Playing the Game One Trade at a Time

Today I want to talk a little bit about the mental side of trading.  A few recent events triggered my memory of a trader I used to train.  For the first few months he looked like he had very promising future.  He could scalp quickly, he showed up early/stayed late, studied hard, managed his risk, didn't speculate and was consistently profitable for his first three months.


Then the frist day of month four... WACK!  His first real big down day. In the red for over 10k... and the market just opened.  He priced some options incorrectly in the morning and paid a really high vol for some worthless options.  Instead of collecting himself and getting right back in to his ryhthm, he rapidly begins to lose control and starts bleeding money.

Now an hour into the day and down closer to 18k....it was as if he didn't know how to trade.  He stop'd scalping/taking quick profits and tried to force the market to give him more than what it was willing. He turned winners into losers. He ignored his risk and speculated on a bounce in a clear down trending market.  I almost slapped him!  I told him to step back, take a deep breath, and do what he was taught or stop trading.


He traded very well the rest of the day, got on the right side of the trend and ended the day down 5k.  As is often the case it wasn't the big loss at the beginning of the day made it a losing day... it was his reaction to it.


You can't control the past or events around you, but you can control your response to them.


It sucks when your first trade of the day is a loser but you have to expect this to happen.  Obviously do everything in your power to ensure that your first few trades of the day are winners but accept the fact that some days your first trade will be a loser.  Be conforatble with it.  You really can't control it.  But you can react more effectively to it.


He made 13k from his PnL lows.  He could have had a positive day if he just took his loss and got back into rhythem.  I see this all the time in trading and in sports.  Poor pitching/hitting begets more poor pitching/hitting.  Poor shooting begets more poor shooting.  Poor trading begets more poor trading.  Just the opposite is true for great athletes/traders that understand what they can control and what they have to just live with.  They understand that you can't be successful if you let your frusteration or anger from one trade affect your next trade.


I personally say the serenity prayer every morning to get my mindset right:


"Grant me the serenity to accept the things I cannot change
The courage to change the things I can
And wisdom to know the difference."

I come into everyday with a game plan to get edge, manage my risk and let my PnL fall where it may.  I only focus on what I can control. Just like everyone else I'm not perfect.  Everyday is a learning experience.  I love that about trading.


The trader in the story could have been a great trader.  Except after I stopped training him I heard that when he had a bad trade (and I wasn't there to get him back on track) he ran his account into the ground.  Needless to say he doesn't trade at the institutional level any more.


As the old trading adage states: "You're only as good as your last trade"  While that might be true I would suggest to only focus on your next trade.


-Complacency Kills


Want more info on this topic? Check out: 

The Process of Trading One Trade at a Time

The Process of Trading One Trade at a Time: Step 1 Self Control




No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.