Slumping busting, the trading kind. Part 2

This is an part 2 on slumps. Please feel free to download and share the PDF. TraderHabitsSlumps2

Part 1
Part 3

Tip #4- Get Help
Tip #5- Start Small
Tip #6- Separate Yourself
Tip #7- Leave Breadcrumbs

Get Help

“He who asks is a fool for five minutes, but he who does not ask remains a fool forever.”
Chinese Proverb

Trading can be a lonely place when you are slumping. You do not want to talk to anyone and no one wants to talk to you for fear of catching something. It is never more important to talk with someone when in a slump. Usually a slump can be slowed or stopped by making some minor adjustment or fine tuning. It can be hard, as a trader, to separate yourself from your trading, to be a neutral third party. It is a necessity for trading if you can’t put yourself in that position, ask someone to help you. You should have at least one other trader or mentor to talk with when things start to get bad. If they are smart they will help you. I can learn a lot more from someone who is struggling then someone who is making money. Making money is the easy part, getting through the struggles is what will ultimately allow you to control your destiny.

Common reasons for a slump that are hard for me to recognize are trading one direction and trading outside my abilities. Opinions are ok in trading you just cannot use them for action; it can prevent you from taking a trade but should never be a reason for a trade. If, for example, I look at my trading sheet and it is all sells on a day when we rallied that usually means I was opinionated. Two things happen, one is that I am only seeing opportunities to sell or there are only opportunities to sell. It is hard to sit there and miss out on a big move, in a strong trending day it may be hard to stay with the trade or get in at good a price. Consciously or sub-consciously you are thinking the market cannot continue in that direction. Trading requires you have imagination, if the market is open it can happen. If you have not experienced this for yourself, look at a past chart. I have seen a market rally 70 S&P points overnight. I have also seen the S&P move 20 handles in 5 minutes. There will always be an opportunity to go against a strong trend. I call this being “stuck short” or “stuck long”, if I am trading in one direction against an obvious direction. It usually does not last the whole day for me but if I see my trading sheet all in one direction and the market is not going in that direction I re-evaluate the situation during my breaks. I look to see if I am reacting to the charts or if I am forming the chart so I can act in a certain way. Often in my post trading routine if I look at the chart and it looks different then how I remember it means I was opinionated.

Trading outside my capabilities is dangerous and often is the reason for being in a slump or makes a slump much worse. Trading outside my capabilities means I am taking a lot of trades and trying to pick short term tops and bottoms. Trying to capture every movement in the market is very hard to do and is generally unnecessary. One of the benefits of trading is that you do not have to be in every move to make money. Looking at my trading sheet I will find that I made a lot of trades and was back and forth with the direction. My winning percentage maybe high but my winners do not cover my loser.

I gave you some tips on being able to recognize some problems you may be having on your own, but it is easier said than done. Even seeing those patterns form may not convince you that you were wrong. It always helps to get a second opinion and to just generally talk about trading with another trader. They may hold the key to getting out of the slump faster and cheaper so get help!!!

Start Small

“If I have lost confidence in myself, the whole universe is against me.”
Ralph Waldo Emerson

Confidence can be the cause and the cure to a slump. My first day as a full time trader was my best day for about 6 months. I remember thinking this is easy, I can do this every day. Well I had traded every move and was right a lot and wrong a lot just so happened to be right before I was wrong. The second day, I was feeling good and had the worst day for about 12 months. I was confident for no reason; the truth is I had no idea what I was doing. The second day I gave it all back and then some. I had the loser before the winners this time. Needless to say I needed to build back my confidence because I was scared and was not sure this was for me.

I regained my confidence by taking small steps. I look at confidence like a building. You start with a strong foundation and when it is knocked around if it has a good foundation it is still standing at the end of the day. A strong foundation is created by doing the work necessary for you to succeed. Being educated, having a trading plan, executing that plan and getting experience are all ways to gain confidence. I had some success trading so I thought I knew what I was doing. I had not built a strong foundation so when I needed support it did not exists, I fell hard and was not sure I could get back up. Since then I have always been conscious of slowly building my confidence by planning, executing, and learning each day. That does not mean I do not have bad days. I wake each day knowing that my best and worst days are ahead of me if I progress normally as a trader. Now when I do fall, my support is near me and I do not have as far to go to get where I was.

Separate Yourself

“The significant problems we face cannot be solved at the same level of
thinking we were at when we created them.”
Albert Einstein

I think of separating myself in three ways. It is important to separate your trading life from the other parts of your life, separating yourself emotionally from a trade or results, and separating yourself from the current situation. Your ability to effectively separate each of these will keep you from slumping and pull you out of one. They are not naturally connected to each other but we allow them to be connected.

Separating your two lives can be hard. I strongly believe in keeping and being aware of your trading environment at all times. Maintaining my trading environment equilibrium (TEE) is something that I must do at all times to be successful. If I cannot concentrate on trading because of some external factor I do not trade, because I lose money. If my trading environmental equilibrium is out of whack because of a sickness in the family or the guy who cut me off, or if anything else requires my attention while I should be concentrating trading, I am asking to fail. It is hard to be honest with yourself and admit that you cannot juggle everything but it is in your best interest. It is important that your failures in your trading life do not extend to the other parts of your life and vice versa. The period of times that I am bad at separating the different parts of my life are evident in my P/L. I remember earlier in my trading career I could not separate the two and I became bad at both.

Separating yourself from each trade and trading day is very critical. A slump is bound to happen when I chase the failures or lack of successes from the previous trade or day. Never be caught in the trap of taking trading personal. For most unaware traders, their worst days are the day after they just had what they thought was a bad day. It is foolish to take a trade based on anything other then what is happening at the moment. I am best when I take each and every trade independently. If I cannot take a small loss on a trade that I know does not have a high probability of success because I am down money I am in trouble. Likewise if I cannot take a small winner because I am down money then I am a step away from starting the slump. Also if once up a good amount of money, I act extremely conservative once in a trade because I cannot longer accept the possibility of losing money, I am bound to fail. This is ok if it is part of your trading plan.

Separating yourself from your current situation is hard because it is human nature to put an emphasis on what is happening right now. One of the best pieces of advice I have ever gotten was from a wise old, old man named Dan. He told me that at some point in my life I was going to look long term, I could look long term forward or look long term backwards. I always try to look long term forward because I have an opportunity to change the future. When I am in a slump, I tend to get tunnel vision. I am putting so much pressure on myself because I have to make the money right now. The truth is the only millionaires that happen overnight do not stay that way for long. Developing yourself is a long process but it is worth it.

By separating the different parts of your life, each trade and trading day, and your current situation you are less likely to fall victim to a long slump. Look independently and look long term when you are struggling.

Leave Bread Crumbs

“Those who cannot remember the past are condemned to repeat it.”
George Santayana

Those unwilling to change in the future always want to change the past. When I find myself in a slump I look back to see how I could have done something different. To be able to look back requires I leave bread crumbs or take great notes. Looking back is hard to do because it is painful to relive what seems like a horrible day. Those are the days that I learn the most because when I lose money trading I do not lose the lesson. Important to learn the lesson of winning as well. It gets me one step closer to being a great trader. I cringe at books that emphasize only learn from your losses, it is obvious that you should be learning from both. Learning from loss can be hard but you paid for that lesson. Learning from winning is the best possible situation but it is a rare gift when new to trading. Trading is a series of lessons each individual trader chooses how much he pays.

The best ways to prevent a slump is to know why you are making and losing money. This is best done by a journal of some kind. I keep my journal simple, I have my daily P/L and some overall thought or area of concentration for that day and I use the grading system that was previous discussed. It is important to know how you got here in order to find your way back. It is easy to tell what you were thinking at a point in which your slump started to accelerate if you can rely on paper instead of memory. Also writing is a great way to remember and reinforce your thoughts. Tracking back is the map to get you out of your slump and back on the road to success.

Continue to Part 3

Part 1
Part 2

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Slumping busting, the trading kind. Part 1

This is part 1 of an e-book I published in 2008 about slumps. Please feel free to download and share...

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