Well that was interesting. I found out this week in unfortunate fashion that my trading psychology is far from where I though it was. I thought I was making great strides towards not fully removing emotion from my trading, but at least being in control of it. In fact in another article I spoke about how I don't have the propensity to revenge trade as I understood it, but this week would suggest otherwise. My lower balance for one thing. The other, a list of awful trades which when dissected had no real structure, no discipline, and certainly didn't follow any well researched trading plan. In fact when seen through the spectacles of hindsight, they reeked of nothing more than desperation and frustration.
The losing of the money is painful but not unexpected. I understand that in trading you cannot win every trade, every day, or even every week and so on. I have a firm grasp of this concept so that's not the issue. What hurts far more than the financial regression of my account, is the psychological betrayal of myself, by myself. The fact that I cannot hide from, is that I revenge traded. This is what has hurt the most.
Now I didn't revenge trade in the traditional sense. Meaning, I didn't start increasing my position size, abandon the use of stops, trade more volatile instruments that I have no experience of (although that last bit is a little lie which I'll expose later on), no, I overtraded. I gambled. I abandoned all discipline and let my emotions guide me with disastrous results. Let me take you back to the morning it all began...
Up until Wednesday I was 28 points up on the week so far. Now I know this is not ground breaking but you have to view it from the correct perspective. I'm new to trading (6 months in). I only trade from 08:30 until around 10:00-10:30 as after that I have to go to the gym and be back home to shower, change, and get ready to leave for work at 12:40. I am aiming (and I know this is wrong and I am working on changing this view) for 20 points a day. Consider this. 10 points per day at £200 per point over 252 available trading days per year, is just over £500,000! That's a wonderfully comfortable life and puts you firmly in the top 1% of UK earners.
10 points per day.
Fast forward now to Wednesday morning which started out like any other day and by 08:51 I was up 16 points. I considered stopping here and not trading any more, but that too is wrong because that's basically a decision made emotionally, and trading, whilst it should contain some emotion, it should not guide or influence your decisions. So I carried on. At this point I'd like to add that I was off work that day so had all day free from my usual time constraints. The next hour or two was a little hit and miss and around 11:00 I was still up, but only 4 points. I decided to take break, closed the broker and the laptop and went about the rest of my day. But then at around 2pm I thought to myself, 'Why not trade the afternoon as the US opens at 2:30pm?' Now, I am aware of the volatility in the NASDAQ and DOW respectively so was prepared to potentially take a loss but nevertheless, had the same optimism as I do every morning when I sit dow to trade the DAX. However, what I hadn't anticipated with the increased volatility comes the need for wider stops. A fact that I was quickly introduced to when I found myself 40 points down on the day. This is where it began to unravel. You see instead of applying my strategy which I use for the DAX, I began to try and catch what I refer to as U/D or D/U's. Up/Downs or Down/ Ups. This is when a candle rallies hard in one direction, usually on a breakout, and on the very next candle retraces almost the whole way back to the previous candles open. I didn't realise until I was studying recently, but they are referred to in trading as 'Tweezers' and it's a recognised pattern. So I began to focus on the DOW as some of the moves of individual candles can be 80+ points if not considerably more. I was thinking 'If I could just catch one of those I'd be back to even and actually be up on the day. In fact, I'd be happy just to be back to around even.' When you read that sentence what does it sound like to you? There's no anger. In fact there's a hopeful optimism about it. It seem innocent enough. But, if you analyse it and go beneath the surface a little, are these the words of a trader who is patient, focussed and adhering to a strategy? Or are they the words of someone who doesn't realise it, but who is on the precipice of revenge trading? In fact that very sentence is all revenge, it's just not the obvious, reckless kind so it was easy for it to be overlooked. And this is where the tragic happened. I chased, and chased and hesitated and missed, and hesitated some more and missed some more and once the smoke had settled and I had decided finally that I wasn't trading in any sense of the word, I found myself down 76 points in total. Hmmm. That didn't quite go how I had envisioned.
Now we find ourselves on Thursday morning and I awoke at my usual time, and followed my usual routine. Wrote in my gratitude diary, made myself a coffee, meditated to the brilliant Dr James R Doty (I recommend checking him out), opened my Broker, made my usual notes of the previous days levels, and waited patiently for the open. I could still feel the sting of yesterday throbbing a little, but today was a new day, and a new market filled with potential. Sadly it was not to be. I traded appallingly, no other way to describe it. My strategy calls for me to wait until 08:30 and then place my first trade on the first signal after this time be it bullish or bearish. But at 08:05 I found myself in a U/D! I remember clearly saying to myself as it was 4 points in my favour, "I'd rather lose 10 than take 4." I'm not one for abbreviations but WTF!!
(That mentality stems from my inability to stay in a trade. This is something that frustrates me regularly and I am trying with each day to improve. Initially by moving my stop to breakeven as soon as possible, but when I see a trade going in my favour, my mind is immediately looking for a reason to close it and realise profit. If I am to become a successful trader this 'habit' needs to be changed, I know that, but I also know it won't happen over night so I need a strategy within my strategy to deal with this issue and a good start is moving my stop to BE as soon as is reasonable.)
At 08:30 there was a solid move up of some 28 points and the market appeared to have good momentum. Now, I will, if the market is moving like this forego my strategy and take what I refer to as a 'momentum' trade which is what I did. The problem being is that I wasn't focussed, I wasn't in the moment and I placed a very random, arbitrary stop (instead of dropping down in timeframe to find an actual one) and I got stopped out by 0.35 of a point, after which the market headed higher and to what could've been 40 points! I really don't need to elaborate more on how the rest of the morning went, as I think even the most unintuitive among us can see, suffice to say that I took 5 trades in total, none were winners, and I was another 40+ points down on the day. Rinse and repeat for Friday for another 37 points and I rounded it out to what amounted to be one of, if not the worse single weeks I've had in trading so far.
But as the saying goes, every cloud....so what is the silver lining from this experience?
To begin with, this article. In writing it, it has reminded me of everything I don't want my trading to be. I have realised that the mental aspect of my trading needs far more work than I thought it did, and that I am actually no where near where I considered myself to be before this last week. As a result, I will now devote the majority of my daily study time after work to working on my trading mentality, as opposed to my technical analysis.
I have realised that I AM capable of revenge trading, and so I need to be in the 'moment' more and pay close attention, especially where my feelings and emotions are concerned and with the wording of my self talk, my inner monologue.
It has reinforced my desire to become a consistent, full time, winning trader and I look forward to overcoming the challenge of changing my thoughts, my emotions, my actions and reactions and my beliefs about myself and my trading.
It has made me realise I don't like trading in the afternoon... ;) I'm joking. It's made me realise that I am not yet ready to trade the more volatile instruments available and that I need to hone my craft before I can consider such a step, and adjust or maybe even create a different strategy all together to allow for the increase in action.
Finally, and just as importantly as me learning from it, maybe it has hopefully served as a lesson to anyone that happens to read this article, and provided them with the inspiration and acceptance to address their own issues with regards trading, and to become the trader they know they can be.
**The amazing image below was created by squonkhunter on Deviantart**
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