Over the weekend we started a discussion on Twitter and the SMB Blog about whether it was time to quit trading for an experienced trader who had emailed me. He had had some past success. Then underperformed for a few years. Had recently started a family offering another important variable. We offered some thoughts via a blog: Is it time to quit trading?. There was an unusually high response for this weekend blog. This trader is not alone in his thoughts. That trader responds to our blog below:
Bella,
…….. Thank you for your thoughts. It is a little unnerving to have such a personal situation put on display for all to see, but maybe there will be at least one other out there like me who can identify.
You really cut to the heart of the issue: I failed to adapt to a changing market. Not for a lack of trying, but the results clearly point to the fact that my types of trades were not profitable over the course of many trades. Back in my first few years I learned to do a lot of fading. It was a strategy that I learned from my mentor.
We would fade with small size, trying to “buy” information as to weakness or strength. It was ok as long as you didn’t get stupid and double down. The strategy was it was ok to lose a little if it allowed me to “find” the bottom or top (or near the top)–then after that panic moment was in, we would load up on the way back up (or down). It was a risky way to make money, but it did instill a great skill for reading the tape during spike moves.
Also, you almost always knew right away or within a few moments whether you were right or wrong. This suited my trading personality as holding positions was and has always been a weakness of mine. Of course, I added my own sorts of plays to the ones I learned. I did a lot of momentum trading on shorting weak stocks. I would try to find a level where I thought a stock would break, then have a position to feel it out, and then help to blow out the level when it reached there. But again, rather than holding for long periods I would begin to piece out almost immediately.
I always like to know whether I was right or wrong as quickly as possible. This is why I have found it difficult to adapt. You guys write about Trades2Hold so much, and it is something I would like to implement, but have found the most difficult thing to do. It seems like those sorts of scalp moves, where you know right away, are less obvious nowadays, though they still do occur.
But let me provide an example: I was in BKS the other day, when it gapped down big time. After it held the $9.50 level off the open, I bought a few hundred at .60… then I saw strength so I added and had, I think, 700 shares from $9.66. I sold 200 right in front of $10, just because it was a huge level that might offer resistance. But then I looked at the longer term chart and felt like there was a good probability that there was a complete reversal off the open developing. I thought there was a good chance it could run back up to $11 or maybe even $12. By the time I was thinking all of this it had already run to $10.40s.
To my credit, I set a stop order. This is something I have implemented to deter me from “panicing” to book profits that are disappearing on a pullback. At least now I just pick the price. But instead of risking most or all of my profits and setting the stop at $10, or even $9.66, or even $9.50, I set it around $10.30. It closed the day I believe $11.16 and never again touched $10. Just 1 example among many where I made a good trade, but failed to properly exit out which would have approximately doubled the profits on the trade.
But back to your blog. I most definitely cannot in good conscience blame my kids for my downturn. Definitely there was more “distraction” and pressure. But really, it wasn’t the pressure to perform. More, I think (this is in hindsight, of course), the pressure contributed to a sense of panic when the scratch months started to pile on top of one another. This led to a lot of pressing, forced trades when there wasn’t much there. Trying to make something out of nothing.
Very often, the correct play is to do nothing, and wait. You are probably correct, in that I should not have gone 3 years without making money. We are most definitely not “independently wealthy”. Through this time I have struggled with what I “should” or “shouldn’t” do. What is correct from a moral standpoint? Do I stick with it and give myself as long as it takes? Or do I flip burgers at McDonald’s? Is is selfish to believe in myself? (redacted)
I have a passion for trading. This, I never lost, despite my frustration. I really couldn’t care less about the money. To me, it is only a way to keep score. A completely objective tally that doesn’t lie. This is what makes struggling so difficult to rebound from–I have a very Darwinian view of the marketplace. Those who fail to adapt, die. And rightfully so. They are dinosaurs.
My mentor blew out his account in 08 (redacted). He quit and moved back home. I’m sure there are a bunch like him. But I adapted enough not to go extinct, but neither am I thriving. I’m in some no-man’s land in between that is untenable. But it is what it is and I am where I am. I can only look forward now.
I liked how you defined “skills” as a skill to be successful. I really thought you would start talking about trading smaller, or tighter stops, or tape reading, or some such “skill”. That is part of it. But you are right. To be successful entails rising above whatever tape is thrown at you. It may not be what you expect, but in the end you have green on the screen. Adaptability is the key to this. Consistency and profitability will necessarily follow.
So what do I need to do, you ask? I need to get back to basic fundamentals. Setting up good trades that offer decent risk-reward ratios. I need to stop thinking about the past and take it one day at a time, one trade at a time. I need to work harder at my development of trading ideas. More of my time could be spent analyzing charts and setting alerts, identifying levels that might necessitate a trade. I need to be more patient, staying with ideas and trades that are working. I need to implement Trades2Hold.
When I interviewed with Steve Spencer, I asked how do I get over the feelings of discomfort, watching your “profits” slip away? He said you have to develop the skill, and to start by just holding 100 shares. This I will do because the upside of learning the skill outweighs any paper profits I am protecting. I need to can the lapses in discipline, which usually stem from a lack of patience, or pressing trades that aren’t there. But most importantly, I must believe in myself that I can do it. I need to scratch and claw and get myself back up off the mat. It’s that simple: get back to basics. Just MAKE ONE GOOD TRADE… and then ONE GOOD TRADE…. and then ONE GOOD TRADE, etc., right?
I am sorry for writing so much. This probably exceeds my original e-mail. But, believe me, I have thought a LOT about all of these issues. Thank you for taking the time to reply and blog about me. I appreciate your insights and thoughts.
Thoughts?
Bella
6 Comments on “Is it time to quit trading? Part II”
I don’t usually post on blogs but this trader’s frustration compelled me. I am an experienced home-based trader, and though I only trade emini stock index futures, I regularly read SMB’s blog and many others. I traded stocks for many years before switching to futures in 2005. I have a PhD in the biological sciences,but left research to trade full-time years ago. I started trading in 1999 and became full-time in 2007. I haven’t changed my trading style in years and don’t intend to, but I am always eager to learn and read about trading…methods, psychology, money management techniques, execution techniques. I have read every single post on Dr. Brett Steenbarger’s blog, as well as the sites of Don Miller, Al Brooks, Van Tharp, Linda Raschke, SMB and many others. I have read well over 100 trading books including the authors listed and many others (You too Bella).I review my trades at the end of each day, and I review what the market offered me regardless of whether I was on board.I determine my success each day by comparing what I should have made on the day, based on the patterns I trade and comparing that to the trades I actually took. If I should have netted say 80pts in the YM and I only made 30pts, then I wasn’t focused. I consider any day where I made around 75% of what I should have, a successful day, even if that is only 1pt in the ES or even zero, or a valid loss or losses. I have recorded every single market session for years. I take screen capture shots of charts on the weekend so I can quickly review a chart of each trading day whenever I want to. I am extremely patient and disciplined and sometimes have gone 2-3 days in a row without taking a single trade if I don’t like the conditions or something is not clear. I operate from the perspective that the market should compel me to take a trade, and that I don’t want to trade otherwise.
I am always aware of my profit/loss but it is irrelevant to the next trade. Focusing on being flat/down means you are distracted from what you need to be doing, which is analyzing the market. Van Tharp states that 90% of trading is psychology, and you are getting a serious lesson in this case. Are you doing what I do above? How hard are you working at your trading and getting better at what works for YOU? I have 2 young kids also and yes they are a lovely distraction sometimes but you have not suffered in your trading for this reason. Are you learning? Growing? Find one good, SIMPLE strategy and only take that one type of trade until you are consistently profitable. Try something like this: Look for the market to make a strong move up or down on your timeframe. Wait for it to make a 2-legged pullback to a medium EMA like a 20-30 period EMA. If you are looking to buy, there should be a bull bar at the EMA which you should buy above, reverse for a sell. Exit at a loss below the bull bar (if buying) or exit when your profit is twice your risk…all in, all out, no trailing, no second-guessing. Search through your stock charts until you find this type of setup and JUST do this. You can see examples of this type of trade in the articles section at Al Brooks’ website or more extensively in his articles/books. It is very hard to wait and wait and wait and then to quickly act on doing a SIMPLE thing and following your plan. There are many other simple approaches that MAKE MONEY if you study them. Read some books and generate new ideas for yourself. You don’t need to copy but just find something that makes sense to you that you can execute properly. As long as there is a positive mathematical expectancy to what you are doing, and you EXECUTE it properly, every time, you will make money over time as long as your position size is appropriate. I have made a living the past few years risking roughly 1/4 to 1/2 of 1 percent of my capital per trade. You don’t need to ever take substantial risks to make money. I have never, I repeat NEVER, risked a full 1 percent of my capital on a trade as a full-time trader!
Also, you don’t have to adapt your strategies if they are inherently adaptable. What I mean is if your strategies automatically adjust for volatility and regularly appear on all timeframes then you should never have to change what you do. The simple example I gave above works if you learn the basic pattern recognition, which takes some time no matter what you do.
This is quite a long post, but I’m going to get off my soapbox now after one more thing. This is a beautiful time to be a trader and if you work hard, as you must have done on some level to achieve consistent results for years, you can DO IT! You’ve done it before! Take some time off and study a new way to approach the market. Take a Van Tharp course and learn about yourself. Workout…improve your body and you will improve your self-esteem. Find someone who trades actively to talk to and be accountable. I have a very high IQ, and I have achieved many fine accomplishments in my life but none of that intelligence helped my trading and in fact made it much tougher. Trading consistently profitably and for a living, is, by far, the most difficult thing I have ever accomplished. It took me YEARS and I am still trying to improve. It’s not easy or everyone would be doing it.
nice long reply with some good info. what u wrote at the end caught my attention. i have been saying to bella for 15 years that trading isn’t “rocket science”. yes, a certain baseline intelligence is necessary to process the information flow from markets but over intellectualizing and being “too smart” is detrimental to short term trading.
Yes, the problem with being extremely intelligent as it relates to trading, and this is something I have rarely seen discussed, is that once you have a decent body of knowledge about the market and trading, you see EVERYTHING. What I mean is, you see the pitfalls and limitations of every trading strategy, you see the weaknesses in an entry technique, you fully understand, every time, that you could be doing things SO MUCH better. While in other aspects of life you can get better quickly, getting better at trading takes so much SELF work that you often feel like there must be something wrong with you. You see both the bull and bear argument for entering long or short and become paralyzed to act. You fully comprehend that your short term results are essentially random even if you have a high win rate longer term, but you are so used to being “perfect” or “right” in all other aspects of life that losses, even small ones, effect your self-esteem, and much more so then someone who is of average smarts and maybe got Cs in school and grew up knowing they weren’t always going to be right.You realize your own psychological issues but don’t necessarily have the tools or techniques to overcome them. You realize that by choosing a particular exit strategy, you are making a compromise that may be less than ideal intellectually or mathematically, but maybe is compatible with your psychology.
Trading is a performance activity and it requires a level of flexibility that high IQ, scientific method-type thinking doesn’t easily bend to. It requires that you focus on being in the “NOW”, what is happening RIGHT NOW – and this level of discretionary, flexible thinking in real-time simply takes years to develop if you are an intraday trader. Even looking at static charts after the close is of limited use. You need to review and practice on Market Replay…in the actual environment that was taking place when you had to make decisions. Ultimately, consistent trading success boils down to this: You must use a method that has a positive expectancy after trading costs are factored in. It doesn’t matter what it is, the math has to work, period. It doesn’t matter what it is, as long as the math works, you can use it. Let me reiterate that again: It doesn’t matter what it is, as long as the math works, you can use it! You must be able to execute the method in real-time at a position size appropriate for your account size and your objectives. You must accept ahead of time, psychologically, the implications of using a particular trading strategy and its statistical outcomes, even if they can never be fully known. That’s it. Unfortunately it takes people years to realize the simple truth. The smarter you are, the harder it may be to accept that simplicity is the most effective market strategy.
Wow, trader is spot on for myself. I have found a method that works and is consistent, but b/c of all my great trading ‘knowledge’ I am still working on improving.
Great post trader!!
I agree with
“Trader”. I think that the person who wrote to Bella needs to define
his strategy better. Does he have a “business plan” outlining all his
strategies, risks, etc., when exactly does he take trades… Does he prepare an
action sheet every day (the night before and then review in the am to ensure
nothing changed for the market day); does he have what if statements for the
stocks he plans to trade for the day? Does he know all important levels for the
stock he is trading? If the trader who wrote to Bella becomes more disciplined
as opposed to having a sporadic trading strategy, he could potentially be
successful. However, consistency and hard work are required! As the
“Trader” mentioned above – define the moments in which you take
trades and take trades only when this particular scenario has developed. Do
that over and over again and you will gain confidence in your system and
yourself.
You are exactly right about the more you know, the more difficult trading can be. I actually made some good money when I was “unconsciously incompetent” at trading. As I have progressed through being “consciously incompetent” to becoming “consciously competent” (hoping to become “unconsciously competent”) it has become more difficult to be consistently profitable. This is due to the fact that the more knowledge I have acquired, the more conservative I have become do to over analyzing the technicals of a trade set-up. At the beginning I actually traded what I saw with little to no hesitation. Now I have to constantly fight off hesitation.