Les Carlin's Blog

[Les Carlin]

Pscyho type Journal

I posted yesterday on the First Steps board, making the (probably outrageous) claim that i had cracked it psychologically. So i thought i should come up front more and lay out the whole psychological history of this. So this is not a journal of my trading efforts, but of the way in which i have approached, and still approach the discipine issues. Comments always welcome.

I started getting serious about TA trading in about Spring 2001. Before that i made a whole lot of money in the Bull run without knowing very much. So any idiot can trade a bull, as i found out. Just before the Mar 2000 crash i had gotten out of a lot of stocks and emerged from the mess with about half my profits intact. Subsequently i sold off more in some of the rallies and was left with about circa 25k. 9k is lodged with TBSL. 1k subsequently went to D4F and 15k went to Kytes, the brokers i started using in Feb last year. In July 2001 i attended TBS's VERY worthwhile course and from there made a conscious decision to trade futures, but did little about it until November when i paid said rodent a visit. After that i backtested and papertraded some of the commods markets until i nearly died of boredom. In February 2002 i began trading cocoa under TBS's watchfull eye.

I was using a P&F reversal strategy then. Basically it did not lose or make me any money and clearly something more was needed. Sandy had walked me thro a few trades and i made lots that way, but this still wasn't my work. So i experimented: EW looked attractive. I crashed and burned big time - $1200 in one afternoon. Having made the same amount a few weeks before in the same timespan. Emotional it was a wrecking experience. I knew enough as a professional that it was time to take a break. This was April 2002 and i stopped totally for 2 weeks. Didn't even look at TA books or check message boards - nothing. Frankly i needed time out to heal from the loss of confidence and damage to my belief system. It worked, but i emerged a much more cautious person. Too cautious, as it turned out.

I'll stop here and post more in another entry. I realise this is not strictly journal stuff at the moment, but my intention is to describe the history and then update with current matters.

 

[SoldierOfOne]

Hullo Les
Just to say I enjoyed reading this and look forward to hearing both some more of the background and then about the emotional ups, downs and everything in-between associated with trading (for a living?).

I find it useful to hear such experiences, especially as I have this half baked idea to travel down the same road…

Cheers

SoldierofOne

 

[Les Carlin]

Psycho II

It might be helpul to reflect a little on what happened in those 2 weeks:

Emotions: despondency, disbelief, shock, anger

Thoughts: "This trading stuff maybe isn't for me. I'm seriously thinking of jacking it in"

"You fool - did you really believe you could hack it this early in the game"

So - there is an array of emotional reaction, gradually subsiding, and a then self-criticism and confusion.

After about 10 days i began to entertain ideas of looking at things again. I decided to chuck out the whole srategy and then jawed with TBS about other approaches. Not surprisingly he encouraged a straight TSR approach as a beginning point. I was hesitant at first, believing it took too much skill. System trading seemed to take the decision-making out of it. As i reflected, i came to another view: If i could trade manually, then i could probably do anything, so perhaps it was worth a shot. At the time there was quite a bit of stuff on the boards about range trading, esp opening range breakouts. I thought using this could be a good way to kick off a trading session. To cut a long story short i evolved a combination of opening range breakout and TSR trading. I also decided that tick/day trading was a more comfortable timeframe for me. I really get too wound up carrying overnight positions. Being rather impatient as well, i thought the S&P would do fine - it moves around plenty and quickly. This may sound like a very risky move to some, but in fact it felt a lot less so to me,- in contrast to having to put up with the endless waiting around in more sluggish markets. I realised that when i commit to a trade i'm far better off getting the feedback quickly about how it's going to turn out. Otherwise i get too tense about it. IOW, i was learning about how my personal psychology was an important factor in such decsions. As its turned out, this was one of my best moves.

I then spent the next 4 months backtesting and papertrading the S&P. The strategies semeed to work. I opened a 1k account with D4F and plunged in. This was August

I lost my pants.

Well at first i did good - a/c went to 1140 in a week. Then it began to drift downwards, until mid-October - £839. That's a near 20% loss of the investment in 9 weeks. Ok, the markets were difficult at the time, having begun the largely sideways moves we've seen since July.

But i also noticed other things. I was always very tense making trades and would feel a lot of disappointment when it went wrong, and much exaltation when i scored. I knew it shouldn't be this way. When the losses started to bite, it was time to stop again for a rethink. This time, despite my bad feelings, i decided to spend a few days rigorously analysing every lost trade. It was an effort to keep these emotions at bay while looking hard at my own mistakes, but this did finally pay off. The lesson here has been that it's ok to stop, take stock and let your emotions subside. That way running back over the problems is a lot easier. I couldn't do this by repeating my errors and getting more overwhelmed by the emotions. This was undoubtedly, as it turned out, the best decsion i ever made. Because it led me to pay serious attention to the discipline/psychology probelm

 

[Les Carlin]

PsychoBabble

I was very nervous doing this analysis and put it off a lot. The reason? If it turned out that the strategy was crap, then i had wasted 6 months. Not a pleasant thought. Or if it turned out that i was not able to solve the problems i identified, then an even bigger issue would rear its head - maybe i'll never make a trader,- ever.

Being a good little Psychologist said to myself that if i can't face this one, then i might as well give up shrinking heads as well. That did it! I was not going to be bested by my own hangups. And certainly not in the knowledge that there were other successful traders out there with no knowledge of my field, who had clearly dealt with this issue. [BTW, i began to develop a lot of healthy respect for these people.] No way. Hell will freeze long before, etc, etc.

So, armed with an aggressive, competitive motivation, i had a look at the trades. Three things came to light:

1. I was quite good at entries. No hesitation problems to speak of, even when there had been a series of poor trades just before. And i did not fail to take opportunities when presented.

2. I was real lousy with my stoplosses, often ignoring them in defiance of my trade plan

3. Not too good at running my profits, tho' this wasn't quite as bad as the stoploss issue.

I felt unable to tackle both stoplosses and profit running at the same time, so i decided to focus on the stoploss only. The first thing was to maintain my awareness of all of my thoughts feelings, expectations and beliefs. I mean by this, that i had reasoned that if i could maintain awareness of these elements during the actual process of trading, then maybe i would have some chance of also being able to set them aside in favour of my tradeplan.

I had realised that up to now i had often resisted getting out of a losing trade because of frustration and annoyance that things were not going my way [Douglas is very big on this isue, altho' i hadn't read him by then]. So i would persist in a losing trade just for the irrational reason of not getting my way. Accepting this was very important because i would then have a greater chance of detecting these feelings in the live situation and so resolve not to let them interfere with invoking my stoploss. I experience palpable relief at this point. At last it seemed i had an edge. I went back to trading. It was the 23rd October.

 

[FTSE Beater]

Hi Les

Great Journal. I have to say I think you do have an advantage over most traders, and it's really great to see you starting to use your advantage / edge in a positive way.

FTSE Beater

 

[Les Carlin]

Turnaround

Or so i thought. But more of that later.

I started to trade without every second price movement giving me the willies. What happenned is that i made a conscious decision a couple of days before that i had a choice at every moment while contemplating a trade decision: i could either do it in accordance with my feelings of dread and rising panic; or i could do it according to my trade plan.

I walked around the house that whole weekend saying to myself "ok mate, which is it gonna be, 'cause so far your behaviour demonstrates that you don't trust you own strategy, otherwise why go against it all the time" I resolved over and over that come what may i was going to stick to my stoploss next week. Even if i lost money. That was the turning point.

The moment i accepted emotionally that losses are a foregone conclusion in any trading i began to relax. I had long before recognised this intellectually, but never really grokked it properly before this. From there i was able to look it in the face. What i did was to calculate the most i could lose in any week. I took my largest historical stoploss placements and assumed i would lose every trade in the next 5 trading days. I multiplied the s/l by 15 and assuming about 3 trades per day came to the conclusion that i could lose about £450 in that week. Remember, this was a D4F account that currently stood at £839. Then i took another deep breath and said to myself (over and over, mind) that i might as well give up trading altogether unless i was prepared to find out whether this thing can work for me. So rather DON'T trade until i make a final decision. Potentially it was going to cost me one week of angst and 450 squid. It was crunch time. Was it worth it?

More in the next exciting episode.

BTW, a few folk have given me feedback on these entries. May i say these a re very welcome, and i would love to receive more, esp as i am preparing a presentation for 5th July during which i will outline more general principals and ways that people can construct their own method for dealing with this stuff. A bit like having a strategy for trading, and then another strategy for the psychology. Believe me, its just as nb to make this explicit. So your responses do help a lot in this way.

 

[Henry]

Really enjoying reading this, partly because it echoes my own trading experience so closely. This latest installment has been of particular interest because calculating max loss for a week and accepting that as a possible, or even probable, outcome of the weeks trading was I think a big turning point for me too - my trading became much more relaxed after that - any winners were a "bonus". Looking forward to the next part

 

[Les Carlin]

A short tale

I think its storytime. Its one that encapsulates much of my worldview.

There's an old, apparently true story about a holy man who wandered around the villages of northern India consumed only by his passion for the devine life. All he owned was his begging bowl, his loincloth, and his staff. The staff was probably his most precious possession, given to him by his guru when he finally left to wander on his own.

One day he entered a village. As was often the case, the village children regarded him as an object of ridicule. As he passed through, they began to throw stones and call him names. Then one of the older ones grabbed his staff and the children began throwing it around, defying the man to catch them. But the man continued walking through, not even glancing back, a look of compassion on his face. Presently he neared the village perimeter. Still facing forward, he stretched his arm behind him, and as he did so one of the children threw the staff at him and he caught it. He walked on out of the village as if nothing had happened.

And if you think about it - nothing really did.

This story is a model for for so many things. Above all, for me, its about being secure within yourself in the face of life's ups and downs. I think the parallel with trading is obvious; suffice it to say that i often think of it when times are more difficult.

 

[Les Carlin]

So what happened already?

The next day i logged, did the usual trade plan setup, etc. I was a bit apprehensive, but otherwise calm.

I made 5 points. But no stoplossess were filledso that was yet to be tested.

Next day i made one trade - 2pts, so not yet.

On the Monday - 2 losing trades, 3 winning, net win of 1.6 pts. I had maintained my stoploss discipline, losing only 4.5 pts in 2 trades. This was in contrast to losses of 3 to 6 pts per trade previously.

I was immensly relieved, mostly because i had proved to myself that i was capable of exersizing discipline over an area of my functioning that had been constantly troublesome and emotionally very difficult. Throughout Monday's trading i kept reminding myself to trust my tradeplan and and that i needed to find out if the strategy was going to work. At times i was pretty nervous, but the commitment i had made to myself to test this one to the limit seemed to sustain my resolve.

The next 3 weeks saw my Capital a/c rise from its low of £839 to 1087. However this is not the end of the story. More struggles were ahead, and my belief in my newfound confidence was sorely tested. In fact i nearly lost that battle.

What happened was that i had to take an enforced break from trading for about a month. This was because i was returning for a visit home to SA. That visit was itself very difficult, because while i was there my father took seriously with a condition from which he will not recover. His certain eventual death from this is now unpredictable, being anything from weeks to a few years. By the time i returned to the UK in Dec, i had mostly come to terms with it. His deterioration while i was there was also not unexpected, but when it happened it made things look a lot more imminent.

Despite this, I was dead keen to resume trading. Indeed, quite excited at the prospect, given my previous success. However i was totally unprepared for what happened next.

 

[NastyItch]

Oh, ... the suspense !!!! It's KILLING me

 

[Henry]

This beats EastEnders

 

[Les Carlin]

Yeah, but it makes a good story.

Anyone interested in the film rights?

 

[Les Carlin]

Very deep do-do

I guess it didn't take much to work out that my keen return to the trading screen just didn't pan out. However its worth telling because i found a way thro this, and the learning experience was even better than before. Here's what happened.

I restarted trading early Jan 03. First trade - +3pts, no problem. From then on i got successively killed in trade after trade for the next 2 weeks. D4F account stood at £450. I decided that i couldn't trade after all and called a halt. Note that it took nearly 2 weeks for me to accept this.

I felt horrible. But despite this i had already learned that looking back at the mistakes is the best healer of all. So with a lttle apprehension, but nothing like prior to October, i dug up all the relevant charts and spent 2 days going over them with a fine toothcomb. What i found appalled me.

I had forgotten half my strategy! I was trading on the basis of one or two criteria and left out all the others that were part of my normal strategy. Couldn't believe i'd done something so dumb. To forget some of the most basic things i had spent many months researching. So duly admonishing myself - i find a good whipping with a salt bath after usually does the trick - i set out to trade again.

No deal. Got killed again over the next 3 days. I'd had enough of this horeshit by now. I was on the warpath. I was gonna find out why if it killed me. Even if i never traded again, i had to know why. I went back to the charts. Well f*** me if i didn't find that there was yet another part of the strategy i was STILL LEAVING OUT. Jesus!!

First off i decided to jack in trading with D4F. Part of the problem was not having accurate entry and exit points, and i felt at that stage that the spreads were confusing to me. So i activated an account with IB and funded it with 4k.

Ok, so i corrected the strategy problem, but by this time i was no longer as confident as before, and when i began trading, it was with a great deal of caution. And this became my undoing, because once again, emotional forces were driving my trading decisions rather than my trade setups. I had to lose another 200 squid out of IB before i got the message.

I went back to basics. (John and Edwina, where are you now that i really need you!). I literally had to go thro the whole agonising disciplinepsychology business i had been thro in SeptOct 02. However i discovered a very important difference this time round.

I was going over old territory, familiar ground. It took 5/6 months last time to establish trade criteria and get thro the emotional stuff. This time it was about 7 weeks. By the end of Feb i had licked the stoploss problem again and my capital account, which had a low of 4336, began to recover. And i discovered some new things: Back in October, while i had got some discpline going, i had never really got to grips with running my profits - sometimes i did it, other times i took small money and ran. This time i did need to address this properly.

However i must say that this second episode was a much bigger turning point than before. In OctNov, my trading, while disciplined, still had a nervous edge of expectancy to it, not quite comfortable. This time the change was more profound. I discovered myself taking trades with complete calmness and did not have to keep reminding myself to stay with my tradeplan, etc. This applied equally all round - no despondency with losses and no excitement with the gains. It felt like i'd arrived. It was the second week of March, about 2 weeks ago from now.

Now interestingly, i've not made loadsa dosh since then. I've swung high and low throughout this time. However the reasons for this are no longer psychological in nature. They're more to do with inexperience - eg encountering some market condition i'd not fully learned how to figure out, or some technical aspect that was new to me. I still have the occasional problem with lack of discipline, but even then the emotions are not excessive, and they soon subside.

And then a quite profound discovery - i started learning very quickly. Every time i make a mistake i am able to fix it, learn from it and then move on while incorporating it into my repertoire. I think this is why i'm not yet making money - still some way to go on these matters. Another thing, which others may find a bit cavalier, but its honestly not: I no longer care how much money i might lose in the service of completing this learning. I have a great inner certainty that in time i will master this trading thing, and so it will be worth it. And if so i shall be rewarded many times over. Now maybe this will not transpire, but somehow even that has ceased to matter any more.

 

[Helenqu]

Hi Les,

I have had lots of the same feelings over the past few months. I'm still breaking even on my futures trading (up 5% on the FTSE100 stock trading) but I have an absolute feeling of certainly that with every trade I learn that bit more and I become a better trader. You have to give yourself time and fortunately financially I can afford to do that. I'd hate to have to do this with the pressure of having to earn a living right from the start.

 

[Les Carlin]

Fighting for peace is.....

screwing up my trading. The war came at the wrong time. Just as i was getting it sorted along come 2 failed breakouts and 2 whipsaws in one session. I lost bigtime and very little to do with discipline. Still, it unnerved me a bit, so i had a word with Sandy who was reassuring to the extent that he was struggling with the current conditions as well. Ok, its definitely not me, but i thought that these changes call for some shift of strategy. So i re-examined stuff on volatility. Nothing much grabbed me there. Then one day, while i was scratching myself, i though aha! scalping - you've always enjoyed that and you're quite good at it.

So from then on i've managed to win more than half back of what i lost and i've kept any daily losses to a minimum. I'm quite enjoying this change and am thinking that beyond the war i might adopt a scalping approach as my main tool and then switch to more conventional trend following when the market suggests a trend day. Pivots can be useful indicators for this as well as just looking at the action. Since markets only trend 20% of the time, this approach makes a lot of sense in terms of the general rangebound conditions of the past 9 months.

As you may have gathered, the psychology/emotion stuff is well and truly behind me. I fear tho', that what a lot of pros say about it has begun to happen - its getting boring.

 

[Helenqu]

Hi Les,

Agree I'm even more defensive that normal at the moment. Managed one trade this week that is all. But I'm not going to take silly risks just to trade. Worse still is the prospect that this uncertain market will carry on for months. Looks like I might as well pursue the PhD

 

[Les Carlin]

Oh me, oh my

I've had a crap couple of weeks. Just as i get the discipline stuff straightened out again, and along comes a war. I continued trading throughout, tho, except for one day this week (Tues) when i decided to suspend. I felt that i was trading correctly, but the market was offering me too few opportunities and so i was taking a steady stream of losses. Anyhow, since Wed this week i took 9.5 points from the S&P. Looking back it seems as if the war rumours are having less of an influence and so the price action tends to hold its direction for longer. I got really sick of all the wild swinging of the last few weeks.

HOWEVER: I must say i learnt a lot about how to deal with such adverse conditions. It required very tight discipline all the way thro', otherwise i might have lost a great deal more. eg I've absorbed the feel and look of rapid unpredictable price action and the tendency for this to produce whipsaws. By contrast, trading over the last three days has seemed just so much easier.

How nice to have a quiet market which has finally started to behave itself again

 

[Les Carlin]

Getting back

The last 3 weeks have seen a steady, slow climb back to filling the gaping hole in my capital account. So many times i've heard pros say they "lost thousands" in their path to effective trading. Just read it again in Douglas last night. There seem to be no exceptions to this.

I decided tot to up my total losses at their lowest point since starting live TA-based trading in Feb 2002: £3934. Admittedly £1700 was due to war effects rather than poor discipline, so the real figure is closer to £2200. It feels like i've been there and done it.

Now before i get too cocky, i should mention that since my last entry i've recovered about £500 of this. That's only fairly ok in terms of my trading aims, which is to get 5 -10 points per week in the S&P. The weekly rate since the end of the war is so far 5.7 points. The interesting thing about this is that most of the time i'm trading in a relaxed, straighforward manner. Then about once or twice a week the little gremlins rear their little heads and i go and give back some i ought to have kept.

Last week was typical: by Friday mid am session i had a weekly total of 11.75 points. Then i decided to try to trade the reversal after 3-30pm. I had previously decided not to do this as part of my strategy generally, but i had seen a post from someone to this effect a few days before. So it was at the back of my mind that i "should" be able to do this also. I was psychologically set up, programmed, to look for another trade irrespective of the conditions. In fact on that day i opened a further 2 trades, such was the mess i got in. Both lost and i gave back 6 points. The week ended with 5.75 up, so no real damage, but it irks that the reason was a loss of discipline.

It is so subtle. While this was going on on Friday there was a little voice at the back of my head saying "don't do this chum - you already have 11.75 pts". Dahdeedahdeedah. But my ego got in the way and i brushed aside these doubts and traded anyway. One always pays a price for departing from a tradeplan/strategy. I think overall these lapses are probably par for the course at this stage and i hope to be able to continue to learn from them. Its a lot easier to deal with this feedback from the market these days.

Les

 

[Helenqu]

Hi Les,

I get the reversal disease at times too. Usually when I'm bored. My 4 point futures loss on Friday was for the same reasons. Hey ho. New week tomorrow.

 

[Les Carlin]

Sure, but i do know its possible to do this. Its just that i had previously resolved not to until i make regular money out of just the first movement of the day. And there's quite honestly a lot to be made there. I remember Mike Diplock saying on Jan 11th how he only ever trades the morning session of the S&P.

This is my next test: to see if i can stay away from this temptation for a LONG time, like months.

Les