I’ve Been Trading Poorly - Here’s My Plan
Sometimes, the best path forward is a step back - trading smaller and going back to basics.
These last couple of months have been filled with ups and downs
I’ve allowed myself to go all in on the idea that this is the final bull market leg. I did the unthinkable and went all-in with all my capital because I was afraid of missing out again (this is not my first rodeo). As you can imagine, that didn’t work out all that well.
Instead of recognizing a range, I was forcing a trend.
Instead of taking profits, I was accumulating longs.
Instead of objectivity, I was consumed by greed and, in the downswings, by fear.
Instead of strict risk management, I allowed my frustration with repeatedly getting stopped out to trade without an exit, and in both deeper pullbacks, I paid a hefty price.
Instead of always recognizing a possible worst-case scenario, I was angry at my lack of performance, so I pushed on the pedal at the exact worst places.
Instead of being objective, I was being emotional.
In short, my trading was horrible. While I haven’t lost much money, I’ve given back all I’ve made and am currently still underwater on my investments and stuck in a trade I failed to exit when the exit was due.
The market is what it is. It’s my job as a trader to recognize it objectively and adapt. I have failed to do so. What hurts the most is that I saw all the warning signs of weakness but failed to act on them. I’ve become overly bullish and refused to pivot when the chart showed a change in direction and loss of momentum.
The question now is - how do I fix this?
First, I must identify the problem. It’s not that I don’t see the good trades. I just hesitate to change my mind, adapt, and go in the other direction. After a few hits, I stand back and refuse to lose more money, thus becoming passive. By being selective in my trading, I miss out on the winning trades and end up taking the losing ones. I’m self-sabotaging by allowing emotions to take over my actions. Unfortunately, a trading system only works when you take all the trades. If you are selective, let it be because of conflicting signals, not emotions.
There is one simple solution to all of these problems, but I hate it.
It’s going small. Trade smaller. Microscopic, if need be.
If I am hesitant to put on a trade, it’s because I don’t want to lose money.
If I can’t pivot, change my mind, or adapt to new market conditions, it’s because I’m enamored by the potential profits I envision are coming. I’m not objective.
If I’m unwilling to accept the loss, it’s because it has grown too large for me to stomach.
If I only play what I perceive as the safest bets, I’m trying to win on every trade and end up losing most of them. The only way a system works is if you take them all.
If I’m not objective, I’m emotional, and the only reason to be emotional in trading is to feed your ego or fall under the spell of the greed-fear combo. The former requires a philosophical approach and a punishment in the form of smaller positions. The latter emotional release with the same remedy.
My resolution for the next few weeks or months
Rules of trading for the remainder of 2024, or at least until my performance increases significantly:
I have to act on every trading idea and impulse I recognize
If I see it, I must act on it. I’m not allowed to overthink, gated by the 3-second rule. Act, act, act! There is no choice in the matter. I must force myself to act, and if I can’t because of doubt and fear, I still have to open the trade, but I can use an infinitely small size. It’s okay to open or close only 10% of my usual position, but it’s not okay to just stare at the charts like an idiot.
I must play small
I will take a 0.5-1% risk on my portfolio (or smaller if it doesn’t help) until my mind is healed of the losses and the losing streak. The goal is not to make money—that’s not happening until I get my mind right—the goal is to achieve unemotional, objective consistency in execution.
No more large losses allowed
I must always use a stop loss. If I choose not to for layering purposes, the size of every entry must be ultra-small. Even then, I must still have a hard exit in terms of invalidation conditions and a monetary hard exit no matter what (when my losses reach a specific number, I have to close everything). No more adding collateral or removing stops!
I must journal all my trades and get a large sample size
My primary purpose now is to regain confidence in my trading, break this spell of loss, and achieve consistency in results. It’s not about making a lot of money.
Money must be factored out of decision-making
Trading must again become a game where I focus on the process rather than the results. The less I think of it as money, the better. Reframing every trade, profit, and loss in percentages instead of dollars or euros helps.
I must play by these rules until I see a significant improvement in my performance and the market (easy mode). Once I improve or the market conditions go full bull trend, I have to play small and work on my skills.
I am fully cognisant that full-time trading is the worst job I could ever have imagined for my particular mindset. I come with a lot of baggage regarding money, and if I focus on money the whole time, my mental issues are exacerbated.
I’ve known for a long time that my performance is infinitely better if I don’t worry about money, but this means having a job in my case. For the time being, this is not an option I would have at my disposal, so I will have to find a way around it. Hard mode it is.
As traders, we are not so much battling the market and other players as—we’re constantly battling ourselves. Our insecurities, ego, greed, fear, limiting beliefs, and history with money and success. The ups and downs are enormous. If you choose to go on this path, you will be getting to know yourself intimately—that I can promise you.
Trade well, friends. I hope you weren’t one of the 250,000 traders that were liquidated this week in 24 hours alone. Survival first!