Wednesday, November 14, 2007

Trading is stress

I've posted this article in response to an article Brett Steenbarger wrote on Trader's Burnout, which I recommend everyone to read.

Trading is a stressful occupation. And I don't think it gets any easier, if you have more money. Usually if you have more money to be used as margin, you will use it.
Trading 10 CL contracts with a 100k account is for sure as difficult as trading 2 CL contracts with a 10k account.
I have the feeling that it's extremly difficult to distance yourself from the monetary value of the gain or loss you just made. CL trades 20 ticks in the blink of an eye and seeing yourself being up or down 2000$ or 400$ on the smaller account multiple times within a trade is really the same. It is stress. And if you do it again and again and again, it becomes more stressful, not less stressful.
There are methods to distance yourself from the actual value of the trade by not looking at the current account window or the current P/L, still, after 5 years of trading futures, I can tell you exactly what my current trade will gain or cost me including commission, I don't need to look at the account to know that.
Of course removing the Account information still helped to reduce the stress, as I'm not always presented with the results of my earlier trades for the day.
Missing trades is stress and it's very difficult to go against the urge to make the "missed profits" back as you go against the feeling you are owed these profits.

So why trade at all? Because any profession is stressful. Making money is never easy or we all would be millionaires long since.

But there are ways to make your life easier.
What helped me is finding contracts which move in sync with my own risk parameters. If you look at different contracts you will notice a certain range in which each contract swings without violating your trade pattern.
Identify this range and ask yourself if you can handle that range. If 20 ticks up and down on your short is too much for you, then trade something which swings only 10 ticks or 5 ticks, before you know your position is wrong. I always had the feeling, when I have a problem trading the Euro/Dollar, I can always trade the USD/CAD or AUD/USD as these trade more sedate, less stressful. So the last time I went to a difficult patch, I told myself, Chris, why only go to USD/CAD when the going gets tough. If you feel good with this contract, trade it on a regular basis. I'm now doing so and doing fine. I still trade other contracts beside USD/CAD, but eg. I've restrained myself from trading the last hour in CL.
Huge gains are to be made during these 60 min of trading, as CL usually swings about 80 ticks in this last hour, but the pace of the tape becomes so fast, that I'm no longer able to trade it without a lot of stress. And as this last hour in oil comes when I've been at the computer for around 10 hours usually, as it's 7:30pm here, when it starts, I'm often a bit fatigued, I've already had a good or bad day and I might blow a good day in the blink of an eye, because I'm not fast enough to close out a position or reverse it in this manic trading arena CL has become.

Last think about your charts as art. Make them an artwork, you might as well print and put on a wall for everyone to see. Make them pleasing to you. Certain colors have certain meaning, give certain responses within yourself. 

We are wired to recognise Red as an alarm signal. If you are a driver you will instantly recognise a flashing blue light. A lot of traders use a black background, even if black is like looking into a hole, a bottomless pit. Then they have harsh colors on the chart, each indicator line more pronounced than the other, usually the latest add-on is the most prominent so you can distinguish it from all the other lines you already have on the chart.
Take the time and list the indicators you have on your chart from least to most important. Make the important things more prominent than the less important ones.
But first think about the background. What color do you like? Really black? Would you paint the office you sit in day in and out really black? That's depressing.

Most will have white walls, but unfortunatly white on a screen is an active white, not a passive one like we have on our walls. So I use a kind of sandy white, which looks a bit like the clouds in the morning on a day which is to become warm and sunny. But you might as well use any other color. Just play with the infinite number of colors you have available to choose for a background. Then adjust the colors you use for bars and indicators to fit this background color, so you finally have an artwork, which feels pleasant for you to look at day in and out.
Next ask yourself, if you really need all your indicators. The less indicators you have on a chart the less stressful it becomes to make a decision. The best traders often use just 1 or 2 additional indicators beside Bars, if they use charts at all
I've switched to Rangecharts (each bar has a specific range) and Heikin-Ashi bars to reduce the number of indicators on my charts. Heikin Ashi charts are a certain way to build a Candlestick chart which keep you in the trade, as they "filter" wiggles against your trade without the candle changing color.

Take a look at this YM chart to see what I mean
Ensign
(Be aware that the times on this chart are CET which is 6h ahead of New York)
Maybe someone finds an idea in this post to make his or her life easier.

2 comments:

david_uk said...

Hi croc,

Some very interesting thoughts in your post, thanks for sharing them.

It may not be 'burn out' but being in front of your trading computer for 10 hours surely leads to 'exhaustion' and hence should perhaps be avoided?

Just a thought. All the best,

David

Anonymous said...

Hi Croc,

couldn't believe it when i read your post, but i had exactly the same thoughts this week. I thought about the look of my charts, about CL (which I prefer to trade now), about which vehicles fit MY needs (EUR/USD is a no-go for me) and especially about currencies (FX).
I once was an indicator-freak, programmed a lot of proprietary stuff and such ... it didn't help. It only distracted from the one thing that matters : price movement.

Now I use just one standard indicator, but I wouldn't need it. It's more because I like the artwork.

Great posting, i'll recommed it to some struggling traders.

Good trades,

K