Thursday, March 01, 2007

Slump -

Breaking out of a slump is hard to do.

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Yesterday I finished 4 consecutive losing days to end the month of February. It was demoralizing to say the least, and contributed to my lack of motivation to do anything, let alone record it in this trading journal.
My best performance in the past 4 days was this play on SU:

I felt demoralized after waiting for hours for the play to develop, only to have it fail on me. I shutdown after that.
It was hard to shutdown after a series of consecutive losing sessions. It was hard to deal with the frustration. I wanted to go out and jog it off, but had other commitments.

During this slump, I kept my losses small. That was not the problem. In fact keeping my losses small wasn't even a factor in contributing to my slump. I've had to go back and think about what I did in the past 4 days, and why it happened.

Overtrading was not a cause of the problem, but actually a symptom of the root cause. One of the main factors which contributed to this slump was the Pressure to perform - with each loss that I took, I felt the increased pressure on me to make up for that loss. So I looked increasingly harder for setups, and when there was none, I would force the trade. It got to the point where I went back to trading out of boredom, and forgot what a good setup looked like. I had to go back to my journal, and some other blogs to look at past trades to refresh my memory on what a good trade looked like.

Another factor which contributed to my slump was my unrealistic expectations. I've talked about this when I wrote the article on the Patience Pill. I should read my own articles more often, because I wound up doing the exact opposite of what I wrote during this slump. When a stock I was looking at went down, I thought for sure it would bounce back up. When another stock I was looking at went up, I tried to short it because I was trying to time the top. The play on SU kind of summed it up about my expectations. I was expecting great things from this setup, when in retrospect, it was just an average setup, average risk, average probability trade at best.

One of the ways to break out of a slump is to simply stop trading. It's not a formula for success, but it is a surefire formula to stop the bleeding. You have to stop the bleeding before you can heal and recover. Unfortunately, I haven't been able to just sit back and watch and not do anything because I always wanted to be doing something. That combined with the pressure to perform, and unrealistic expectations proved to be lethal, and painful.

Yesterday night was the climax of my slump. After I shutdown, my mind was filled with a dearth of thoughts, as if my life essence was being slowly sucked out. Then like all creatures of habit, I went through the routine of beating myself up for making these stupid mistakes. Then after that, I became despondent and wondered if I could really do this. I mean, my slump was so bad that I had even forgot what a good setup looked like !

How did I break out of my slump? I went back and thought about the Highly Effective Trader, and what he would do. The Highly Effective Trader would not focus on the profit or the dollars, only the setup, the probability of the trade, but in reality, sometimes it's hard not to focus on the profits and the money. I don't know if it is a sign of immaturity, or just how I am wired up, but it just is that way for me.
I can't allow myself to dwell on my mistakes. Not only is it unhealthy, but it also hinders the trust I have in my ability to perform, and I felt that in spades these past 4 days. So I was thinking about how to get away from dwelling on these mistakes, when I came across this website on the eMini S&P.

I just love a good idea. When I was reflecting yesterday night on the past four nights, I was thinking, "if I could just get one good idea....." Then I came across this website which talked about possible scenarios for today's trading session. This guy actually had a thesis, and discussed his eMini S&P (ESH7) trading numbers around that thesis. The thesis was that there would be another wave of selling due to delays in margin calls in managed accounts (ie. the ones that the brokers are managing for the doctors/lawyers). This wave of selling would test the crash lows, and then there would (hopefully) be a bounce back up simply because after that there would be a vacuum of sellers. The guy thought that the ES would drop as low as 1390 before bouncing back up. Well, the number was wrong (ES went as low as 1381.75 I think), but the thesis was correct! The selling was exaggerated to the downside and the bounce back up was exaggerated as well, but the thesis was intact. Knowing this really helped to frame my mind when I traded RIMM today (chart at EoD).

I always try not to blame my platform, but it's hard to take responsibility for my own trading results when the chart just freezes up on me. That happened almost once per day during my slump. I contacted IB support, and they acknowledged that they were aware of a problem with the IB charts not updating in real-time, and they were working on it, but no ETA. Their suggestion was to use an older version of their trading platform, or using a 3rd Party tool for charting. Gee, thanks for admitting that you SUCK, IB.
The problems with my IB platform was what finally drove me to learn how to use QuoteTracker. Prior to this, I wanted to use QuoteTracker, but deep down inside I felt I could still get by without it. Not anymore. It is every bit as good as advertised. I can do things not better, but much more efficiently with QT. And the perception that it's better is what matters, isn't it ?? I started playing around with QT's paintbars feature, and will be looking at setting up the alerts very soon.

The other change is that I'm finally starting to sense a little mental shift into patience mode. Sure, the bad habits will still be there, and I'm sure I'll still have bouts of overtrading, but I'm finally beginning to really be able to see things from the viewpoint of patience.

This is who I am. Bad habits, and prone to making mistakes were added into my personality when they wired me up. To be realistic, I don't think they will ever go away completely, because they are a part of me. Sort of like the baggage that everyone carries around with them. It will take many months, if not years of hard work to decrease the damage they can cause. Fortunately, I am self-aware enough to understand that I cannot dwell on these negatives, and that there are ways to mitigate them. I also have strengths working for me, such as being able to uncover the hot sectors, and the bullish stocks. For me, the way out of the slump was a change in mindset, and letting go of the urge to chase profits, which also goes back to the change in mindset.
Of course, perception is not the reality in this case. Even though I've perceived a little change in my thinking, my trading will tell me whether I've really changed.


mdawsz said...

Excellent post Phileo. Keep your head in the game! Sometimes the best trade is jsut sitting on your hands.

ZBS said...


Sometime bad trading period will force trader to make deep thinking and change trading habits and turn to a better trader. I strongly believe you will learn from past experience and become a great trader.

IB real-time charts suck a lot resources from computer as it keep drawing the charts from scratch whenever an update needed on the chart. QT is way much better.

Let's keep learning and eventually we'll success.


Phileo said...

mdawsz - thanks for the encouragement. Like many things things in life, your mental state matters a lot when it comes to trading.

ZBS - thanks for the encouragement.

Simply Options Trader said...

Yes, IB sucks! I had problems with them executing my contingent order during the meltdown last wk and till now they have not updated my on the status of the investigation. I'm looking to moving some funds over to thinkorswim. Excellent platform for options trading.

Hope you find back the fire in your trading. Best of luck!

Phileo said...

Hi SimplyOptions,

Yeah, IB has given me a lot of problems lately.
Thanks for dropping by, and thanks for the encouragement!