How best to fight the mental game...

[brownsfan019]

Hi Doc,
Good to have you here. In another thread - http://www.traderslaboratory.com/for...dles-1480.html - towards the last few pages I started to discuss the challenges I was having with my exit method.

In a nutshell, the one glaring weakness I have in trading is always wanting more on trades that provided more (in hindsight of course), but at the same time, making money on days when those moves are just not there. I know there's many different ways to try to figure out when these moves will occur, but for sake of discussion here, let's assume that very few people can time when the big moves are coming and when they are not.

So my question is - how do you train your brain to accept your trades as they are? In other words, how do I train my brain to accept the fact that sometimes trades will continue to move in my direction after I've already exited a position?

I find myself on days like last Wed where I went long the ES at 1518 and exited at +2.75 to end up seeing at the end of the day it was up almost 20 pts from my entry getting frustrated. I have ways to jump back on and continue taking little chunks of that move, but of course I think - how nice would it have been to been long ONCE and pocket almost 20 pts. Then there's days where taking 2 or so each trade is what you'll get. And I know that those days are more likely than what we saw on Wed. I know that and understand that. Easy to sit here now and type that. But in the heat of the moment, as you know, your brain can play some wonderful games with you...

So doc, what's a guy to do?

Thanks for your help!

[TinGull]

Hey bf,

what Im about to say helped me a ton, though it may be obvious to some. Take what I say with a grain of salt, cause Im still a newbie trader (at least I feel so).

With that disclaimer out of the way...there were a couple of people who have helped me tremendously with some issues such as youre describing. My girlfriend and my coach.

When I have a trade that Im in and it's going my way, and then I see some weakness creep in I'll get out ASAP. Weakness to me shows up as price stalling under a pivot, seeing a quick rejection of a significant area... And then when I get out, many times it continues going my way. Frustrating. When I get all in a tizzy about it, my girl will say: Did you do the best you could do with the information you had at that moment? Sure...I did. I saw weakness and got out. "well what are you crying for?!" she says.

My coach told me...you can't see to the right of the chart, so why bother thinking about it. Think about what is happening right now. Lately this has become something that's gotten easier for me to do...not think. I had been letting some trades overmature and taking profit after the max peak had already occurred. Equally as frustrating for me. So now, I tell myself...I'll hold on until I see weakness. When that weakness comes in, there's a chance it'll continue up. How much do I want to risk to find out if it will?

My coach recommended applying a Fib rule to my profits. Say I see weakness...how confident am I in the trend that is happening? Do I want to risk 62% of my current profits to find out if it'll continue? Maybe I feel somewhat confident and I want to risk only 50% of my profits to find out, or...maybe price has already made it's average range and the likelihood of it continuing aren't high, so I might risk only 38% of my profits to find out if it can continue.

I figure, price is always advertising for buyers and sellers. If I'm in a move long and Im up say 30 points on the YM, and some small weakness comes into the market (advertising for sellers), is it likely that sellers will come out in force? If I dont think it's too likely, then I'll move my stop to BE+10. If I get taken out, then thats fine with me. I didn't lose any money on it, and my risk was defined.

Then, if it takes me out to the tick and rises up another 80 points, I grab a BB gun and shoot a squi....errrr....jk. If that happens I just say...freakin Market! What could I have seen to anticipate this happening. Every experience, good or bad, is a learning experience. That, to me, makes every experience a good experience as I love learning. When something doesn't go the way I wanted it to (get out too soon or too late) then I go to the garden and tend to my veggies. I know I followed exactly what I set out to do and that's all I can ask for.


I dont know if that helps you at all...but that sort of stuff is what helped me.

[brownsfan019]

tin - thanks for sharing, that was a good read.

For me, this part of the biz is the hardest part - realizing that you will never take maximum profits all the time. I'm not **** in many things in my life, but my trading biz is one of those things that I constantly want to improve on and take to even a higher level. Of course, just taking more profits when they are there is the simple solution, right?

One question tin (not sure if this thread is best or not) - how do you define 'weakness' when you are in a profitable trade and looking to consider a quick exit? Like I mentioned in the other thread, I am terrible at trailing (or maybe it's just the whole premise that doesn't sit well with me) and would be curious how you quickly flatten a position.

[TinGull]

Real quickly...I have been watching the speed of price movement. When I enter a position, I want it to move in my direction rather quickly. If it slows down after I've entered and I'm up maybe 10 points, I'll just move my stop to BE, as that is a sign of weakness to me. When price prints fast, the herd is entering, and when price starts to slow down towards a known reference area (be it a previous days hi or lo, value area pivot or 30min OR hi or lo) then I start to think that as a beginning sign of weakness. If price cruises through the pivot, but closes the candle back inside the pivot, that to me is a rejection of price movement and I'll get out. Or...good place to get in the opposite direction.

I look a lot at ATR of dailies as well as seeing spikes in price on the prior day to gauge a range for price the next day. If price has a really extended range to the upside...I won't look to initiate longs, as it's not hi odds. Looking for price getting stagnant when the YM has had a range of say 90-110 points is a good sign that pressure needs to be released and to me...shorts are hi odds trades that point.

[walterw]

I dont want to intrude on this thread, thought the idea is to hear docs opinion... but reading your issue on exits Brown it really reminds me of a great crisis I went thru on my trading career some years ago...

I know each individual has their own method of thinking and what can be helpfull fore some may not be for others... any way hearing all the bells sometimes can bring some light at the end of the tunnel...

My experience with exits is similar to what Tin just mentioned, you can get frustrated for geting out early or frustrated for waiting and loosing what at some point was profit...

I came to the conclusion that there is an "average" exit method that will work from 0 to 100 % expectations... so triyng to find an exit method that will always give me a let say 90% of my expectations its totally imposible, because the market is so unpredictible on its output that exits come on the same cathegory of unprediction...

So to calm the traders mind and take out the burden and stress of triyng to exit the best posible, I came to the conclusion that a trader must KNOW his average exit... (technically speaking ) and simply trade it...

If the outcome could had been better than average, dont feel bad... you had the discipline to stay tunned with your average exit and you are in peace with yourself...

Now that sometimes demands a truce with yourself in terms of what are your monetary expectations on an X universe time period, say day, week, 15 days or month...

If you program your self to make (lets say) 1000 dollars per month contract... in 30 contracts thats 30 k month... nice mmm ok... so be in peace with that target

maaaaybe the market wanted to give you 50 k that month.... but you know, that maybe creates a great anxiety, you are depending emotionally on the market performance and frustration will be in there... on the other side you made 30 k ¡¡¡ whats the deal on been frustrated...??

I would like to conduce a poll here on TL and see how many traders are making 30 k on a monthly steady basis...

You see, having certain monetary objectives and asigning to them the 100% of success detaches you of reading the market to rate your success... wich is an evil machine that will turn you nuts...

You made your month target.... you had 100% success.... be Happy and enjoy life...

Now my other key.... Keep your $ targets LOW... if the target is low, the more great chances you have of making it real... if its to high chances are lower so there is a psicologicall pressure there that tells you I am triyng to do something not realistic...

When you combine all this with your trading, taking average exits... it may work like a charm...

Takes self programing, takes time, takes will.... it is posible, it makes you free...

If the market outperforms your targets, let him outperform, you made your monthly target, feel good with that, enjoy life....

Hope helps.... cheers Walter.

[PYenner]

The advice of a trader with 20 years experience (Simon Harris) was-
"Don't ever regret taking a profit, only to find that the price continued to move your way".
To me, taking a profit is beating the game, doing your job.
Pat yourself on the back for getting it right, first and foremost.

The question really splits into two parts.
For the first part, when a swing goes as expected, I am happy to get 80% or more of the expected movement and to achieve safety from an exit that might be a bit early. That is the basic daily trade, the one you have "signals" for.

The second part, when the movement goes further than expected, has to be treated as a second strategy and you can only trade such a strategy if you have a signal for it that can be relied on. If you don't have such a signal then you have done all you can do for the present. The aim is to go in search of signals that you are currently unaware of. They may exist, they may not.

But until you have a relible signal you should stick to the strategy you have because gambling leads inevitably to losses.

To me, leaving a portion of the trade running in the hope/risk of a windfall is gambling and likely to be a waste of time and effort, a distraction from the real issue which should be about looking for a usable signal.

[ItalianSharp]

Let me give you my 2 cents here.

First of all, any exit strategy should be correlated with a position sizing strategy.

If you are a YM 1-contract daytrader it'd be unrealistic to expect to make 50pts off any given trade. Just stick to your basic exit strategy and don't care what the market does next unless you get another entry signal.

If you trade more than 1 contract, scaling out might be the best fit simply because you take profits at different levels...and if you are lucky enough to catch a decent trend, you can take out most of the move with a single trade.

Last but not least, what are your volatility expectations at the time of your trade? Is the market move led by important news announcements? Are all the other markets moving in synch? How fast is the market moving?

If you look back at the FOMC minutes of last Wednesday, after the initial 30min chop, all markets finally took a direction and produce a rare parabolic upmove.

That would have been a good time to get greedy simply because FOMC minutes often produces those types of moves. If you are lucky and good enough to be on the right side, just sit back and enjoy your profits...place your stop at BE + some and let it ride...those are the times you can make a shitload amount of money with minimum effort.

In summary:

1. If you trade 1 contract, stick to your basic exit strategy and take whatever the market is willing to give you at that time.

2. If you trade more than 1 contract, scaling out is a good compromise and will allow you to catch most of the trend moves.

3. Always monitor volatility. If volatility is high and markets are pushing, let it ride.

IS

[BlowFish]

Be interested to hear what the doc says but I think we have it covered. Many people have said the same thing in different ways. Essentialy, You can't have it all. You need to know what moves you are trying to capture and stick to hunting them. While it seems you accept this at one level you are clearly resistant to the idea. (forgive me for becoming more blunt as you repeat the question )

Perhaps the question you need to be asking is why am I seeking 'perfection' in a place it can not be found (my plan) rather than a place it can be found (how I execute my plan). Well this is what I suspect having been down that particlar never ending path.

Ask yourself better questions and you will get better answers.

[brownsfan019]

Hey guys,
Thanks for the input. Hopefully the doc will stop by and give us her opinion as well!

I agree that you cannot extract all the profits, all the time. And Walter was right, the income being generated from trading was much more than when I was a broker working 70 hr work weeks, so life should be good, right? I know, from a birds eye view, that makes perfect sense and to look at it right now, on a Sunday night, sounds great to me as well.

Come Monday though... if a trade just takes off... the battle ensues - call it greed vs. realism. Realism states that I will not extract every last penny all the time. Greed says to get it and get it now.

It's a wonderful psychological battle and I guess if the problem is whether I made $XX,XXX this month vs. $XX,XXX last month, it's a good problem to have. Now the pursuit is to push those X's a little further and debate about making $XXX,XXX vs. $XX,XXX a month!!!!

[BlowFish]

If you want more XX's increase size as your equity grows. I'm sure you know this of course .