First thing to note is that there is an edge, as the pip-count, after spread (half of the costs incurred when trading at this size), is very much positive. Unfortunately those pips haven't quite covered commissions hence the negative result. This has pretty much been the case with my trading for the last three years.
In September's "Trading Without A Compass" post I referenced an idea that has plagued my trading for a long time- The "Profit Ceiling". I am lucky/skilled/aware enough to know when it has been reached but, despite that knowledge, this is how the four weeks panned out:
I know exactly why I traded past the ceiling on every occasion. First off, I refuse to accept that it exists (more on that in the 3rd and final reason). Secondly, I want/expect to be able to trade my method continuously. After all, if it worked to the ceiling, it should work past it right?
Wrong.
Integral to the method is my discretion. So, when I feel as if the ceiling has been hit- it has. Even if it is a self-fulfilling prophecy, it can't be ignored.
The other reason is not easy to write here, but I'm going to say it anyway.
I'm addicted to trading.
Somewhere along the journey, it stopped being about profit and became more about the challenge. Going up against the market is ALWAYS a bad idea. If I had simply stopped trading when I felt like I had bumped into this "Profit Ceiling", I'd have found myself up some $550 on the month, even with the >4R loss that occurred due to a gap against me.
This idea of going up against the market is ludicrous. Most people learn how to create an edge for themselves within a couple weeks/months of careful study of a chart. After that, it's an exercise in self control and a desire for long term results over short term thrill.
A bit disappointed in the lack of participation in this blog (not one vote on the last poll!!!) so may cut back drastically/stop as it's a waste of my time otherwise. I already keep detailed data in the form of spreadsheets (as seen here) and video diaries so only really here to ignite discussion on the real challenge that is trading...
....it's NEVER the market's fault. Long-term results are all our own doing. :)
11 comments:
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I'm addicted to trading.
Somewhere along the journey, it stopped being about profit and became more about the challenge.
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I think most retail traders who are passionate about trading can have their passion turn into the addiction you mentioned. The trick is to have a passion for trading well and to be near mentally and physically disgusted with any other kind of trading that is not part of your plan.
I believe the trick is not trading when your edge is not present (easier said than done I know) an alternate source of income or a productive use of your time to keep you from picking a fight with the market could help?
As to trading your method continuously, I have questioned how long I would be able to trade my own method. As markets change along with the current politics and headline news, our methods need to be regularly reviewed to make sure we are given ourselves the best chance of (self determined)success based on our own realistic personal and financial goals.
Hi Trin,
"The trick is to have a passion for trading well and to be near mentally and physically disgusted with any other kind of trading that is not part of your plan."
Absolutely but, as you say, easier said than done.
"an alternate source of income or a productive use of your time to keep you from picking a fight with the market could help?"
Actually, I do have two alternative sources of income and other passions that keep me busy and engaged but the problem has always been that once I start making consistent gains over time, I tend to devote more time to the markets and that's where I run into trouble.
When I say "trading continuously" I meant not having artificial cut off points for the day/week etc. But I've discovered that those points are actually part of "the method" not an optional addition.
It's almost impossible to fully understand each individual's struggle as it's such a personal activity...
Thanks for the comment!
Now I understand what you meant by "trading continuously". I have heard of traders us having a cut off point or a daily-monthly profit and loss target, and others preach letting profits run.
I agree 100% that your profit/stop targets should be apart of your method, but some how allowing the runners to make up for the losses that will come.
The fascination I have with trading is that the decision to buy or sell is open to interpretation by the individual trader. In the end, all that really matters is that you are making more money than you lose.
Good trading for 2013!
Same to you!
Lack of blogger participation is the norm rather than the exception, haha! It helps to think of it as more of an online journal to help you keep track of how you are progressing with any response from others as a bonus.
I'm sure you know there is no "real" profit ceiling or limitation - our limits exist only in our minds and is something we have to get past.
The problem with trading is that the skill sets we learn growing up and moving forward in non-trading life work against us.
Clearly everyone's path to success is different, but for me, having an alternate income was a defeating crutch that enabled me to keep facing off against the market without giving it due respect. When defeated, I could always recharge and engage in battle again.
It wasn't until my "safety nets" disappeared or had a countdown clock, and I could no longer risk having my account blown out that I finally started changing the ingrained "reckless" behavior- and even then it was a big struggle - much like the "Fight Club" video in one of your prior posts. It's about getting one's primal fears/emotions that urges us to act under control so we can continue to act methodically. That struggle between tyler and his alter-ego is a good example of the inner fight we face against our selves.
I don't agree with the video/Tyler statement of "We have to lose everything..."- IMO, it's not about not caring, but rather giving the market the serious respect it deserves, but no more.
@Soulfire...Finally! Some blog participation!! My threat worked ;)
But seriously, as I said in the post, I already have my journal/spreadsheets and have grown out of pretending to talk to myself when what I think we are all looking for is feedback and participation in the form of idea-sharing...as we are doing here :)
It's become more social than a "look-what-I-can-do"/"Somebody-please-help-me" kind of pursuit. It's been both extremes at various times...much like my trading itself. Fraught by variance!
Completely agree with your other thoughts- thanks for taking the time to be more social and comment!
Time for Turkey...Happy Holidays if you're celebrating.
Oh, I forgot to clarify that, yes, I know that the ceiling is self imposed and not really...uh, real..lol.
But reality is whatever we decide and so, if I can recognise my limits I can work within them (for now).
It's far easier to adapt something to fit you than to adapt you to fit something else. I'll take the smaller potential profits over losses anytime ;)
Regarding limits-
Just to clarify my own post, I should add that any "limits" should be based on the trade set up (target and stop loss), rather than other external factors like PnL.
I've also seen traders say they want to take X out of the market on a weekly/monthly basis (me included at one time), - but it still depends on what setups are available....no more no less.
Whatever method you use- the better you can nail your forecast from point A to point B calculations, it becomes more about just leverage and risk management as the true limiter.
Happy holidays to you too!
"I should add that any "limits" should be based on the trade set up (target and stop loss), rather than other external factors like PnL."
When trading a mechanical system, yes.
But seen as most/all systems involve a degree of discretion (even if it's turning a black-box system on/off), trading the PnL becomes a necessity to the degree by which you are not completely rational/objective in your discretionary decisions.
In my experience, trading purely the setup with no regard to where you are in the PnL journey is a mistake for *most* traders, including me. It's one of those great mistruths of general trading education...up there with the idea of TA-based stops having an advantage over abitrary (but statistically tested) stops.
That's a good topic in itself: System (mechanical) Vs Discretionary.
When I think of mechanical systems - you get an calculated sets of price points to follow.
With discretionary, which is mostly what my methods are, the price points are determined by the individual instead. But in both cases, there is still an entry, exit, and stop planned out in advance.
I guess the exception to that would be short term scalping with getting in and out of the market really fast to capture the small moves.
What you wrote is a bit confusing to me since with the methods I described above, the trading plan is independent of PnL, assuming the determined stop is within acceptable margins of PnL.
When you enter a trade, do you know your target exit in advance or does your method have it determined more in real time?
"...the price points are determined by the individual instead. But in both cases, there is still an entry, exit, and stop planned out in advance."
"When you enter a trade, do you know your target exit in advance or does your method have it determined more in real time?"
The three points of action in each of the above paragraphs are really *four* points- Entry, Stop, Exit and Target.
My target is determined before I get into the market...the actual exit evolves, using certain discretionary rules, as the market unfolds.
The exit is early than the target more times than not, but late enough to provide overall edge. The stop is a hard stop, always -6 pips, and never gets moved until a) something drastically changes or b) I'm over the typical MFE of all trades. If b) I'm then trying to get a free runner (if the trade has potential to run) to the bigger, infrequently hit, target.
Interesting discussion!! This is exactly the kind of interaction which could provoke re-evaluation in everybody's trading.
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