During the period that I stopped posting, I had made a number of trades that had wiped out all that I've made since Aug 1st.
My losing trades were entered based on more or less the same premises as those of the profitable trades that I had made in the first 2 weeks of Aug. The only thing that I had done differently was the way I managed my trades. I had cut my losses early and let my profits run, which wasn't exactly ideal in what was primarily a choppy/ranging market. I had also taken more trades per day - but had I not done that, I wouldn't have found out about my limitation.
What I learned about me after that exercise was that I am not as good as I thought I was. That short winning streak was not sustainable simply because I am not yet a proficient trader. Many of my winnings from the past were a result of my having sat on substantial paper loss. Because I was rewarded for not cutting my losses, I was hardly motivated to do a proper assessment of my trades. I was aware of this the whole time of course, which was the reason why I simply couldn't feel good about my results.
It was when I was doing what was right for me that I started to accumulate losses. It was when I went on a trading spree that I learned that I can only enter a specific number of trades a day beyond which I start having difficulty managing my emotions.
So my MO for winning has always been to stay convicted to my view of where price is going. On most days, it works beautifully. But it was extremely stressful trading, and on the days that I was wrong, I would take a loss that would affect me for days and weeks.
I personally do not believe that trading is easy. But it shouldn't have to feel like I'm walking on thin ice everytime I put on a trade. The discomfort of trading starts the moment you execute a trade, simply coz there's a likelihood you'll lose money on that trade. This type of discomfort is not the same as the mental strain that's caused by an unplanned event (trade going awry and you don't have an idea how far price is going to move against you, coz you have been profit-focused and have not prepared adequately for contingencies). The latter should happen as infrequently as you can help it.
I am now starting to use hard stops. It is not to eliminate discomfort. As a matter of fact, stop-losses make me feel so uncomfortable I'm now reluctant to trade. But I know for a fact that I need the protection of a stop-loss while I'm still learning the ropes. Stop losses are there to make the lessons I can't avoid less expensive. More importantly, losing trades make me review them over and over to find out what I have overlooked before I execute them.
Since my trades are based on very precise setups and signals, a stop-loss is necessary to get me out of a trade that's no longer valid as soon as it's invalidated. If I keep getting stopped out, it simply means that more work is needed to improve my reading of the market. If skill has nothing to do with my being stopped out, and it's the market that's doing something I've never seen before or have had very little experience with, then being stopped out would give me a chance to pause to do an objective assessment, which is something that's difficult to do when I'm still in trade.
There are many conventional wisdoms about trading that I dismiss as pure lies and myths, and there are just as many unorthodox concepts and philosophies on trading that I turn a deaf ear to (Just coz something is unorthodox doesn't give it more credit).
I have always stuck with whatever makes sense to me.
At this stage, tight hard stops make perfect sense to me.
Starting over.
My losing trades were entered based on more or less the same premises as those of the profitable trades that I had made in the first 2 weeks of Aug. The only thing that I had done differently was the way I managed my trades. I had cut my losses early and let my profits run, which wasn't exactly ideal in what was primarily a choppy/ranging market. I had also taken more trades per day - but had I not done that, I wouldn't have found out about my limitation.
What I learned about me after that exercise was that I am not as good as I thought I was. That short winning streak was not sustainable simply because I am not yet a proficient trader. Many of my winnings from the past were a result of my having sat on substantial paper loss. Because I was rewarded for not cutting my losses, I was hardly motivated to do a proper assessment of my trades. I was aware of this the whole time of course, which was the reason why I simply couldn't feel good about my results.
It was when I was doing what was right for me that I started to accumulate losses. It was when I went on a trading spree that I learned that I can only enter a specific number of trades a day beyond which I start having difficulty managing my emotions.
So my MO for winning has always been to stay convicted to my view of where price is going. On most days, it works beautifully. But it was extremely stressful trading, and on the days that I was wrong, I would take a loss that would affect me for days and weeks.
I personally do not believe that trading is easy. But it shouldn't have to feel like I'm walking on thin ice everytime I put on a trade. The discomfort of trading starts the moment you execute a trade, simply coz there's a likelihood you'll lose money on that trade. This type of discomfort is not the same as the mental strain that's caused by an unplanned event (trade going awry and you don't have an idea how far price is going to move against you, coz you have been profit-focused and have not prepared adequately for contingencies). The latter should happen as infrequently as you can help it.
I am now starting to use hard stops. It is not to eliminate discomfort. As a matter of fact, stop-losses make me feel so uncomfortable I'm now reluctant to trade. But I know for a fact that I need the protection of a stop-loss while I'm still learning the ropes. Stop losses are there to make the lessons I can't avoid less expensive. More importantly, losing trades make me review them over and over to find out what I have overlooked before I execute them.
Since my trades are based on very precise setups and signals, a stop-loss is necessary to get me out of a trade that's no longer valid as soon as it's invalidated. If I keep getting stopped out, it simply means that more work is needed to improve my reading of the market. If skill has nothing to do with my being stopped out, and it's the market that's doing something I've never seen before or have had very little experience with, then being stopped out would give me a chance to pause to do an objective assessment, which is something that's difficult to do when I'm still in trade.
There are many conventional wisdoms about trading that I dismiss as pure lies and myths, and there are just as many unorthodox concepts and philosophies on trading that I turn a deaf ear to (Just coz something is unorthodox doesn't give it more credit).
I have always stuck with whatever makes sense to me.
At this stage, tight hard stops make perfect sense to me.
Starting over.
6 comments:
1.Very deep thought of you Jules...
2.Yes Jules I trade TF only for now...I think I need a Tight Hard Stop like Jules (Risk) and Tight Target Profit like D (Reward):-)
Hey Jules, great to see your posting again (first time I checked your blog since it went quiet), as for stops, I'd wish I had some advice, but I myself am a struggling trader, I do believe though in using stops (I tried trading without them at first, didn't go so well). Anyway hope your having a great day and best wishes with your trading.
Jules,
Insightful post. From my own experience, I was not disciplined when I was trading stocks, i.e. no hard stops. My trading felt arbitrary, and to use your analogy, I felt like walking on thin ice every time I put on a position. A Chinese analogy would be I was "一嚿雲". However, when I ventured into trading futures, I had to develop a system that included proper money management techniques. This forced me to use stops--whether it was 7 ticks away from my entry or 1 tick above/below the previous oscillation support/resistance--I had to have them. Otherwise, I found that I would eventually just squander away my hard-earned winnings.
My dad, who's also an investor/trader, uses his baccarat gambling mentality when trading. He plays in streaks and knows when to walk away from the table when the banker starts taking over. In this way, he's able to return to Macao every week whereas many others can not return after a few months--when they've lost millions.
An interesting post which, given my current performance, I'm probably not qualified to comment on(!) BUT...
In a theoretical world, given an infinite amount of time, the price will always hit your target. Even if it would require money equivalent to all of China's T-bonds to maintain the position.
I know I am taking an extreme positon to play devil's advocate, but the situation I describe above is not an edge.
Jules,
It takes a lot of courage to admit that something isn't working for you.
The truth of the matter is that we cannot control the market. It could go up 100 points or down 100 points in a minute or do nothing at all.
No stops mean that your account can be taken away from you at any time. Which is a very hectic feeling. Overly tight stops aren't much better as they don't allow good trades any room to breath. I personally favor an ATR based stop. This keeps me in the game for the good trade but ensures I can't go bankrupt in one or two trades.
Glad to see you still posting and trading.
LT
Jules, I am interested with TF because of you. Simulated for 6 days and got whopping 410 ticks with mainly 1 or 2 contracts max.
The method is very simple. Cut loss early, take profit fast on choppy days, let profit run on trending days.
I realized emotion played a great part on our trading success. Respect cut loss and didn't feel regret about it instead feel gratitude. And try a fresh entry with no burden from previous trade.
Another think I saw is TF gave great opportunity at BARB WIRE. Fake the move with decent stop loss provide big winning ratio.
Simulate again for 1 month and going live with the max risk of this month's gain :)
Keep up the good work
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