November was a great month for me, not just in terms of money made but also in terms of my development as a trader. Let me take a quick step back for those who may be new to the blog.
I traded with sine wave cycles & multiple timeframes for a year and a half. In October I dropped all that and started focusing exclusively on trading S/R levels using volume profiling methods learned from FuturesTrader71. I also worked on using tighter stops. This was my focus for October and I traded the entire month on simulator. I have journaled the process in the series A look back on my journey. I highly recommend it if you haven’t read it already.
On the last day of October I started trading live. And November was my best daytrading month ever. This convinced me I’m on the right track. But all is not perfect. And I’m a perfectionist. So let’s look at the results:
There are two things to notice. First, my net expectancy per contract per trade (after commissions) is $20/22 euros. Which amounts to about 2 ticks. This is really low. I have been doing some scalping but most of the trades were designed to catch +4 ticks and +8 ticks. that’s 12 ticks total divided by 2 contracts = 6 ticks. I should get 6 but I am getting 2. Why?
One reason could be that the +6 is for winners. Losers would be -6. So if I had 66% winners and 33% losers that would make an average of 2 ticks. But here is the second issue. If you look at my Bund results you’ll see I only had 1 loser and it was for 1 tick! So why did I average just 2 ticks?
I thought the answer was because I scratch a lot. If it goes against me I just scratch it. I spent a lot of October learning to scalp the DOM and when scalping for 2-6 ticks you don’t let it go against you. But when going for bigger trades getting out when it comes back towards my entry was taking me out of the game.
But the real reason is deeper than that. It’s my monkey. For those who are not familiar with FuturesTrader71, the monkey reference comes from his Webinar 3 – Beyond The Technicals; Inside a Winning Trader’s Mind. This webinar has had a profound impact on my trading. I highly recommend it. It is one of the best webinars I’ve ever seen.
So yesterday after the close I was chatting with Gab. I told him about my frustration. I had made 1.5 pts real money and 7.25 on simulator. And this was often the case. I can’t remember exactly what he said but the summary was that I need to get off sim and do my thing. I’m profitable and I need more confidence. And then we continued chatting and I did some deep thinking. I went over the Webinar 3 slides. I explained everything to my risk manager (also my wife). And everything became more clear.
When I started trading 3 years ago I did something very stupid. Instead of putting $20k into an account, I put a lot of our money into my trading account. I was stupid and I’m embarassed to talk about how stupid & naive I was but I figure if it can help someone from losing all their money then my embarassment is a small price to pay. I was very risk seeking. I had been successful in my life: professionally & personally. I didn’t know what defeat was because I had never experienced it. And so I thought trading would be as easy. I don’t need to tell you the rest.
So after losing the majority of my account, I changed from risk-seeking to risk-adverse. And that’s my current monkey. If I lose what I have left, I’m out of the game. So I try not to lose, not even 1 tick. I hate losing. And so I do whatever I can to avoid it. This includes:
- Moving stops
- Averaging down
- Taking profit on winners so that they don’t become losers
Now the first two I’ve made a lot of progress and I’ve only done this a few times last month and admittedly I did it again today. As I wrote about this in a previous post, I believe the lack of automated targets & stops in X_Trader is part of the problem. So as of right now I’m going back to Ninjatrader. And I won’t touch the stops. My first ES trade today was a stop loss. It felt great. Not to lose money but to be in total control and take the stop like a man.
The third item, cutting winners short, turns out to be my biggest problem. I studied my trades from yesterday and I realized that on all 3 real money trades I “got out” early. However on the simulator trades I was patient and let the targets get hit. And that’s why I made only 1.5 pts real and 7.25 on sim. So this told me it was not my method holding me back but psychology and specifically my fear of those winners turning into losses. Going back over my records I realize that I’ve done better on the Ninja DOM on sim than I have on X_Trader. That’s partly due to not caring about a winner going negative on simulator and part because on Ninja the target & stop are set and I don’t touch them much.
So basically I’ve been sabotaging myself. If it goes against me I give it more room. If it goes in my favor I get out when it pulls back a few ticks.
So I decided a few things:
- I will use the Ninjatrader DOM. I will give up the extra features of X_Trader in exchange for lower commissions and automatic stop & targets that I will resist moving.
- I will go for bigger setups that can make more than my risk
- I will be more patient with winners and not cut them short
- I will not trade against a strong move. I will not fade a new high or low. When I see a strong move I’ll be looking to enter with it on a pullback.
- I won’t trade Bund & ES on simulator. Either it’s a good setup in my plan or it’s not.
- If I have doubts about a setup then I’ll trade it with 1/2 position (1 contract)
And the most important: In November I made $5k daytrading. I’m going to give myself permission to lose up to half of that in December. If at any point I’m down $2500 for the month I’ll stop trading real money and go back to sim. I don’t think I’ll lose $2500, in fact I’m predicting I’ll do even better than I did in November. But just giving myself permission to lose $2500 will take all the pressure off. I won’t need to avoid losses. I will embrace them, as long as they’re small. This monkey is going to have to find a new home.