Has your trading been suffering as of late? I can certainly empathize, as in the decade and a half I have been trading, I’ve experienced horrible slumps that ate away at my confidence and turned me into a complete DITH (Deer in the headlights). I was scared to pull the trigger for fear of being wrong yet again, as I watched my account move lower and lower, until finally I shoved it all in on a coin flip at what the market was going to do.
Yes, I’m that rare breed of egomaniac that actually admits he has blown up accounts. And, yes that’s plural. I wish I could sit here and say I was perfect right from the start, and turned a molehill into a mountain, but it just isn’t the case. I didn’t start making money until I realized what I was doing wrong.
Here are four reasons why your trading might just completely suck right now.
1) You are fighting the trend
If you are a follower of my blog and/or videos, you know that I have been watching for a correction to kick in for some time now. Yet after the big down move on this past Tuesday, why wasn't I super bearish and ready to get short? It's been said so many times that most people are just desensitized to it, but the trend truly is your friend. The current trend is an up one, and pullbacks need to be looked at as buying opportunities, not an automatic change of trend. If there's one thing I can look at that has cost me the most money over the years, it's been trying to short the market because it has gone up “enough”, or bought because a stock has gone down “too far”. As chained to the PC hyper-anxious traders, we tend to jump in on the first blip in the direction we are leaning, only to be punished when the dominant trend resumes. It definitely takes more patience to wait out a correction, but as the saying goes, “I'd rather be bored than broke”. Keep in mind that you have to adjust your trend relativity to the time interval you are trading. A market can be in a screaming uptrend, but even a one day correction is a downtrend on the small time frames.
2) You are trading above your bankroll
Intense leverage has given many would be traders false hopes of using a few hundred dollars to build a multi-million dollar business. Many people point to FOREX and options as the leading cause for these delusions, but day trading margins on index futures can be had for as low as $250, and that can send an otherwise cautious trader into pure gambling mode, especially when they are playing catch up (see below). It's tough when you don't have a giant portfolio, but it's so important to keep position sizing at the forefront of your trading plan.
3) You are trying to make up for lost time
You may have found yourself in a hole early on in the year, or you felt you didn't do as good as you should have, and you are now trying to make up for lost time by playing catch up. You may be over-trading, over-sizing (see above) or losing your patience for the good setups while taking the marginal ones. Take a breath, and realize that this isn't a business of catch up, but rather one of moving forward in the here and now.
4) You are over using indicators
It's easy to use stochastics, RSI, the MACD and a host of other technical indicators as a crutch for your own analysis. If you are just starting out with charts, there is so sin in using indicators to help you trade, but you should move to relying on them less and less as your trading progresses. The problem is that these indicators are all based on either price and/or volume so going right to the source and using those alone will help you see the market much clearer than relying on formulas that used past date, and therefore, lag. At the very least, use volume based indicators instead of price based ones.
Pardon the negative tone of the post, but don't be discouraged if you recognize any of these traits in your trading. They are all fixable with some focus and a few tweeks to your daily routine.
Feel free to contact me with any questions.
Michael tiny Saul
tinymjs at gmail dot com
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