Loss discipline

[Les Carlin]

Some may have seen my witterings in the journals section, so this has inspired me to start a more general discussion here.

Many pros agree that being able to accept losses is probably the most nb aspect in learning to trade effectively. I've been thinking for some time that the inability to accept losses actually implies something else, viz a lack of trust in one's own strategy and trade setup.

What do others think?

 

[Newtron Bomb]

Strongly agree

I totally agree with you LC. I have become of the opinion that most strategies or systems or whatever people use to identify opportunities to trade do work. What, IMHO, is one of the pivotal things about a trading strat is the users inability to implement it. In my experience I have seen people have total faith when starting out but when a loosing streak comes along they take the total amount of loss's or even more and then loose confidence in there ability to be judgmental about each individual trade as there previous loss's are influencing there current position(s). Then watching the next phase of their strat make money, thinking to themselves "hey, this does work after all!". but when the trader resumes trading there strat is most likely back in the loosing phase. It become a horrible cycle of events that causes all sorts of problems.
The trader looses faith as a result of not being able to accept loss's. I mainly think this is due to the new trader not treating trading as a business and thinking it more of a game or a quick way to make money.
Although, this is caused as you said LC as not being able to trust your own strat, I think some of the time it could be that the trader may not fully understand there chosen strat.

 

[Skimbleshanks]

The inability to accept losses is because of fear.

No matter how this is disguised (inability to follow a system, etc) the root cause is always fear. Few traders are prepared to acknowledge that fear plays an important part in their trading, but by being able to recognise fear you are at least on the first step to learning how to conquer it.

 

[ChartMan]

Repeated from one of my DOW posts, I found it was my trading size that induced fear. I reduced my size, and now no fear.... well almost.

 

[FTSE Beater]

I think fear comes in so many forms. For Chartman it was the values at stake, for me it used to be the fear of being wrong.

It's definitely an area that has to be explored otherwise you end up in the never ending cycle that Newton was talking about

 

[orchard]

I couldn't agree more. Fear has been preventing me from trading in the current situation. (typical 'frozen finger syndrome!).

I studied some charts over the weekend and had 5 excellent candidates for long trades. Fear made me look at the FTSE on BBC2, FTSE down - didn't trade. Fear in this case was good.

However, decided I had to break the cycle. Have just traded the S + P short. I had to come out of Fins. Just could not sit and watch. I have placed a stop and at least that gives me a bit of comfort. I have never quite decided if the FTSE follows the DOW or vice versa

I has seemed to be in the initial stages of paralysis. Can't make up my mind. This may be good in the current climate, but I must have missed so many opportunities. Still I know plenty of others will come along.

Please don't pan me because I am hesitant, I know I shouldn't trade because I want to - but I really must take an effort

 

[Skimbleshanks]

Have you considered just trading during market hours - ie, you can see what is happening and take appropriate action?

And perhaps be brutal with yourself and write down why you believe you have fear. If you know what's eating you, you can work on minimising it.

If you trade just using TA on charts, then DON'T whatever you do look at news because that will skew your ability to read the TA as you will be 'interpreting' how the market views the news. And what makes you so special that you can confidently interpret news and always get it right? (That's what I say to myself; I am not saying it at you or anyone else.)

Don't bother with whether the FTSE leads the Dow or doesn't - it's irrelevant. Just look at the charts, and without any outside influences to distract you you will have a better 'take' on the market's direction.

And just go back to paper trading - or mark your entry and exits on your charts, paying particular attention to support and resistance areas.

Hopefully, if you catch your frozen finger early enough, you can and will conquer it. At least you've been brave enough to admit it on these BBs, so I applaud you for that.

 

[Newtron Bomb]

Got to agree with Skim here too, one of my fears was of the news and media spin on situations. This influenced my ability to pull the trigger and question my judgment on a particular trade. I have my strat which gets tweaked here and there as my observations and experiences develop. It is totally chart based and I do not care what the economics are doing with exception to NFP once a month but that is now a part of my strat. I do not look a what the news is doing and hence try to second guess the market. TA only trading is my way of covering a number of emotions that could prevent me from trading and to ever be on the road to trading what i see and not what i think. As for what market leads which, it doent matter its swings and roundabouts they sort of take it in turns anyway so trying to figure it out leads to frustration and more emotions.

The catch 22 of trying to eliminate emotion from trading is that sometime it goes in your favor. Sometime I just cant pull the trigger even though it may be the perfect set up everything is in line (including the planets) but some think stops me sometimes I miss a winner sometime i am thankful because ive missed what would have been a loss.

The best think I ever did was to keep a daily diary with my trading ideas emotions and thoughts as am trading through the day it helps me solidify my opinions and observations. Other times it is used to write my emotions of how am feeling at a given point in a trade and as it pans out I can see why I felt that way and perhaps there was nothing to worry about after all so that next time a similar situation happens I know that my fear will be in check.

Best advice to everyone regardless of age or experience is to keep a trading diary

 

[stefan17]

Writing my thought and feelings into a diary helped me a lot. It is a relief. And I can learn under which circumstances I tend to make bad trades.

 

[orchard]

Thanks for all your thoughts folks!!

I will get myself organised and try to analyse my thoughts and feelings.

 

[Les Carlin]

Write it down!!

Writing my thought and feelings into a diary helped me a lot. It is a relief. And I can learn under which circumstances I tend to make bad trades.

I agree. Its a good start to do this because:

A. It forces you to label what you feel, therefore making it conscious and explicit.

B. By so doing you can detect the association between your feeling and the pressing of the button at the wrong time

Once this awareness comes you can begin to work on changing your decision reference point. What i mean is that you have a reference point for making trade decisions and so the change required of you is that your reference point becomes your tradeplan and not your anxiety.

So when you highlight the feelings associated with the decision as they are happening you gain the possibility of consciously choosing not to base things on the emotion. If you mentally turn away from reacting to the emotion, then all you have left as a guide to the decision is the trade setup you originally created.,

Writing this in a diary is a good beginning. You can extend this by writing it down as you finish each trade. I keep a trade ticket which i print out for each day from excel. It gives boxes to fill in the breaks i've identified and entry and exit prices. I write what i feel in the margins like a running commentary.

 

[Les Carlin]

If you trade just using TA on charts, then DON'T whatever you do look at news because that will skew your ability to read the TA as you will be 'interpreting' how the market views the news

Well yes and no.

If trading has taught me anything its that you have to be your own person with it. Which means the opinions of others, such as their interpretation of the influence of news events on the markets, needs to be evaluated by you as worthy of using or not. If you are unduly influenced to depart from your trade setups by news reports, then obviously you should avoid this. However what i mean here is that once you are confident about sticking to your strategy, then it becomes ok to look at news, hear others' opinions etc since they no longer have the power to change your approach.

The question then is, why bother to look at news at all? Well some people make it part of their particular strategy. At times it also can give clues about what market signals may be generated in the next session and so alert you to looking for them. You still have to actually see them happen, tho' before doing your setup.