June 20, 2013
In the last post on this subject I gave a little insight into my system rules and the foundational ideas on which the rules are based :- crowd psychology and risk management. Now I will discuss the obstacles to achievement that are psychological, environmental and life-style related.
Self analysis is always very difficult. It is hard to see the picture when you yourself are in the frame. Nevertheless, one has to know one’s strength and weaknesses if one wants to make progress towards success in trading. I am convinced that I have a good method for trading. The question now is: what prevents me from trading this proven method successfully?
The answers are simple and universal: emotions. More specifically in my case the following:
1. I have a tendency to be impatient. If things don’t move in the direction I expect within a couple of hours, I start to get impatient and start to second guess my system.
2. Fear – when the pair comes close to my stop or exceeds it by a few pips (I’m supposed to wait for the hourly candle close after the stop is exceeded) I throw in the towel.
3. I often don’t flip the trade because I feel unsure of things after getting stopped out.
4. I close open trades on week-ends, while the system often remains open. This is obviously due to the painful experience I had with the Cyprus debacle that decimated my account. (Anybody remember the volatility in that week? A week later it was as if nothing had happened, and now it is just a regular squiggle on the charts!)
5. Sometimes I miss exits/entries due to sleep, chores, or other life-style factors.
Thinking through things I conclude that a lot of the impatience and fear is because my account is very small and I want to make it big in a hurry. Some of you in the comments have made the same point (Thank you, Pramod). The emotions overcome my judgement because both a profit or a loss means so much to me. If my account were larger I would be more willing to go along with the system rules and be patient. Some years ago I came across Taichiseal’s blog, (www.taichiseal.blogspot.com) where he logs his journey on the path to trading for a living. I asked him what would be the minimum capital he would advise for T4L. His answer was $100k, not something I wanted to hear. I didn’t have access to that kind of money, so I’ve been forced to trade with an account much smaller. Although intellectually I understood that the advice was right, I had to make the mistakes myself to confirm it. All other emotional problems are caused by, or are related to being under-capitalized. A small account makes me more fearful, stressed and likely to second guess perfectly good trades.
The emotional balance is also upset by financial blogs and opinions I read. It makes me over-rule my system, almost always to my regret later. I’ll correct this by simply not reading such sites. My reading of the charts has actually improved hugely since I stopped such unnecessary reading.
The second big issue I face is of life-style: Even if I don’t read the financial sites I still need to monitor my trades every few hours. I can set alerts and that helps. But London and NY markets, when most big moves or reversals start, happen to be open between 5 pm and 7 am Melbourne time. I manage to stay awake until 3-4 am, but some days I have to stay up until 7am. Physically, sleeping during the day and staying awake at night is difficult for the human body and cannot be sustained over an extended period. I’m going to deal with this by sleeping at a reasonable hour (between midnight – 2am?) and waking up only for alerts.
Related to the second issue is that due to keeping such weird hours, socially one becomes the odd one out. Makes family life difficult. I don’t know how to fix that, other than just live with it. One day when I’m making millions they will be grateful for my upside-down lifestyle. Long-term, my solution would be to move to a more friendly time-zone.
As a result of this self-analysis, I’ve come to the conclusion that I should not trade again until I have put together an account of at least $100k. To get to that I’m starting another job soon, which means I’ll blog very little. However, I’ll keep tracking and refining my system. The job is scheduled to start in about 2 weeks time. I’ll start blogging regularly when I have my capital and am ready to trade again.