to trade more than 3 hours a day, and these big winning days can sometimes take longer. (Need to go to bed)
  2. I don't have a proper daily stop, whether that's $, R, or number of trades.
  3. I may be micromanaging the trade

I'm considering implementing some or all of the following:
  1. Set a daily R stop roughly equivalent to the R factor of a winning day or after 3 - 5 consecutive losses.
    Concerns - I often start the day with a few losses. I consider this paying for information. Hence why I wait 15-20 minutes after the open + half size for the first trade. I generally swing this back the other way and end the day positive. Setting a daily stop would possibly halt me before I get the chance to make it back.
  2. No longer buy the bid/sell the ask. Always join the ask, sell the bid.
    Concerns - Should alleviate FOMO, but will skew expectancy.
  3. Force myself to trade longer.
    Concerns - May take poorer quality trades, I'm usually mentally done by 3 hours.
  4. Do not micro manage a trade, once it's on, let it hit the stop or take profit.
    Concerns - This again skews the expectancy, and I believe having some sort of intuition is what gives me additional edge

I'm also working through the emotional side to identify the causes of my FOMO and the severity levels (thanks to Jared Tendler's Mental Game of Trading).

Hoping some people here could offer some advice and share some things that have helped them work through this?

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  #2 (permalink)
 qsceszwasdx 
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creamyyy View Post

I'm considering implementing some or all of the following:
  1. Set a daily R stop roughly equivalent to the R factor of a winning day or after 3 - 5 consecutive losses.
    Concerns - I often start the day with a few losses. I consider this paying for information. Hence why I wait 15-20 minutes after the open + half size for the first trade. I generally swing this back the other way and end the day positive. Setting a daily stop would possibly halt me before I get the chance to make it back.
  2. No longer buy the bid/sell the ask. Always join the ask, sell the bid.
    Concerns - Should alleviate FOMO, but will skew expectancy.
  3. Force myself to trade longer.
    Concerns - May take poorer quality trades, I'm usually mentally done by 3 hours.
  4. Do not micro manage a trade, once it's on, let it hit the stop or take profit.
    Concerns - This again skews the expectancy, and I believe having some sort of intuition is what gives me additional edge

I'm also working through the emotional side to identify the causes of my FOMO and the severity levels (thanks to Jared Tendler's Mental Game of Trading).

Hoping some people here could offer some advice and share some things that have helped them work through this?


You have almost answered your question by yourself.

And I suggest If you have a thought about "fix" it, you should remind yourself avoid revenge trade, otherwise situation will become worse.

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  #3 (permalink)
ZviTradingCoach
Eilat, Israel
 
 
Posts: 17 since Dec 2020
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creamyyy View Post
I'm hoping to get some advice on a longstanding problem of mine.

I consider myself a momentum trader.

Over the past 12 months or so, I've been a breakeven trader. It doesn't matter which session or style I trade. I've been able to consistently make money slowly but steadily, however I'll often lose a week of gains in a day.
If I exclude the big down days, I have a win rate of 57% and a profit factor of 1.67 over a couple thousand trades.

These big down days skew the expectancy completely and as a result I hover around breakeven. This happens regardless of size.

I've analyzed and know the exact pattern that causes these big down days, which is:
  1. Limit order doesn't get filled (Buy bid/Sell ask).
  2. Debate chasing, decide too late to get on board (FOMO)
  3. Price chops around soon after I enter, second guess myself and get chopped out. Usually around VPOC.
These days are often easy to see in hindsight, but hard to see in a trade.

This used to be followed by a long drawdown period, however through a lot of hard work, I've been able to reduce this to 1-3 days.

There are multiple issues that I can see.
  1. I don't have big winning days to offset the big losing days. This is likely because I don't like to trade more than 3 hours a day, and these big winning days can sometimes take longer. (Need to go to bed)
  2. I don't have a proper daily stop, whether that's $, R, or number of trades.
  3. I may be micromanaging the trade

I'm considering implementing some or all of the following:
  1. Set a daily R stop roughly equivalent to the R factor of a winning day or after 3 - 5 consecutive losses.
    Concerns - I often start the day with a few losses. I consider this paying for information. Hence why I wait 15-20 minutes after the open + half size for the first trade. I generally swing this back the other way and end the day positive. Setting a daily stop would possibly halt me before I get the chance to make it back.
  2. No longer buy the bid/sell the ask. Always join the ask, sell the bid.
    Concerns - Should alleviate FOMO, but will skew expectancy.
  3. Force myself to trade longer.
    Concerns - May take poorer quality trades, I'm usually mentally done by 3 hours.
  4. Do not micro manage a trade, once it's on, let it hit the stop or take profit.
    Concerns - This again skews the expectancy, and I believe having some sort of intuition is what gives me additional edge

I'm also working through the emotional side to identify the causes of my FOMO and the severity levels (thanks to Jared Tendler's Mental Game of Trading).

Hoping some people here could offer some advice and share some things that have helped them work through this?

This is a problem common to many traders.
A few comments, with the obvious note that without knowing you or your trading closely I could be way off base on your specific issues:

1. It's important to try to nip such days in the bud when the loss is still small. You note FOMO as being the "start of the spiral". That's a first issue to deal with, and it's more fundemental than any technical solution which would be specific to your trading style. Dealing with FOMO is ultimatlely all in the mindset. I would however commend you on being able to stop the spiral after 1-3 days. It's no small feat and many traders take much longer to stop such landslides.

2. I doubt the "paying for info" concept is valid. It's more likely a rationalization of early morning hyper-activity without enough basis for trades. If you find that you statisticlly start the day with losses, just paper trade for the 1st hour - to get the "info" - and then go live :-)

3. A daily loss limit in your case seem VITAL. I've seen it save the skin off many traders (myself included). A quick story: I have a friend who used to run a trading firm. Their rule, based on experience (and these are GOOD traders) - Every trader had a loss limit. They would NEVER give a trader "more juice" after he'd hit the lost limit - no matter how good he was. Sometimes it's not your day. Sometimes the market isn't right for your system. Either way, "more juice" rarely helped - and usually caused more damage.

4. All the other things you mentioned are very method-specific. They may be explored in context of your method, but I would dare to presume - I doubt they are the main solution. Deal with FOMO and loss limits first, you wil have done the most important things.

5. And with a touch of humor: All your red "concerns" are valid, but I suggest one more concern, bigger and redder than all of them, which you should focus on : without fixing these issues, down days are killing your profitability. While other concerns have theoretical pros and cons, this is a definite undisputable fact. So stop theorizing and just cut the down days, at whatever cost you may perceive to the "perfection" of your system . Your goal is not perfection, it is money. Stop the bleeding first, fine-tune later.

Best of luck with your trading!

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 bobwest 
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creamyyy View Post
I'm hoping to get some advice on a longstanding problem of mine.
...

I've analyzed and know the exact pattern that causes these big down days, which is:
  1. Limit order doesn't get filled (Buy bid/Sell ask).
  2. Debate chasing, decide too late to get on board (FOMO)
  3. Price chops around soon after I enter, second guess myself and get chopped out. Usually around VPOC.
These days are often easy to see in hindsight, but hard to see in a trade.

I think you have identified the problem very clearly:
  1. Limit order doesn't get filled (Buy bid/Sell ask).
  2. Debate chasing, decide too late to get on board (FOMO)
  3. Price chops around soon after I enter, second guess myself and get chopped out. Usually around VPOC.

My suggestion: your actual issue is "Debate chasing, decide too late to get on board", and it has a simple solution: stop doing this. ("Simple" may not mean "easy to do", but these things never are.)

If you miss a trade, just let it be missed. Don't think that you need to get in afterwards. Your history shows that there will be more trades that will work, and you won't miss them. So let this one be gone and get some coffee or something.

Your other ideas may be helpful in terms of controlling losses after they've happened, or making other tweaks, and you may or may not want to implement some of them. You seem to be aware of potential drawbacks in terms of your trading method, and I would take your reservations about them seriously -- you know your style and can assess the plusses and minuses. It probably is a good idea to have an overall daily limit, because you always need something that simply stops the bleeding, so some of these may work for you. But not if you don't change the actual problem.

First, trust your past experience and don't take trades that don't meet your criteria. Don't fiddle with your trade criteria when you aren't following them. (I don't think FOMO is actually on your list of rules to follow in selecting a trade.) Focus on following them. Once you are, then if you want to change them, fine. But your issue is getting into trades later than your criteria tell you. I would change this, and only make other changes after that.

One last thing -- we tend to make these issues harder than they should be. Yes, this is an issue of "trading psychology," but it doesn't require extensive psychoanalysis into "Why do I do this?" You do it because you're afraid of missing out, just like the "FOMO" abbreviation says, and just like all of us. So practice not jumping into those missed trades, and see what happens.

You may need to make other changes, but I would start there first.

Good luck. I know these are not easy things to change, and we all have them. Often, exactly the same ones.

Bob.

When one door closes, another opens.
-- Cervantes, Don Quixote
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 bobwest 
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ZviTradingCoach View Post
4. All the other things you mentioned are very method-specific. They may be explored in context of your method, but I would dare to presume - I doubt they are the main solution. Deal with FOMO and loss limits first, you wil have done the most important things.
....

Best of luck with your trading!

I hadn't seen this before posting my reply, and I completely agree.

Bob.

When one door closes, another opens.
-- Cervantes, Don Quixote
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 creamyyy 
Brisbane, Australia
 
Experience: Intermediate
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Posts: 26 since Aug 2020
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Thanks everyone for all the replies so far. You've given me much to think about.

I'll be adding in a daily stop from next week.

I'm currently trading the European session and cross trading the micros (Micro Crude + Micro Dax) while watching the mini or full size chart. 3 or 4 times a week (I'm only doing 20-40 trades a week), I'll watch price tick throughmy limit entry or exit on the full size ticker and fail to fill on the micros. This intensifies emotions and has on more than one occasion started the spiral down.

While I'll probably eventually have to tackle the mental side, I think a revisit of the execution rules may be a better starting point.
  1. Watch and trade the micro charts?
  2. Buy Ask/Sell Bid, stop order entries
  3. Perhaps find a more liquid instrument

In the Mental Game of Trading, the author states that FOMO is sometimes not an emotional problem, but highlights a gap in your execution, especially when trying to time entries. This comes after an example of a trader, who would feel FOMO when price would knife down through his limit order, then his stop, then rebound back up. He'd chase and eventually tilt. The solution for him was to use stop-limit orders and trade a lower time frame.

Any thoughts on this?

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 bobwest 
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creamyyy View Post
While I'll probably eventually have to tackle the mental side, I think a revisit of the execution rules may be a better starting point.
  1. Watch and trade the micro charts?
  2. Buy Ask/Sell Bid, stop order entries
  3. Perhaps find a more liquid instrument

In the Mental Game of Trading, the author states that FOMO is sometimes not an emotional problem, but highlights a gap in your execution, especially when trying to time entries. This comes after an example of a trader, who would feel FOMO when price would knife down through his limit order, then his stop, then rebound back up. He'd chase and eventually tilt. The solution for him was to use stop-limit orders and trade a lower time frame.

Any thoughts on this?

Sure.

There are always different things you can do, so the suggestion may have merit, but here's the thing I read: "He'd chase and eventually tilt."

My advice is still the same. Don't. Chase. Any. Trade. Just let trades go if you aren't in them when, in hindsight, you wish you were. You can't fix the past. FOMO is as much an "execution rule" issue as a "mental side" one, because you will not formulate an execution rule that reads, "Jump into any trade you've missed, but make sure to wait just enough to let part of the move go by and reduce its profit potential and increase its risk." But that "rule" is what FOMO comes down to in practice.

By all means, make whatever adjustments make sense to you. You are in the driver's seat and you know your trading better than I do or that anyone does. But some things are universal, and the cure for not chasing a trade is not chasing a trade. Sometimes it will work, of course, and then you'll need to try to distinguish why it was different then.

And if you would rather focus on the tactics of your trades, that may work too. Just looking at the issue from a 10,000 foot level, the thing that stood out, for me, was simply taking trades that don't fit your existing rules. What you need is a set of rules that work and that you will abide by, so if you want to take that path to the solution, then it may be better for you.

I would still suggest just not giving in to the chase impulse in the first place. Then consider adjusting rules.

Good luck, however you go.

Bob.

When one door closes, another opens.
-- Cervantes, Don Quixote
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Mozart2112
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Man, that's a problem we all have experienced plenty of times I'm sure. I just want to add that sometimes it pays to give up your edge and just hit the ask/offer if you want to go long and vice versa and be an aggressor especially if you sense aggressive price action. That will keep you from chasing and if you're wrong on the trade you get out. I know, easier said than done... Also, we've all been under the ginsu knife I'd like to stay out of those days if I sense that's kind of a day it's going to be. Just keep learning and make adjustments. Good luck.

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