Saturday, March 31, 2007

Review of March

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March has not been kind to me. I lost just over $800 overall for this month. This is considered a drawdown.
The reason for my poor performance was my attempt to transition into trading futures. I had just finished coming out of my slump in February, and was having a little bit more success with my trading in the early part of March. When I tried trading futures (again) near the middle of this month, I tried trading the Russell (ER2) again, with mixed success at best. That was when I made the post containing words of wisdom from some great traders, in order to draw some inspiration and turn my mental state around. Then at the suggestion of one of the commenters, I expanded my horizons and tried trading other futures contracts. I had initial success with trading Gold Futures. Then after a couple more mistakes, I learned when NOT to trade. Then came the FOMC day, which was my best day of the month. From there, things started to turn for the worse, which was this past week. I started to forget about when NOT to trade. I started to forget about doing what it takes to wait until the low hanging fruit appears. If you look at the history of posts in my futures trading, you can see how things progressively went downhill. I started to scalp more and more.
Frustrating doesn't even describe it anymore.

This is not the first time it's happened. I've noticed that I seem to periodically forget the rules that have proven to work for me in the past. It's not that I can't make good trading decisions. For example, in the Gold Futures trade, I made my analysis the night before, and knew about the support levels, planned, prepared for the days action, and acted decisively when the opportunity arose. The analysis and planning is what I attribute to my successful Gold futures trades.

Why did I stop doing that? The OMNI has to my knowledge, absolutely the best freely available and documented 4 month track record in SnP eMini Futures trading out there, and I threw their recommendations out the window at the first trading loss that I took. I am still trying to fathom how and why I am doing that.

The problem is that I periodically get into bouts of bad trading decisions as well. Once I make some bad trading decisions, I think I start shutting down my good habits. When it all boils down to it, the true root cause of the problem is that I start to lose confidence. Confidence is all about the capacity to trust in your own ability to perform. Things are unfolding exactly as I wrote about them in my post about the Habits of the Highly Effective Trader (see the Best Of tab). Each bad trading decision that I make robs my capacity to trust in my ability to perform. I start to ignore my analysis and planning more and more, and I begin to trust less and less. That naturally makes me more vulnerable to making even more bad trading decisions. The simplest example is the past couple days. The OMNI provided the day's recommendations. I worked out some of my own entry/exit levels, and the likely scenario of the day. Once the trading day started, the first loss I took resulted in throwing all trust in my own analysis and planning out the window.

The solution is blood simple.
Trade less often. Stop trading for the day when I make two bad trading decisions. Be even more picky about the high probability setups. Follow my trading plan even more religiously.

Now, the hard part is to execute this solution. Wish me luck.


Tyro said...

It's hard, no doubt. But you're a strong person and a strong trader and I know you can do it. Good luck, Phileo.

john said...

good luck phileo

Caravaggio said...

Yes, good luck friend.

"I've noticed that I seem to periodically forget the rules that have proven to work for me in the past."

My discipline also works in cycles Phileo. Maybe it's a natural phenomenon. Quite often, all it takes is a small run of victories for complacency to set it...then I stop focussing on my road-map/trading plan and only give it a passing nod, figuring that I am on the ball and I don't need to meditate over the same old stuff again. I mean, surely I have it drilled deep in to my pysche by now? And that's right about when I fall off the ball. I don't know what you are doing now with respect to your trading plan, but it may help to print it out and stick it somewhere close to your trading station to act as a constant reminder. You could also scan it and have it as a screensaver. I've done both, and I still 'choose to forget', but it definitely helps.

Phileo said...

Thanks everyone for the encouragement.
Caravaggio, I will print out my trading plan and stick it to the wall in front of my desk.