I'm giving a lot of consideration right now to what I am thinking while I'm trading. Perhaps I even need to add this to my daily blotter. For most of the morning I stayed out of the market (even missing a really good trade opportunity) because I was worried about posting a losing trade. Eventually I realized the erroneousness of this thought process and got into the flow (mostly). Unfortunately, these expectations of being "right" or "making money" got in the way on my second trade causing me to close somewhat early. What's truly funny is that there is no real money on the line. It's just paper. But my thoughts are tuned to treat this as real trading, and as such my real trading problems are coming through.
Specifically, regarding the trade I didn't hold. There are 3 rules that came into play:
1) If I am up 1R or more and the trade falters 30% - bail out.
2) If I see volume coming on to reinforce my trade I will continue to hold the trade over 1.5 R until volume falters.
3) Typical profit target is 1.5R
These are all very fine rules and have been tested extensively. However, I had a doubt. After the trade began to falter say 20-30% ish, I thought, "I don't want a loser to start the day". And hit the exit. I actually strictly followed my rules. But it is like the Matrix - you have to know when to bend the rules, or even break them. Why? Because the reason price faltered was it was setting up to break out. Selling volume didn't come in, but buying volume temporarily stopped - only to be replaced by a dirth of buying orders moments later. A big part of my edge as a discretionary trader is "reading" the market. If I trade like a retarded robot I can expect to see results indicitive of that level of trading. Much like playing a musical instrument, I need to trust myself to improvise well when needed.
The Psychology of Handling Large Drawdowns
6 days ago
No comments:
Post a Comment