Dear Mr. Bellafiore,
I am a daily reader of the SMB blog and I also really enjoyed your book. I have e-mailed you a couple of times before, and I respect your opinion greatly. I am writing because I am currently going through a difficult time with my trading. I started trading at the beginning of 2009, and have been doing it ever since. I have been fairly consistent in that I have never had a down month. I had my best month ever in August of this year where I made over $28k. I am currently up about $85,000 net for the year as I write. This week, however, was probably the worst trading week I have ever had. I lost money 4 out of 5 days this week, for a total loss for the week of almost $2k. I felt like I could not do anything right, and it feels like I will never consistently make money again. I have had periods in the past where I struggle, but I always seem to pull myself out of them. I really feel like I have been struggling for the past month, even though I still made about $5k for the month. It was not a consistent, steady $5k, but one with a lot of ups and downs, and probably more downs than ups.I have tried to tell myself to do all the right things, like trade smaller and stick to only trading my best setups, but nothing seems to be working. I will do it for a while, and then I will mess up on one trade and the bad trading just spirals from there. It happened to me again today, where I was doing ok, up a few hundred dollars and then I got into one borderline trade, gave away my day, and then broke my trading rules in the last hour of trading. I feel like I am at a crossroads here where if I don’t figure out a way to fix things and get on the right track, then this could be the beginning of the end for me as a trader. I don’t want that to happen, but I also don’t want to continue to trade like this and feel like this. Any advice you can give would be really appreciated. Thanks.
Bella
If you made 28k last month you can trade. Up 85k for the year is at least paying the bills so at a minimum this is another year of experience for you, another year of improving your trading game in the most competitive of endeavors. Hey most can never become profitable. Most are out in the first few months of their career. And you are still here, and positive, having started during one of the worst trading years to begin since 02. So some perspective, you can do it!
Here have been four reasons I have found traders underperform for the month:
1) they are weak with their Market Plays
2) they did not get long from the two bounces off the 112 bottom
3) too many are expecting a new break when we are not yet broken
4) they are fading moves too strong or weak
A market play is when you place trades that the market will go up or down as opposed to trading a few stocks. You trade a lot of SPY, QQQ. You trade a lot of C or LVS or CAT or whatever stocks you choose to trade as market stocks. This week there was a simple trade on Tuesday when SPY cracked 119. Yesterday there was a very simple market trade yesterday when SPY broke 117.
I gave one of my mentees just about the hardest time I have ever given to a trader in a group setting. He had missed a market trade during this week that was a layup. This was about as close to crossing the line as I have ever come working with a trader. During a one on one with this trader gathering information, and some reflection it occurred to me that what was really going on was this trader just was really bad at making market plays. I needed to work with him and the desk some more on these plays. Today we spent a great deal of time going over a few market plays yesterday on the open. One that failed. One that was a chop.
A few weeks ago some on our desk severely underperformed. The reason? They couldn’t get long anything after we touched the bottom of the SPY range at 112. They missed easy market plays to the upside after the bottom of the range held. They could not get out of their trading minds the weakness at 112 and open their trading minds for the slow grinding intraday upmoves.
The market is very weak but we may just be trading in a range between 112 and 122 SPY. We may not break to the downside. Until we do trading on the short side near the bottom of this range will be painful. Not having an open mind during the bottom for an upmove will leave some easy money on the table.
Fading is a tough game. Fading can be a very profitable strategy. But too many do not make the distinction between fading and fundamentally poor trading. Fading the gamers yesterday is not fading that is fundamentally not understanding when not to fight the trend. Look at yesterday and compare the difference in your trading day if you had followed the trend in a very weak sector versus fighting the trend. That could have been a swing of 10k in just one day for a solid intraday trader. Do too much of this on this month and you were in for some rips.
Those are just my observations from watching traders this month. I hope that helps. Remember trading is not something you ever get. It is a game of perpetual adjustments. This is your opportunity to make your next trading adjustment.
Bella
