Letter #1
Sorry Bill,
Going have to cut you off. You've really had a rough go of it the last couple months or so and I'm not sure what my p/l was for the small 1 lot trades I did the past 3 weeks but I think it's positive. Here are the thoughts from the outside looking in, not sure if they're helpful or not. Things I noticed just now looking back at your statements.
- Losing days were down more then winning days were up.
- Percentage of winning days was very low.
- Total volume was very high considering you were trading 1 & 2 lots mainly
- Lots of decisions made during the day
- Didn't seem like a plan was in place and you were trading that plan
No Matter what strategy was being used you should have had a few really big up days and there were none. I say this because even the worst of strategies aren't entirely that bad. We've had trend days. We've had chop. We've had huge range days. We've had big reversal days. At some point in all those days in the last month or 2, you should have had some solid positive days. The fact that you didn't means a number of things. Your strategy had to have been ever changing. These results only come about when strategies are being altered on the fly. You were letting your losers ride more then your winners. You were taking profit too soon on winners. You were trading higher volume on bad trades and lower volume on good trades. Your risk reward might not have been enough in your favor to enter trades.
The only reason why I say these things is to hopefully assist you in your trading. I mention these because I have seen tons and tons of traders come and go and I've seen the recipe for success and failure. There have been guys who could flip a coin whether to get long or short and would be successful because of trading a plan. Trade management, money management are key parts to trading profitably. As I mentioned before I had (my broker) set up a program on that account so I can see every order entered and pulled whether or not it's filled. Your actions were a bit erratic. Seems like a lot of second guessing on your part. Perhaps you were trying to be too perfect with entries, targets and exits.
Now your effort is extremely high. You work so hard, maybe even too hard. I could be wrong, but i get the sense that you're looking at 100 different charts and analysis of the same product. different time, tick, volume etc... It's possible to over analyze a product. Try to get too much info. What I think you might not realize along with 1000s of other traders is that trading the U.S. equities markets are the hardest thing to trade in the WORLD. Narrow that even more, trading ES is the hardest of the equities to trade. I truly believe you would have much more success trading currencies or commodity products.
Trading is never a total loss. Everytime you put on a trade it's a success, maybe not always financially, but learning. You're learning what works and what doesn't. How your emotions handle being right and wrong. How you respond to different market conditions. I really hope that you have learned a great deal over the last couple months. I know you're not asking for advice however I have been given some in the past that I think would be best to pass along. In the past when i'd go through a 3-4 month span of losing money i'd do this....
I'd take one product, and make it a product that I hadn't traded in the past few months so I have no remorse or bad feelings towards it (really helped me emotionally to look at a chart of a product that hadn't just taken money from me). I would use ONE chart and ONE indicator. That one chart could be time, tick or Volume, didn't matter. That one indicator could be what ever i wanted (for me it was pitchforks for others it's Fib lines or MACD) but what ever i wanted and i could only be ONE. and that is all i would trade for 20 trading sessions. I was NOT allowed to look at any other charts or variations of the one chart i picked. This really helped me simplify things and dumb down trading.
Each time i've been in a slump the past 8 years or so this has helped me get out of it. I hope it helps you. If you're charting your p/l everyday i'm sure you are seeing the same things I am. Some of the things i said in this email might be totally wrong or off base, i'm just going by what i've seen over the years when people fall into small losing streaks.
My hope is that you've learned so much the past few months and you're really close turning things around. I hope by 4th of July we can revisit this and get you back up and running. I'll throw another 10k in the account and hopefully you can build on your experiences and turn profitable.
-Steve
Letter #2
when Cal Ripken was in his 2nd season he got in one of his hottest hitting streaks of his career. he was on a 20 game hit streak and hitting like .400 over that span. in the 21st game, his first AB he hit a double down the left-field line. when he got to 2nd base the shortstop came over to him and said "Man, you're really hitting well lately. you must be doing a great job of keeping your head down, getting your hips through the zone, extending your arms and getting the head of the bat out there" Ripken thought nothing of the comments...
....until he was in the on-deck circle before his next AB. he thought, 'that must be why i'm hitting well. i'm doing all those things the shortstop mentioned' when he walked up to the plate he was saying to himself, 'keep your head down, get your hips through the zone, extend your arms.....etc...' he then went on the have the worst hitting slump of his career. after every game he'd change something small. move his elbow an inch or 2. open his stance a tiny bit. raise his hands. move back in the box. etc...... after a month of terrible hitting he finally turned it around after scraping all the adjustments he had made over the previous 4 weeks.
what i took from this story was a few things. one is the obvious, things he was doing naturally, without thought, worked better when he didn't think about them. the 2nd is a little less obvious.... as a hitter that has made it to the professional level, you're already a decent hitter. just natural ups/downs are going to give you streaks and slumps. just because you go 0-16 doesn't mean your stance or your approach is wrong, you can be doing everything right, just not getting hits. what caused him to be in his slump was the slight changes. that prolonged it.
i view trading the exact same way. you trade strategy XXX and it's profitable. if you go through dry spell where it's not working after a week, a typical reaction is to change entries and exits and scaling. putting different values on indicators etc... i view making those adjustments as prolonging your dry spell. no longer are you trading the plan. Altering it actually creates a while new plan that you really know nothing about and have no experience trading. i think the key is consistency with methodology as well as little, hopefully none, emotion involved.
now, this is NOT taking into consideration that markets change. it's possible to trade a method and after 18 months or so it just doesn't work anymore. that can and does happen. so keep that in mind when thinking about this.
14 comments:
Great post, Jules.
"if you go through dry spell where it's not working after a week, a typical reaction is to change entries and exits and scaling."
I'd say this is one of the most common error traders make. At the core, it is essentially a search for the Holy Grail.
Thanks for sharing.
I agree. Great post, Jules. I think most can relate to these letters, especially me. :)
Love it Jules, although I think my anger (and emotions, in general) help drive me to new levels. I've quit suppressing them and find that embracing them helps push me forward.
Then again, I may be doing something wrong =D
Jules:
First, great site! I will check back often.
Secondly, thanks for posting these letters. Pretty sobering words there, nonetheless a very good reminder.
The best plan, money and trade mgmt are useless without emotional intelligence/discipline. I learned the hard way when I first started trading full-time that trading simulators were USELESS in developing the proper emotional approach to the market. In fact, by the time I built up over $87,000.00 in just two weeks in the simulator and thinking I was ready, I foolishly started trading with 40 contracts with real money and literally lost $25,000 in my first day of trading! That hurt and actually prevented me from trading my strategy for 6 months while I ventured down the path of of the "holy grail" search. Like many other novice traders, I incorrectly thought that my entries were my problem.
I have to admit, however, that the thousands of hours I spent in "perfecting" my algorithm and approach was successful from the standpoint of building my confidence in my enter/exit signals. Without this, I spent many months as a bystander watching my signals and afraid to pull-the-trigger even with just 1 contract. I realize that my fear wasn't just rooted in money, it was also in fear of failure.
I have since come to accept that all approaches are correct at some time during the market as much as they can be wrong. Properly applying my money management and trading strategy is vital to my being able to earn a living as a "pajama trader". Controlling my emotions is my everyday challenge in which I am currently succeeding while I also work towards automating my algorithm.
I am currently reading Malcolm Gladwell's Outliers. In it, he refers to a philosophy that expertise is Not innate rather built up through applying oneself to a task for a minimum of 10,000 hours. After my experience with the ES market, I would say that this premise is very accurate and applicable.
Good luck to you.
If you ever want to throw a golfer off, just ask him what that funny thing he does at the top of his backswing is.
Emotional trading, or lack thereof, is the premise of my blog E-Mini Day Trading Without Emotion.
There is no way to trade unemotionally unless you paper trade whatever it is you're looking at for one month, 20 trading days, to see if your system works. You must keep results on a spreadsheet for reference.
Then trade it live risking no more than 1% of your capital per trade for the next month. Do exactly the same thing you did in month one over and over again. Continue record keeping.
Whatever you saw in the simulator the first month is bound to be somewhat different in month two, so you're still going to be in for some surprises, but you should be unemotional. You're not overtrading the account and you've proven to yourself without a doubt your system is valid. Continue record keeping
Then in month three you can consider various money management schemes to enhance performance. You can even overtrade the acccount (5%+ of risk capital) from time to time because you've tested your system, you've traded a static number of contracts live successfully, and you are going to see patterns in the system when it does better than not. Continue record keeping.
You will never trade 100% perfectly, but it doesn't matter...by now you know you will be profitable over time.
And you will have done it without emotion. Continue record keeping.
MVW: as the writer of the letter said, even flipping a coin will work if only one would stick to it (with some kind of a $ mgt plan of course) :-)
Daytrader:I don't see you doing a lot of changes, maybe you did before you started blogging, but if you don't say, we won't know! LOL! See? There's good in keeping a blog. :-)
Ryan:Over the weekend,I've come to realize that although emotionless trading is virtually impossible, it is possible to make trading LESS emotional. I'm never an advocate of leaving things to chance, but where trading is concerned, the acceptance of uncertainty is the order of the day. Once you're able to see each trade as merely a small part of a bigger picture (ie. a series of trades), you'll not get so emotional about a single win or loss. If you have a daily loss limit, even better :-)
Joseph,
Thanks for dropping by. 40 contracts? You're BRAVE! :-)
James said everything I wanted to say (I think he was talking to you LOL!), and I've nothing much to add.
Except this: I sense that you're a perfectionist, I am too, and a few others on my blogroll :-) Many would say that this game is not for us, and I beg to differ. I think what we need is to do is be aware of our strengths and weaknesses, and know that although it is usually difficult to change who we are, we can turn what is a weakness in a certain context into a asset in another. Being the perfectionist that we are, we can divert our attention to vigorous assessment of how well we have followed our plan/rules, (that takes recognizing that we are always our biggest enemy), instead of wanting to perfect a system (which is in essence blaming an external factor for an imperfect outcome). Ok, I think James addressed that too LOL!
James,
Thank you :-)
You know what, I actually sat D down on Saturday to tell him exactly what you said, before I saw your comment :-) He now has a money mgt plan, and a strategy that he will use for 20 days (how co-incidental is that? LOL!), a simple way of recording his win/loss ratio (so he can be confident with his strategy when he goes live), and rules regarding entries and exits. I took a day to walk him through the characteristics of ES, got him to think about whether he's a with trend trader or one who's more inclined to fade a trend, and showed him ONE setup that would suit his style and asked him to trade just that setup. For a start, he was told to NOT bend any rules wrt to entry, exit and daily loss limit. And then I asked him what he expected to see changed. He told me he would definitely be less fearful and emotional :-)
I agree with what you say 101% :-) Whatever strategy we use, we have to at least have faith that in the long run, and over many, many trades, it will make us money :-)
I disagree about flipping the coin. I think the lucky ones can be successful for a short period of time, until statistics (the house) start creeping up on them. Someone in "The New Market Wizards" summed it up nicely, you must have an edge to become the house in order to win statistically over time. Money management is only there so that you don't blow out, and to also keep you in check on not making errors. Regardless of money management, if there is no edge, statistics will soon beat you. A coin flip is no edge. You need a statistical advantage way more than 50% to cover commissions, and the most dreaded problem of all: "human error".
I also disagree with the paper trading comments. I won't go into the details as it'll take an entire paper, but I think as long as one can repeat a lie enough times so that it becomes real, then even your emotions can be fooled by paper money. 100% fear in losing, 0% fear from money lost.
Just my 2 cents, 1 cent per paragraph, :)
:-) that's too cheap, Ed!! LOL!!
Re paper trading - let's just agree to disagree :-)
On 2nd thought, Ed, I do want to say something about paper trading (I'm a strong advocate! :-)). You see, paper trading is effective in helping a trader find his edge only if it's treated seriously. Whatever he does in paper trading should be replicated in live trading, given that he's tested all the relevant parameters and gathered all the statistics he needs to ascertain the success rate of his system. In my opinion, paper trading is instrumental in getting rid of or at least substantially reduce the fear of losing. If through paper trading you know that in the long run your system is going to generate a net profit, you'll not likely lose sleep over a single or a series of small losses.
If there's 100% fear in losing even in paper trading, then the trader does not understand the purpose of paper trading.
Jules, men don't take paper trading seriously, I put on a paper trade then either add on or forget about it all the time. On other hand, my sister had np switching back and forth between live and paper trading. She carefully documents each trade with equally attention to the details.
Cory :-) I totally understand the feeling most men have towards paper trading (Being kind of a "boy" myself). I have never been able to paper trade for long. But when I do, I trade no differently from live trading. I don't think I ever really do anything for fun (other than playing pranks on D! LOL!). Everything I do, it must have a tangible result. Which probably explains why I don't socialize :-)
I thought through my comments more and here are some amendments:
A trade is based on an entry and an exit. If the entry is arbitrary from a coin flip, and an exit is arbitrary from a risk:reward ratio, then you shall deserve to statistically lose overtime. If the entry is a coin flip, but the exit is based on price behavior, then a skillful player can still be successful by utilizing half of the trade, the exit.
I agree for paper trade to be effective, one must closely recreate the real trading scenario, including the oh shit I'm already down $50, I don't feel like I can pull the trigger anymore! Ever seen a poker player fake sweat? I've seen it on a tv show before, :P.
Oh and yes I agree with Jules that the main goal in trading is to reach emotionless, but what I meant was if there is any fear at all, then it should be redirected all to losing, rather than fear of money loss.
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