Anyone who has been following my blog and software for some time will know my personal story and how I failed a number of times day trading and lost a decent amount of money in the market before becoming consistently profitable. Just recently I decided to be fully transparent with my trading results for 2014.
While the end results show a pretty impressive 1982% net gain I must tell you there were some seriously tough moments where I encountered more psychological resistance which nearly killed my account. I’m grateful to have been using the Trading Consistently Journal throughout this time to help me understand exactly what I was doing wrong so I could improve from my mistakes.
From reviewing my Trading Consistently Journal I was able to identify not one, but FIVE different psychological struggles I didn’t even know I had but ‘discovered’ through using the Journal.
I wish to share some of my struggles and lessons I learnt along the way while sharing some handy day trading tips.
Day Trading Tip 1 – If your losing – walk away.
I don’t mean to give up. I mean literally walk away. Let me explain -
We’re often preached by our mentors when things get tough that we should just keep on trying again and again to succeed. While this is good in real life this logic is does not work when day trading financial markets. In fact, I would say its totally detrimental to your trading account and needs to be totally unlearned.
From extensive reviewing of my journal I realised that every time I lost, I immediately had the urge to re-enter back in another trade to make up for that ‘loss’. My subconscious would come up with new reasons as to why that next chart showed another ‘perfect setup‘ that it seemed to a ‘clear opportunity‘ and why I was ‘stupid to not take it‘.
I was blinded with hope and revenge to ‘make back’ my previous ‘loss’ so I would enter the next trade – which would inevitably also end in a loss because while I was so caught up in the subtle emotional play of ‘revenge trading’ that I was blinded not to notice that there was an error in my calculations and I missed one of my trade entry criteria.
I needed to know how often I would make these mistakes, so I started tagging trades in the journal to understand its frequency. So I made a rule that anytime I was reviewing my journal at the end of each week that I would tag trades that I felt as if I was possibly a revenge trade. The result was quite surprising.
How I understood that this was even a problem -
- I logged into the Trading Consistently Journal and clicked on ‘Edit Journal Template’.
- I added a new checkboxes field to my template called ‘Mistakes log’ so I could tag the trade anytime this occurred.
- To one of the choices I added ‘Potential revenge trade’
- I would Journal each trade as usual. At the end of the week I would review my previous weeks trades. If I lost the previous trade and felt as if my problem stemmed from revenge trade I would tick that field.
- At the end of the month – I would have a full report showing me how often I committed that mistake. This is important to let me know what I need to work on.
How I fixed this -
- I made a rule - If there was more then two trades that was a consecutive loss in a single day I simply shut the computer down and walked away from the computer for the rest of the day.
- I added this as a rule to my journal so overtime I would review my journal for the day I would remember my rules.
- I asked myself the question – ‘have I lost the previous trade? how am I feeling?’
- Now every time I trade and view my journal template, it reminds me to refocus if I’ve lost my previous trade and acts like my personal mentor.
Why did I walk away? Because I needed to detach myself from day trading until my emotions subsided. And when I refer to ‘emotions’ I’m not referring to powerful chest-beating frantic emotions. These are very subtle manipulations by your subconscious to make you believe that you’ll win the next trade and make back any ‘losses’.
They are challenging to detect because your subconscious makes you believe in your own idea and ignore any other conflicting information. In psychology this is known as Inattentional blindness. This means your so set on your idea that you subconsciously ignore information that goes against your initial view.
Day Trading Tip 2 – Be detached.
Let’s face it – day trading is addictive. According to behavioural psychology if you give a rat the ability to push a lever to receive food at random intervals you can visually demonstrate that the rat starts to exhibit addictive behaviours. The rat continuously pushes the lever in hope of receiving the food which it gets sometimes, and other times it doesn’t.
The rat isn’t quite sure when it’ll get its next tasty treat, so it keeps pushing the lever it to receive its reward. Before the rat even realises it’s psychologically hooked to pushing the lever.
After some more time the habit forms into dependency and even causes withdrawal symptoms if stopped. In psychology this is known as ‘intermittent variable rewards‘ and it applies not only to rats but almost any living animal – including humans.
So guess what else is randomly rewarding… That’s right! Day Trading. Your profits and losses are your reward system. You can never know if your next trade is going to be a winner or a loser which makes this game extremely addictive, just like the poker machine. It causes us to over trade, over leverage and go overtime on viewing our charts.
And that’s why if you stand any hope to succeed in the markets you’ll need to detach from it.
When I started with my trading account in 2014 I quickly hit 500% gain within two months. It was an exciting time. Due to my trading style I would either win big (often 10 times my initial risk or more) or lose. I didn’t know if the next trade was going to be a winner or a loser. So I kept on trading, hoping for a even bigger win.
Looking back – in the euphoria of winning I quickly lost my discipline and was over trading my account which lead me to form a significant drawdown.
It was devastating experience to win big only to give it all back to the market. That’s where I knew I was doing something wrong, but I didn’t what it was at the time (which is the catalyst of why I started the Trading Consistently Journal!).
How I fixed it -
- I used the Trading Consistently Journal to write down exactly what my day trading plan will be – my goals, my rules for trade entry, my rules for trade management and my rules for trade exit.
- Viewed my journal every single time before, during and after a trade to ensure discipline has been met.
- I already demo traded this strategy for at least 500 trades so I already fully trusted the system.
- I continued my meditation practise to learn to be more emotionally regulated.
- Most importantly – I reframed my belief system of winning or losing by repeating to myself daily the following -
“I don’t expect to ‘Win’ or ‘Lose’ because the expected outcome of any trade is random. I do, however, expect to follow my proven strategy and apply my money management diligently because that is all I can actually control.”
Initially I didn’t really believe the above statement, but I kept on saying it anyway. After time, I actually started to think, and more importantly, feel that way.
The science behind brainwashing experiments conducted on Americans soldiers on the Korean War who started to believe in the Korean war effort and even defend Koreans outline why and how repeating these ‘affirmations’ is such a powerful and effective technique but often is criticised as too ‘new age’.
It’s even scientifically proven that students can even use it to improve their test scores using the same technique.
Trading Tip 3 - Know when to hold – Know when to fold.
Knowing when to stop trading because your strategy isn’t working is crucial to keep your trading account safe. However, most traders keep jumping from one system to another as soon as they have a just two or so losses on the account. This is very bad long term.
When I was facing a huge drawdown on my trading account I had to answer the difficult question – ‘do I keep going, or should I stop trading?’
The answer for me was simple – keep trading. Why? Because I trusted my trading strategy. It’s not based on empty faith but over 500 simulation trades done simulated over multiple years. It was a significant investment of my time and effort but it was worth it because if you can’t trust your strategy you’ll forever be bouncing around to new strategies.
Don’t blindly trust any strategy, even if its from a billionaire trader. The strategy needs to earn your trust but you need to invest the time to understand it and follow it with discipline before committing.
How I fixed my jumping strategy syndrome -
- Follow your day trading strategy in Trading Consistently Journal to put in at least 200 simulation trades. The Journal will help ensur that your following your strategy with discipline.
Day Trading Tip 4 – Be mindful of Winning too much.
Losing too many trades is bad, but trust me, winning too many trades is just as bad.
They say the markets are ruled by fear and greed. This is not what we are talking about. This is over-confidence. Over-confidence also exposes you to the risk of inattentional blindness.
When I made 500% gain in a few short months and almost gave it back to the market just as fast I realised that I was prone to this. But I found ways around it so when I took my account to over 1500% after a single windfall trade winning me well over 35 times my initial risk I made sure I didn’t commit the same mistake.
How I understood that this was even a problem -
- I tracked it exactly the same way as my tip 1. I had a field called ‘Over confident’ in my ‘mistakes logs’ and review my journal on weekends looking for trades where I was over confident.
How I fixed it -
- Same as when you lose – walk away. Take a break from day trading. Don’t read anything about trading. Spend time with your family and live your life. Meditate. Let your emotions settle. Detach as much as possible.
- Once you’ve done that, come back fresh and start again (oh and don’t forget to journal your experience too).
Day Trading Tip 5 - The Journey is important – not the destination.
Let’s be honest. Trading is tough. There will always be good days and there will also be bad days – even for the multi-millionaire traders. Your not going to win big every year, nor am I. While I do recommend you have general goals set to give you a sense of direction I don’t recommend being so attached to them.
Too often we fixate our happiness on an end goal – ie. ‘I’ll be happy when I gain 4% today’ or ‘I’ll be happy when my account reaches to $10,000′. We are often bound to this desire to over-achieve which has the side effects of fear and greed.
So why not just drop the expectations? Have goals, but not expectations.
And don’t for a minute think that once you achieve your monetary goals that fairies will fall from the sky and solve all your problems.
Trading can be anything you want it to be – a vicious game of ruthless buyers and sellers or a journal of personal discovery. I would choose to believe its a path of personal discovery. Like any performance sport its about truly a path to understanding your strengths and weaknesses and who you really are.
I say its one of the most interesting journeys I’ve been on. And I’ve learned to appreciate the journey, not the destination.