Mar 042011

FT71 has cautioned against trading for P/L many times.  He recommends hiding your P/L while trading.  I suppose that could work if you’re trading frequently but in my cause I want to be selective and that means I just “know” what my P/L is without having to look.  I can do the math in my head and even without the math if I have a couple losers and a couple winners I know roughly where I stand.

But here is another kind of “trading for P/L” to be aware of.  First some background:  This year I’ve been working on trying the FT71 method of capturing the big rotations.  I guess I wasn’t quite ready for it because I couldn’t make it work.  I’m not going to say it’s a problem with FT71’s method but rather I’m not ready for it.  I’ll write more on this soon.

So I went back to what I was doing last year which is just going for 6-8 ticks.  I’m going to rely on trade management, as in cutting losers short, to give me my edge.  It took me a few days to get back into that mindset but I did on Wednesday and for Wednesday & Thursday I had a combined 10 pts on ES.  This is much better than any two days this year.

So immediately I start thinking “when can I go back to trading real money?”  It’s been very hard to trade 2 full months on simulator and have zero income.  So I was thinking that if I can go a few more days with positive results then I’ll try real money again.

And this is where it gets interesting.  I saw a trade opportunity but I wasn’t “sure”.  And then my P/L started entering in my head.  “If I take this and stop out then I’ll be negative today.  If I stop out again it’ll be hard to recover.  If I have a negative day then I won’t be ready.  Then I’ll need to trade on sim for all of next week.”  You can see where this line of thinking could go.  It’s called self-doubt and self-judgement.  And it’s not productive in trading or any other persuit.  In art it’s very dangerous.  If you start drawing or writing music and start questioning it, then your work is going to suffer.  And trading is no different.

So I put on the trade anyway and got 5 ticks.  Ok good.  Then another opportunity came along and I had similar thoughts.  But if I’m going to find out if I can do it, I have to take every good trade opportunity that meets my criteria.  So I took the second and got 9 ticks.

Had I taken them and stopped out then I could learn from the two failed trades.  And if I took them and won, as I did, I’d be positive which would build confidence.  So either, in the long term, I win.  However,  had I talked myself out of those I would be at zero and regretting it.  The loser wouldn’t have been a learning experience and it would create more self-doubt in the future.

So it’s important to take the setups that meet your criteria, which should be documented in a trading plan.  And not to worry about the P/L, even on sim.  If your method has an edge, and this is a big if because I think most do not, then if you trade your method the P/L will take care of itself.

Trading is difficult because most think they have an edge and do not.  And those that do have an edge may sabotage it by not following their plan (or by having a plan that is too complicated to follow real-time as I believe many of mine were).  But if one doesn’t follow the plan, how can we know if there is an edge there?

  One Response to “The psychological impacts of trading for P/L”

  1. Good points, Michael,
    but nobody has an edge in discretionary trading when she or he has just started. You have to work for your edge. And this can be quite a long journey. So it is important to enjoy the journey and not to ponder most of the time about your expenses. And if you will have found your edge you can lose it anytime due to a lot of reasons. This means in the end you have always to work for your edge and persistancy (not stubbornness) is key.


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