Times you couldn't take the trade and how you overcame it

Discussions about personal psychology for the individual trader.
Post Reply
pingflood
Contributor
Contributor
Posts: 2
Joined: Sun May 27, 2007 7:08 pm

Times you couldn't take the trade and how you overcame it

Post by pingflood » Mon May 28, 2007 6:32 pm

Hello all, I have been browsing this forum for a while now as a guest user and decided to sign up since I enjoy the discussions and thoughtfulness here.

Some background: I have been trading stocks for ~10 years, though not with any clear direction or method until about a year ago when I came to know a rather successful trader who has been providing me with some great reading materials and overall knowledge of the markets. For the past year I have dabbled a bit in Forex too.

My dilemma, that I am hoping for some feedback on:

When it comes to stocks, I have zero qualms with getting into a trade with clearly defined exits. I end-of-day trade stocks (and deep-in-the-money options when suitable for leverage), and I use a systematic approach to screen them, pick the entry, stop and profit targets, and sometimes I let them go for days without paying attention to them. I do relatively well at this, but even with the small leverage DITM options afford me it's not enough to make a living off yet.

Now, here's the problem. I apply the same approach to Forex trading, and I can clearly see that it is applicable. The problem is, I keep second guessing myself and not pulling the trigger on the entries even when they do signal everything properly. I get in on a few trades, and do great, then have one or two small losses and lose confidence even though I know full well that is to be expected of the system I am using. So I go for weeks or months not touching it, then do the same thing over again.

What I can't for the life of me figure out is the mental block I have when it comes to Forex trading. I have a few theories:

1) I've always loved trading stocks, and feel like I really need to get to the point where I can do it for a living before doing anything else; like I can't let the stock market 'win' by myself not trading it well/profitably enough.

2) The Forex leverage is intimidating me. It's fun to gain big, but the losses can be pretty significant as well.

3) I am not allowing myself to become truly successful. Not to get off on too much of a tangent, but I suspect that my professional career while rather successful could be far better if I really allowed myself to do the things I know I am capable of.

...so there it is. I really don't know what is 'wrong' with me that I can have a really good systematic trading approach that I am sure can make me a lot of money and NOT USE IT.

If any of you have been in this position, how did you identify the root cause and more importantly, how did you get past it?

Thanks for listening, I know there are many brilliant traders on here so I am hoping for some help getting my head straight.

RedRock
Roundtable Knight
Roundtable Knight
Posts: 939
Joined: Fri Jan 30, 2004 3:54 pm
Location: Chicago

Post by RedRock » Mon May 28, 2007 10:10 pm

Did your parents make you wear a bicycle helmet when riding your bike as a kid? Just curious... :P

One must love risk. Managing risk. Dancing with the flame. Perhaps, stick with stocks till you deal with the demons.

Demons. errr. dragons.. that's it. Slaughter the dragon of doubt with the sword of knowledge. :wink:

pingflood
Contributor
Contributor
Posts: 2
Joined: Sun May 27, 2007 7:08 pm

Post by pingflood » Tue May 29, 2007 6:11 pm

RedRock wrote:Did your parents make you wear a bicycle helmet when riding your bike as a kid? Just curious... :P

One must love risk. Managing risk. Dancing with the flame. Perhaps, stick with stocks till you deal with the demons.

Demons. errr. dragons.. that's it. Slaughter the dragon of doubt with the sword of knowledge. :wink:
Funnily enough, I was allowed to run loose quite a bit while growing up. I also decided to move to a new country at 20 with $500 and a bag of clothes. Seems like I've been rather conservative regarding risk since our baby girl was born though, perhaps that is why.

Do you think Van Tharp's course would be worth taking at this point, or do I just need to get myself straightened up more before doing so? The cost of it is less than a single decent short term stock trade so if it can help I would consider it an investment rather than an expense...

danZman
Roundtable Knight
Roundtable Knight
Posts: 117
Joined: Thu Mar 10, 2005 10:07 am
Location: Newport Beach,CA

Post by danZman » Tue May 29, 2007 7:07 pm

From my own experience, I've found that trading my mechanical systems without fail took two things:

(1) Absoute knowledge of my trading system and how it behaves in real-time (is my slippage similar to backtesting?).

(2) The pain that comes from not trusting the signals.

The pain from not following a system behaves as a quick slap in the face. I'm prone to this when using a new system...I believe I'm done with that nonsense, but I'm sure it's pretty common.

The leverage involved in forex and futures could easily influence taking signals. Perhaps that gets back to number (1).

D

RedRock
Roundtable Knight
Roundtable Knight
Posts: 939
Joined: Fri Jan 30, 2004 3:54 pm
Location: Chicago

Post by RedRock » Tue May 29, 2007 8:40 pm

pingflood wrote:[
Funnily enough, I was allowed to run loose quite a bit while growing up. I also decided to move to a new country at 20 with $500 and a bag of clothes. Seems like I've been rather conservative regarding risk since our baby girl was born though, perhaps that is why.
...
Congrats on the new family member. This could be contributing if you are concerned about finances going into the future. If you are set financially, and trading is not about securing a future, you are ahead in the game. Scared money, or money you cannot afford to loose.... Is money that will be more likely to do the wrong thing at the worst moment.

Have you looked around Eds' Trading Tribe? If all your other ducks are in a row and you need some assistance getting in a good frame of mind for trading, visiting the tribe may be just the ticket. You may find your experience is more common than you might expect. Take some time and read the many posts, system building tutorial, and about the process.

http://www.seykota.com/tribe/

I have [at least] two mindsets in this game. The first is curious scientist, testing ideas and building systems. Once the decision to trade a system has been made, you switch hats... Ya know the images of all the people in the control room during a shuttle launch... Their job is not to design the rocket or second guess it. There job is to get the thing in the air by following the predetermined plan to the letter. That is system trading. A good day is not whether you make or loose, but how well you executed your plan.

I agree with DanZman. Few things are worse than skipping a trade which would have been a winner. The only thing worse is skipping a trade that would have been a looser. ... as this would reinforce the trade skipping mentality..

rr

Paul King
Roundtable Knight
Roundtable Knight
Posts: 207
Joined: Mon Feb 23, 2004 9:13 am
Location: Vermont, USA
Contact:

Don't use it then

Post by Paul King » Wed May 30, 2007 7:04 am

2) The Forex leverage is intimidating me. It's fun to gain big, but the losses can be pretty significant as well

Being highly leveraged in FX is actually optional. The risk you take is the difference between the entry price and where your stop is multiplied by your position size - just like with your stock trading. Just because you can trade a position way bigger than the amount of cash you actually have does not mean you have to take more risk per trade with FX than your other trading.

My advice would be to use volatility-based position sizing with a risk-per-trade similar to your stock trading. This should help you put your FX trading on the same footing as your stock trading and therefore make you more comfortable taking every trade your method tells you to.

Hope this helps

Paul

sluggo
Roundtable Knight
Roundtable Knight
Posts: 2986
Joined: Fri Jun 11, 2004 2:50 pm

Re: Don't use it then

Post by sluggo » Wed May 30, 2007 7:26 am

Paul King wrote:The risk you take is the difference between the entry price and where your stop is multiplied by your position size - just like with your stock trading.
Unless you are worried about price gaps, fast markets, exogenous events, price shocks. You know, "Bad Fills". Then the risk you take for a long is the difference between the entry price and ZERO; the risk you take for a short is the difference between the entry price and INFINITY. Way of the Turtle pp. 92-94 has a nice real-life illustration of a bad fill, in which the actual loss was tremendously larger than the estimated risk (entry price minus stop price).

Maybe you can find dealers who guarantee zero-slippage fills of stop orders even in "fast market conditions". Maybe you will decide to believe they'll deliver on their promise. (remember RefcoFX).

You could limit your risk by purchasing options instead. Buy a call, your risk is limited to the purchase price of the call, even if there is a huge 40 Standard Deviation price gap against your position.

Paul King
Roundtable Knight
Roundtable Knight
Posts: 207
Joined: Mon Feb 23, 2004 9:13 am
Location: Vermont, USA
Contact:

Post by Paul King » Wed May 30, 2007 7:42 am

Sluggo, you are correct of course, maybe I should have said "The risk you take is generally proportional to...". I was trying to make the point that one has the option not to take maximum available leverage and use it.

In the small print for "no slippage" guarantees it always has the caveat of "except during volatile market conditions" or some such "getout" clause for the broker/dealer. So yes, it's basically guaranteed zero slippage unless/until it's not (i.e. when you really need it to be :-).

This is very similar to the "guaranteed income for life" claims of a major life insurance company that is based on the company's "ability to pay"; i.e. guaranteed unless we can't pay...

BARLI
Roundtable Knight
Roundtable Knight
Posts: 650
Joined: Sat Jan 17, 2004 6:01 pm
Location: USA

Post by BARLI » Thu May 31, 2007 4:49 pm

totally agree with danZman's second sentence about those losses that slap in the face when you dont follow signals. Faith's book Way of The Turtle also helped me understand better who actually wins in the game: ONLY those who are CONSISTENT and FEARLESS about their systems.

Post Reply