Monday, May 01, 2006

Discipline

Suppose you like chocolate. Can you decide today to stop eating chocolate for the next 4 weeks? Recognise a habit, something you like, but which is not really important in the grand scheme of things, which you would like to stop for some reason, but never did.

Decide today to stop it.

Have the discipline to stick to your decision.

Does not eating chocolate have anything to do with trading? Oh yes!
Discipline will make you to the great trader you want to become so dearly. You are struggling, not one of the countless losing traders, but one of the 30% break-even traders, who still will never make it, unless they take the next step.

You have an edge, you have your good winning streaks, but somehow the losers still take care of them and at the end of the month, at the end of the quarter you have retraced back to zero. Be it one or two exceptionell big losers, because everything you’ve learned the last few years goes overboard, in this moment, or be it a streak, where nothing you do seems to work, where you get signal after signal and they all get stopped out.

Have you stepped back, tried to analyse what triggers it? What is the reason for your losing streak. I’m in the first category, I blew it all in 1 or 2 exceptionell bad trades, sit there, look at me, tell me “oh shit Chris, you did it again”. I take a deep breath and start again. I know I can, I know I have an edge, I trust myself and I’m (usually) not trigger shy. But I have these whipsaw trades coming now and then, which take care of a good chunk of my profits.

We have a holiday here today, so I took the time to analyse these patterns and they are usually preceded by a period of small winners, where I get antsy booking a profit when I see one, where I move my stop to break-even plus a tick the moment I see a chance it might work out (usually it doesn’t and the number of break-even trades goes up) and suddenly I’m no longer content to reach my daily goal. I want more 200% instead of 100%, even if the days before I made just 30%-50%.

So the answer to my problem is very simple:

I have become undisciplined in my trading

And usually such a period ends with a blow, a washout which gets me back on track. Which shows me, that the way I’ve traded the days and weeks before don’t work and I better revert to the known patterns, which work.

So good, so fine. Revert to the old patterns which work. Not easier said than done, because I know what I want to trade, what I’m looking for and which trade to take.

But reverting to the old pattern will only start the cycle again. It’s again Groundhog day, 6 o’clock in the morning. You need to step outside, you need to leave this circle to become one of the few who really make it in trading.

And discipline, aka not eating chocolate for the next 4 weeks, might be the way to do it. If I can’t stick to a decision like: I won’t eat any piece of chocolate for the next 4 weeks, how can I expect to stick to my trading rules? How can I trust myself not to touch a stop, to patiently wait for a setup, even if it takes the whole day to arrive? I need to be 100% sure, that I will act in my own best financial interests, if a trade is open. And discipline is the way to achieve it.

For three years now, I trade with a daily and weekly goal. Did it me any good. Oh yes, it disciplined me already, but not enough!  Well I have changed that just a bit.

A trading day for purposes of my Trading Journal now is complete the moment I reach or exceed with the last trade 100% of my daily goal, latest of course at the end of the day, when I close shop.

I can continue to trade, if I feel great, if I have a winning streak.

BUT it is a new trading day for the purposes of the trading journal. It means I again start at 0 for the day. I have no profits and I best make sure the next trade is a winner, so I have again a cushion. As I said, I don’t need to continue, but if I do, I again have a daily goal to make. Trading cautious, not taking unnecessary risks, because I’m so wonderfully green today. No, it’s a new trading day and if it is red, then it goes down as 0 winner 3 losers in a row and -30 ticks, not 3 winners, 3 losers for a break-even day as it is now.

Will this change something, will Discipline break the circle? Time will tell and I will take you along on my journey. This morning I made 1 trade, it made my daily goal and I took the rest of the day off instead of sitting glued to the screen. Euro made another nice swing, but so what? I made what I went out to make today, I don't need more today and I had a very relaxing day with my family which was worth every penny I did not make or lose today, when the Euro made it’s swings. Take care and stop eating chocolate.

1 comment:

Paolo Pezzutti said...

I think you are quite right. THis is a common problem among "wanna be" traders. I know I have it. I do not trust 100% my system, and this is not because the system is not good, simply because perfect systems do not exist. So , when it signals to exit with a loss , I believe I can do better. Most of the times it is true, but when the bad thing happens, it is painful.
Paolo