How a Stock Meltdown Today Further Confirmed My Intuition

I opened 23 positions in January, 19 positions in February, and 11 so far in March.  There were approximately 22 trading days in January and 21 trading days in February. March will provide 21 trading days.  It’s pretty clear from these numbers that I average about 1 trade a day.  I’m not trading everyday though.  Trades sometimes come in bunches and on some days, I open multiple positions.  It’s also clear that I’m a forex day trader.  I attribute this to my personality.  I’ll be the first to admit that I’m a bit impatient.  I accept this and therefore design my strategies based on my self-evaluation.  This is the only way I can see doing it.  Fight yourself and it will show in your bottom line.  

Until I actually broke down the numbers above, I felt like I was "under" trading this month.   "Under" trading to me means that I’m missing trades that my systems are generating.  The simple fact is that every month I miss trades that my systems generate.  So I’m not strictly a mechanical trader because I do use discretion in my trading or maybe it can be called intuition.  Intuition usually turns out helping me a lot more than it hurts me.  How do I use intuition in my trading? Quite simply, sometimes a signal I get just doesn’t feel right.  In this case, I won’t enter the trade.  Sometimes if I’m already in a trade, I’ll get out before it completes.  I’ll admit that sometimes it may be due to fear but many times, it’s just gut feeling.  After today’s total meltdown of a certain financial firm’s stock (they were all over the news), I now believe that I should trust my intuition even more.  I worked for this financial institution.  I left the firm two weeks ago.   There were a lot of contributing factors to why I left but every January of every year, I could have left the firm but I never did until this year.  Luck?  Maybe but maybe not.  

I think intuition should play a role in every trader’s decision-making process.  How do you know if intuition, logic, fear, greed, or other emotions are expressing themselves in your trading? The key is to find the right balance which will come with experience.

Six Steps To Blow Up Your Forex Account

There are a lot of traders out there that have totally blown up their accounts.  I'm one of them.  Unfortunately, I never really knew how quickly this could happen until I actually did it.  Here's a brief synopsis of the events:

1. I'm trading normally, with what I think is sound money management, slowly trying to build on my capital.
2. Win 1, loss 1; win 1, lose 2; win 3 lose 1; win 1 lose 3; this can go on for quite some time.
3. Then a consecutive losing streak happens, 3 in a row, 5 in a row, 10 in a row, who's counting.
4. Emotion get the best of me, I start over-leveraging to try to get back what I've lost.
5. Things get worse and my balance is low.  Let me ride the rest on this 1 trade.  I can make it back. 
6. Kaboom! Margin call.

The last 4 steps can happen so quickly that before you know it, you've totally blown up your account.  Fortunately, I've come back from this smarter.  Instead of a blood gusher, I'm a slow bleeder.  Colin over at Forex Spirit had a rough December.  His 2007 equity graph alone shows how rough.  Check it out, you may learn something.  I think it was an important step for him to actually throw it all out in the open and write about it. 

What to read more about REALLY blowing up your account?

How To Break Out of a Trading Slump

The definition of slump that I find most fitting is "a period
of decline or deterioration."   Since trading is so psychological by
nature, this period of decline or deterioration has to be expected.  I
don't think there is anyway to avoid it, it's inevitable.  The bottom
line is that I've either been in a slump or my level of inexperience
and ability is just not sufficient for it to be called anything but
expected.  

What can you or I do (or not do) to break out of this slump?  

1. Take steroids like athletes do.  This is certainly one way to do
   it in baseball or other sports but unfortunately in trading, there is
   no such thing.
2. By trying harder.  This seems like a sure-fire way to prolong the
   slump and this added pressure only makes things worse.  This could lead
   to overtrading and heavier losses. 
3. Taking a short break.  This sometimes helps me to refocus and
   takes my mind off the negativity.  This can definitely be a difference
   maker in breaking out of a slump and certainly has to be seriously
   considered as a "cure."  
4. Take a complete inventory of why you love trading.  Personally,
   if I don't love something, I just don't want to put the time or effort
   into doing it for there to be success. 
5. Trade in your demo account.  I feel like trading my demo account
   throughout April has helped considerably.  I've managed to take my demo
   account very seriously and I have a new fond respect for its ability to
   help me break out of a slump.
6. Change your routine.  If you don't have a daily routine, maybe
   creating one would help and if you already have one, maybe changing it
   would make all the difference.
7. Stop thinking in terms of winning and losing.  Focus more on
   whether your overall trading skills are improving even if you're losing
   more than you're winning. 
8. Unstress yourself.  Do something else other than trading that can
   relieve the everyday stress of trading and life in general.  Sometimes
   I forget why I'm striving to be a full-time trader, to have more
   freedom and security to enjoy things outside of earning a living.
9. Try something new or simpler.
10. Find someone that can help.  This someone could be in person, in a book, or just another fellow trader.

I'm not a trading expert, nor an expert in the field of psychology
but I read a lot and breaking out of a trading slump is really no
different than breaking out of any other slump that life throws out at
you.  I think we all have the ability to break out of it because of all
the experience from past slumps that we've encountered.  If I ever want
to be a full-time trader, learning how to break out sooner than later
can make the difference in whether I'm a success or failure.   

Lately, I feel like I'm ready to break out of this slump… I just feel it. 

Innerworth Lives

It seems like the Innerworth newsletter I said was dead yesterday actually continues but in another form.  The main contributor, Michael Shopshire will be contributing his work three times a week to Marketwise.  It is now called the Marketwise Mental Edge Newsletter and from what I can tell can only be accessed by going to the MarketBlog Central section of the Marketwise homepage.  

Innerworth Ceases Publication

I'm disappointed that Innerworth, the "Mind Over Markets" website that released daily newsletters related to trading and psychology, has ceased operating.  It was very sudden.  They sent out an email announcement on the same day they were shutting the doors:

We regret to inform you that the Innerworth Mind Over Markets™ daily
newsletter will officially cease publication on Friday, February 9,
2007. Additionally, www.innerworth.com will cease operations on Friday. We appreciate your support and patronage over the years. 

There are just so few reliable and credible forex resources out there.  When you lose one, it seems like you're losing a lot more.  I didn't always read the newsletter but when I did, I found it very well written, informative, and helpful.  

Creativity In Forex Is Overrated

I thoroughly enjoyed an email that Harvey sent to me where he states that creativity in trading is overrated.  I don't know whether he's right or not but he states his point very succinctly.  I don't think there is anything creative about my current trading state.  I'm still of the belief to keep things simple and most of what I do is more common sense than creativity.  Here it is:

Word up –

I think trading creativity might be overrated. I cannot guarantee that it is overrated because I'm still working on the goal of trading for a living. However, it has been my experience thus far that creativity leads to confusion.

Consolidation leads to Breakout –> Breakout leads to Consolidation…..ad infinitum. Edges are easy to find. I used to agree that creativity was needed in pursuit of the winning edge but now its all about trading the obvious. Obvious works because lots of other people see it too.
There are 3 reasons why I havent yet had the success I would like trading the obvious.

1. I didnt take the trade. (No good reason for this)
2. I placed my stop too close. (No good reason)
3. I took my profit too early. (No good reason)
   

If I had to comment on Harvey's three "no good reasons", I'd associate a cause for each.

1. Fear and doubt
2. Fear and doubt
3. Fear and doubt

Am I stating the obvious here?  I don't know so if I am, tell me.  I
feel uncomfortable using the word "fear" a lot in my posts but I think
it is such a factor in my decisions that I just cannot help
it.  I believe that the best way to overcome this is to accept the fact
that you're going to lose and just as important, never allocate more
than a certain percentage of your capital to each trade.

Four Overlooked Qualities of a Successful Forex Trader

Brett Steenbarger, Psychologist and Trader, talks about the four overlooked qualities of successful traders today.  I wouldn't consider myself a successful trader yet but nevertheless, do you or I have these qualities?

1. Constant Desire to Improve -  I truly find trading rewarding and interesting therefore I have this desire to improve.  I want to be successful and I also want my financial well being to be in my hands, not some corporation.  I'm always reading and trying to find a new strategy that may give me an edge.  As long as I have this desire, I feel like my goals can be obtained.
2. The Ability to Press Their Advantage – Brett talks about the good traders being aggressive and never shying away from what they see as an advantage.  The lesser traders according to him are quick to take profits and are risk averse.  This ability is something that I am working on.  I feel like I've made some progress since I've developed a more mechanical, written trading plan.
3. Emotional Resilence – Brett states that the great traders have a great attitude about losing.  "They know it's going to happen."  I don't like to lose and I don't have a great attitude about losing yet.  I certainly have made inroads throughout the past year though.  When I first started trading, I lost so often
   that it totally consumed me.  Now that I can string together some wins,
   the losses don't seem as bad as before.  Losing doesn't affect me as much as it once did but the bottom line is that it still does affect me to a certain extent. 
4. Creativity - Find an edge in an unlikely place.  I feel that I'm creative in my trading but definitely not as much as I would like.  I think that once I can close the gap in knowledge between myself and experienced traders, I may have more time to be creative. 

Brett's post is worth the read.

Ping Pong Forex

I felt like a ping pong ball this morning as follow through momentum on both of my trades failed.  Before my trades, I was up 210 pips for December.  Afterwards, up only 30 pips.  Yes, it is frustrating but I will not seek revenge on the markets.  I'll tell myself that this is just the price of doing business which it is. 

At this stage in my learning cycle, I'm really not focusing as much internally on whether I win or loss money.  Though I'd much rather be making money, my goal is PROGRESS.  I may have used this analogy before but I used to be a smoker.  I had tried many times to quit the terrible habit only to be derailed by a night at the bars or some other outside social activity.  Those of you that smoke or did smoke can relate.  There were times when I had quit for months.  Then I'd go out with friends and smoke just 1.  This 1 cigarette would quickly turn into 1 more until the habit was mine once again.  This habit would remain for many months to over a year until I could motivate myself to quit once again.  This has happened many times over.  This clearly demonstrated my lack of willpower.   My point is that this one moment or decision I made (to smoke that 1 cigarette) sabotaged my previous efforts.   This can happen with trading very easily and has to many people.  Just 1 day of impulse trading or revenge trading can wipe out months of progress.  This sticks in my mind anytime I feel that I'm starting to lose self-control in my trading.   Willpower is defined as the control of one's impulses and actions or quite simply, self-control.  I know how it feels to have a momentary lapse of willpower and as long as this lapse is kept to the bare minimum, a comeback can be made.  But allow this lack of willpower to take over and it could mean the end.  This may sound dramatic but I've talked to too many people that have blown out their accounts because of 1 single lapse of self-control.  Some of them have gotten up from this blow but others have not.  Forex trading is a revolving door.  I just hope that when I decide to go through it, it will be on my terms.

Enhancing Trader Performance

I just read the first 6 pages of Brett Steenbarger's new book titled, "Enhancing Trader Performance: Proven Strategies from the Cutting Edge of Trader Psychology."   The book was just released  on November 3rd. 

Brett easily hooked me in the first 6 pages with a profile in psychology of two real traders.  The first trader, Al never lost his cool and didn't violate his stop losses.  The second trader, Mick was kind of a hot head who violated his stops and took a loss personally. Mick after having a bad morning where he allowed his emotion to affect his trading decided to skip lunch to review his trading, figure out the market and also how to get back his money.  Al took his lunch and went back to trading with his cool and calm style after lunch.  Which one is the successful trader you ask?  Mick is the multi-million-dollar performer.  Al is no longer trading.  How has Mick been able to succeed despite his obvious violation of psychological principles?  Deliberate practice.  Mick is dedicated to the market and analyzes his every mistake.  This helped in preparing him for similarly frustrating trading scenarios and provided him with the confidence to get through it.

I have not bought the book yet but I might.  

http://astore.amazon.com/theforexproje-20/detail/0470038667/002-4343923-4611237

10 Steps to Guarantee Failure

I found this on Digg today and it's certainly worth reading.  The 10 steps are targeted to a broad category of people and not necessarily towards traders but it might as well be.  All steps are relevent to trading:

1. Make your goals vague
2. Make your goals difficult to visualize
3. Think and speak negatively of your goals
4. Avoid planning incremental steps
5. Don't Do – Talk
6. Wait until you are motivated
7. Don't set a date
8. List why it's impossible
9. Don't research your goal
10. Think of anything but your goal

http://www.persistenceunlimited.com/2006/05/10-steps-you-can-take-to-guarantee-failure/

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