Quicksand

A lack of confidence creates the most vicious of circles. As the pressure to perform begins to override our patience, effort becomes a sinister trap. Pushing a trade for no reason other than satisfying the need to do "something" can serve only to exacerbate our situation and worsen the need for action, any action. We sink deeper into the quicksand of desperation by our very struggle to escape it; the more we push and flail in an attempt to resurface, the faster we plummet towards the point of no return. When all seems on the verge of final catastrophe (and we may act as such, even when there is hardly any evidence for it), it's not easy to see beyond our self-made froth and realize that stillness will be the key to extricating ourselves out of the quagmire. Contradictory as the image may be, we must anchor ourselves and stabilize if we are to remain buoyant; the downward pull is an entirely synthetic gravity generated from our own exertion, while deliverance lies in our willingness to just let go and float.

Happy Thanksgiving

Today happens to be the wife's birthday as well so we're going into town for some free-range yakitori and a movie, perhaps a second round of midnight ramen if the mood beckons. Yesterday night was peking duck with sis and the rents, this afternoon dim sum with the extended -- who needs turkey?!

Wishing everyone a happy and safe holiday.

Disclaimer

I want to set the record straight with everyone who has taken the time to read what's written on this site (I owe you all at least that much): I do not consider myself a successful trader, not at the present moment. Whatever tone some of these posts may take, please be aware that more often than not, I am preaching to myself from an alter-ego standpoint, in a voice which I am striving to make my own but presently is still quite some distance removed. This blog is basically my attempt to help stamp certain ideas down in my brain by externalizing them into a reference of sorts, so please don't get the idea that I'm preaching at you from a hilltop. Yes, I do have a number of years trading under my belt; and yes, I managed to extract a decent livelihood from the markets for a better part of that period. But for the past year or so it's been nothing less than a struggle, and as a result I've managed to lose something that no amount of capital can repurchase, and no trader can succeed without: confidence. I am by no means overly self-critical or pessimistic, and I'm always ready to give myself credit when it's due. But there's simply no excuse for my recent performance; for an individual trader, independence must be balanced by absolute self-restraint, as one must be able to hold himself accountable -- there is no one else. My failure in this respect cost me my faith in myself, and to rebuild this faith will be an arduous task. Self-betrayal is never easily forgiven, but nothing less than that is my goal, so set an example and forgive me this little unburdening.

Winner's Blues

Sometimes you win, sometimes you lose
Sometimes you got still the blues for me

-- Sonic Youth

Have you ever found it difficult to take a good profit? Ironically, it may be a symptom of impatience operating under the guise of "letting our winners run". We're all familiar with the two basic emotional sabateurs of trading, fear and greed, but I think when it comes down to pulling the trigger, there is only fear holding us back: either the fear of losing, or the fear of losing out. This second fear usually appears when some sort of clock starts ticking inside the head, when some cold streak has worn thin our patience and our visibility narrows down to no further than the very next trade. On my worst days, I would be reluctant to take even a partial profit on any good trade, harboring it as if it were the last of its kind -- a blatant act of desperation. That may be at the extreme end of the spectrum, but any discomfort with ringing the register may be a sign of some external pressures having manifested themselves in your being overly committed emotionally to any one position. Best to take a few steps back from the monitor, splash some cold water on the face and remind yourself that any trade is but one out of thousands ahead of you.

Checklist

Since the great majority of my trades are intraday, I wipe the mental slate clean each morning to ensure I maintain a uniformity of attitude throughout the next session. The goal: consistent minimization of the unexpected through the complement of adopting an open attitude towards any and all possible outcomes. My greatest weakness as a trader is the sudden deterioration of a sound and patient mindset that can occur at any moment throughout the trading day, so here is my checklist that I use to remind myself each morning of the elements most important for my performance.

1. Attitude: Are you optimistically patient? Can you picture yourself not trading at all today if no opportunities arise? Are you Little Orphan Annie or Agent Jack Bauer when it comes to the word Tomorrow?

2. Preparation: System implementation and account management. Have you noted any possible setups forthcoming for optimal entry and the actions entailed? Have you noted your max drawdown limit for the day and the willingness to honor it?

3. Balance of Concentration: Trading is as much anticipation of changes in your mentality as it is the market. Don't let yourself get completely absorbed by the "flickering ticks" and stay equally grounded on both sides of the monitor.

4. Equanimity: Concentrate on staying collected under fire, no matter how wild the market or how quickly losses come in succession -- keep the ship upright.

5. Visualization: Visualize each of the following:
-- Seeing a system signal, and entering the trade without further thought
-- A stop-loss triggered almost instantly, and just as quickly forgotten.
-- Waiting for the market to come to you before entering.
-- Adding to a trade that goes your way immediately, pushing when odds are in your favor.
-- Shutting down without hesitation when maximum daily limits are reached.

In each of these there's a keyword or image that literally rings a bell in my mind that helps to crystallize the intent behind that particular checkpoint and provides a mental shortcut. I think this helps in eventually making the run-through of the entire checklist an automatic process, a routine that hopefully embeds certain actions and attitudes within that same part of the brain that operates other habitual motor processes such as typing or driving.

Empowerment

When it comes to making mistakes, do you see the glass as half-empty, or half-full? Think back to the last time you were stopped out at the low tick of the day, or missed out on the big move of the week because you traded "not to lose", or bought when your indicators said sell, or spent an entire session calling the top on a market that closed on the highs -- how did you feel afterwards? Frustrated? Angry? Despondent? Does your mind keep replaying the past over and over like a tongue probing a loose tooth as you agonize over what could have been, should have been?

Now, imagine if instead of feeling distraught over your trading "mistakes", you actually felt encouraged, inspired, more determined? It's possible, once you accept the fact that every error in judgement holds a lesson to be learned, an opportunity to become better prepared for the next occasion when similar circumstances arise. Acknowledgement of an error is the first step of course, yet those that tend towards berating themselves over the past never get beyond this point, and waste not only their time and energy but also squander the chance for progress. The fact is, learning which actions result in consistent losses will simultaneously teach you which actions result in consistent profits; the lessons are one and the same, as is teacher and pupil. So don't let those mistakes go to waste, for when you become convinced that profits and losses are just opposite sides of the same coin, the reward goes far beyond just the academic possibilities. Having and maintaining a positive perspective on the mistakes that you've made, along with those you know you'll make in the future, equals nothing less than empowerment -- for what harm can the market inflict on you psychologically if you own your losses, and truly believe they can only make you stronger?

Trader's Fortune Cookie

Discipline trumps all convictions -- especially the conviction that one is a great trader.

Behind the Rules

Say you're a trader that has a tendency to have big blow-up days. You've got a decent edge that makes you profitable for most trading sessions, but that one time you lose the handle you'll end up giving back much more than just your recent profits. This is a cycle that seems to repeat itself far too often, and out of sheer frustration you've decided once and for all to get past this problem and begin investigating ways to go about doing that.

How about sweeping out any profits you have at the end of each week, so you won't be able to give it back when D-Day comes? This is probably your worst choice, for it does nothing but side-step the issue. Worse yet, you've practically set the clock ticking down to your next blow-up day by resigning yourself to its impending arrival, only this time you'll have even less equity in your account afterwards. In any case, it's probably a safe bet to say that your profits aren't the cause of the problem to begin with.

What about setting a daily loss limit? An X-percent drawdown for the day, and it's time to shut off the monitor and take a long walk. This is better than the first idea, but considered in isolation may be nothing more than a band-aid to cover up a deep wound. You may be able to mechanically obey this rule without question, and in doing so temporarily save yourself from your worst self, but from personal experience this method does not hold up on its own; if one is to truly believe in the independence of each trade, why should one ever arbitrarily stop trading if he sees an opportunity ahead? The market has no clue how many losing trades you're coming off of, so what difference does it make if the past is past? How do you reconcile the apparent need for limiting one's trading with the fact that one's losses should have no bearing whatsoever on the next opportunity?

Ultimately, we must ask ourselves this question: what is the line that differentiates sensible risk management and arbitrary, patchwork rule-making? I think the difference comes down to understanding and trusting why certain rules are put into place and how they exist as expressions of positive intentions, rather than viewing them as mere restrictions or boundaries that cannot be crossed. For every preventative rule that we think we need to place over our actions, there exists a correlating positive belief that if we truly embraced without question, would render that preventative rule almost unnecessary. Consider the simple placement of a stop-loss order: if we really believed in the possibility that we could always be wrong in any trade, we could do without the stop and just trust ourselves to exit the trade when the situation dictated. Yet what happens when we truly embrace the idea that "we can always be wrong" is that the stop order ceases to be simply an emergency fail-safe that takes responsibility out of our hands; it actually serves as a short-hand extension of the conviction that any trade can go wrong. Getting back to the problem of blow-up sessions, if you're constantly overtrading in an attempt to reclaim losses, simply restricting the number of trades you can place is just a perfunctory response to the symptoms; the real issue behind the problem is whether or not you are truly convinced that innumberable opportunities for profit will offer themselves tomorrow, the next day, and the day after that. If you embrace this idea, then having a maximum cut-off point for daily losses becomes more than just some handcuff; it's a natural expression of a proper trading attitude that you consistently strive for.

In short, concentrating your energies on the positive beliefs and princples behind your goals will make the job of creating and applying trading rules much easier. The proof of this will come when you suddenly find yourself pre-emptively dealing with the issues before the rules ever need to be enforced.

Road Warrior

On those mornings when I've managed to accumulate a nice string of losses well before lunchtime, I can't help but picture myself as The Road Warrior, barreling down some desert highway while countless baddies methodically tear away at the battlements of my tanker-truck-turned-fortress-on-wheels. My mission: to keep moving forwards at all costs, remaining objective in my search for the next opportunity, even while bits and pieces of my account peel away tumbling behind me. Yes, I realize each trade is independent from the last; and no, the market is not concerned with my plight and certainly not "out to get me". But honestly, I'll be the first to admit that for most losing days, each piece that drops away does nothing to lighten the load but instead seems to slow me down and make the road ahead appear more precarious, as if my eyes were frozen on the rear-view mirror and seeing only the scattered carnage in my wake. To this day, my biggest struggle continues to be convincing myself that the wreckage is already behind me and getting farther away with every passing second, and that there's nothing else to do but hunker down, hold my head up straight, keep eyes foward and focused on the open road ahead, and continue driving on.