StockFetcher Forums · General Discussion · How To Regain Your Trading Consistency by Brett Steenbarger<< 1 2 >>Post Follow-up
TheRumpledOne
6,358 posts
msg #52632
Ignore TheRumpledOne
6/28/2007 3:32:53 PM

Thursday, June 28, 2007

How To Regain Your Trading Consistency by Brett Steenbarger

A reader recently wrote to me the following:

I was a successful consistent trader who always hit singles and doubles ($1000-$3000 a day) for 48 months in a row without having a losing month (1999-2003).Then one day I struck out. I lost $38,000 in one stock and had my first losing month as a trader ever. Since then I have not had two consecutive winning months and in fact have only had a handful of profitable months since then. I am still looking for the road back to consistency. No matter how close I get I always find a way to screw it up even if it is on the last day of the month. Or I give back the month with just some silly unimportant trade that turns into a disaster. It is like I subconsciously look for these situations just so I can mess up.

This is not such an unusual scenario. One large loss can trigger a cascade of attempts to make back the money, further mistakes, and expanding losses. The key is breaking this cycle of losing money, attempting to make the money back with aggressive trades, and continuing to lose.

The first thing I'd have our trader look at is where he is placing stops and targets for his trades. Note that his successful period was 1999-2003. That was a period of much higher price volatility than we've seen since then. What constitutes "singles and doubles" in a high volatility environment is a home run trade in a slow, low-volatility market. It is entirely conceivable that our trader is placing targets too far from his entries, allowing small gains to reverse on him. Similarly, he may be letting trades get too far away from him simply because he is calibrated to a higher level of volatility.

A good way to test these hypotheses would be to study trades over the last several months. If losing trades are larger than winners on average, and if many losers start out as winners, that would suggest that our trader needs to adjust to the post 2003 environment.

To break the cycle mentioned above, the first step is to drastically reduce trading size. I would cut size to 1/4 the average at the most. The goal is to keep a little skin in the game, but take P/L (and the push to make back money) off the table temporarily. The initial objective is not to make money, but to regain a trading rhythm by getting back to singles and doubles.

The next step is to identify those singles and doubles. That means deconstructing the account statement and identifying which trades are making money and which aren't. I would break the data down into time of day, stock/index being traded, long/short, and size. I would also look to see if there are large outlier trades to the downside that are pulling down P/L, and if there are some trades that are making money consistently.

Once our trader has identified what's working, the idea is to keep position size fixed and *only* trade those setups that have been working. This is the foundation to build upon. These setups can be written down and mentally rehearsed ahead of the trading day to build consistency. The idea is to not increase size *and* not trade other patterns until consistency is achieved with smaller size and the most successful setups.

There is only one cure for trauma, and that is repeated experiences of control and safety. We want trading to be routine, not highly emotionally charged.

Finally, I would encourage our trader to take a look at how he is viewing his situation. Note above that he talks of the $38,000 loss and the silly trade that "turns into a disaster" as if these are things happening to him, not things that he is actively doing. A simple strategy would be to have the trader write down the four things he is responsible for prior to each trade:

* The Entry
* The Target(s)
* The Stop
* The Position Size

We can't control whether any individual trade will be a winner, but we can control how much we are willing to bet on each trade. Outsized losses don't happen to a trader; they are actively caused. It is harder to allow those things to occur if you're talking aloud those four trade parameters and have them written in front of you.

So there it is in a nutshell. My advice is to get small, get selective, and take responsibility for what can be controlled.

Do readers have additional advice? Let's see if we can help a reader. Thanks!

Brett

===================================================

IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

riro
25 posts
msg #52702
Ignore riro
6/30/2007 10:57:08 AM

TheRumpledOne: Great advise. Have you ever considered teaching a one day trading seminar for traders like me who would like to learn your trading techniques and philosophy? For me, trying to learn your trading ideas through your website and StockFetcher forums is inefficient and hit and miss. A one day class would be enough, because you emphasize simplicity. I like your ideas about trading AAPL, its simple. That is what I would like to learn, a simple consistent method. I also think a live real-time seminar when the markets are open and you being there trading live in front of us would be fantastic. Over the web seminars and website examples are second rate to live trading with an instructor showing his trading methods in real-time. Just like the proverbial "a picture is worth a thousand words" says, so it would be with a live trading session with you. It also would be minimally invasive to your personal life because its only a one day seminar. You could have in your city and we would come to you. I'm sure you would have no trouble filling up a one day class. What say you?
riro

TheRumpledOne
6,358 posts
msg #52704
Ignore TheRumpledOne
modified
6/30/2007 11:44:36 AM

riro:

I have taught in China, Belgium, Mexico and at home in the USA.

Check www.kreslik.com for the time / place of the next PIRATE GATHERING.

We could have one in Cabo San Lucas, Oct 7 - 14 this year.

If you happen to live near Tucson, AZ, you are welcome to visit.

I am usually in my FREE chat room, www.paltalk.com the TWO PERCENT CLUB during stock market hours. You can hear live calls and ask questions while the market is open.





riro
25 posts
msg #52709
Ignore riro
6/30/2007 12:28:15 PM

That sounds great, I will check the website for times and locations and find a time that works. I need to go into town, See you later.
riro

riro
25 posts
msg #52741
Ignore riro
7/2/2007 12:29:00 AM

I'm not finding the "PIRATE GATHERING" on your website.

riro
25 posts
msg #52743
Ignore riro
7/2/2007 1:16:21 AM

TheRumpledOne: I want to learn how to do gap fade trades using AAPL as you have discussed in "MILKING THE COWS - GAP FILL" article. I want to concentrate on learning just this one trading technique and learn to master it before I learn another method. I do not have TradeStation for a trading platform I'm using Scottrade's trading platform, I hope thats alright. In my questions below, I'm not asking for exact entries and exits just the theory of when you enter and exit a gap fade trade
Question:
1. When do you buy in on a gap up play?
2. When do you sell the gap up play after you've bought it?
3. When do you buy in on a gap down play?
4. When do you sell the gap down play after you've bought it?



TheRumpledOne
6,358 posts
msg #52748
Ignore TheRumpledOne
7/2/2007 2:25:49 PM

gap fade trade
Question:
1. When do you buy in on a gap up play?

When AAPL is at open price - .10 I enter a SHORT

2. When do you sell the gap up play after you've bought it?

I am happy to take $.10 or more

3. When do you buy in on a gap down play?

When AAPL is at open price + .10 I enter a LONG

4. When do you sell the gap down play after you've bought it?

I am happy to take $.10 or more


More on exits... if you look at the 5 min chart you will see you need to wait 5 - 15 minutes to make the most out of the trade.

I look at intraday fib retraces as target exits.

Learn how to make that first dime consistantly and you are on your way.

Only go long on green 5 minute candles and short on red... do not rush the trade!

HTH.


TheRumpledOne
6,358 posts
msg #52750
Ignore TheRumpledOne
7/2/2007 2:27:24 PM

riri:

I'm not finding the "PIRATE GATHERING" on your website.

First it is NOT my website, it is the one Michal Kreslik built for me and others to have a place to post freely.

We haven't announced the next official gathering yet.


riro
25 posts
msg #52763
Ignore riro
7/2/2007 11:14:19 PM

TheRumpledOne: Those are some mighty thin scalps on AAPL. I thought you took
.50 cent or greater scalps.

TheRumpledOne
6,358 posts
msg #52771
Ignore TheRumpledOne
7/3/2007 9:01:41 AM

What made you "think" that?!



StockFetcher Forums · General Discussion · How To Regain Your Trading Consistency by Brett Steenbarger<< 1 2 >>Post Follow-up

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