It's been eight months since I last updated this thread. I had hoped to return with encouraging news, but that's simply not the reality which I created for myself. In some respects, my trading has gotten much better than when I last visited:
I hold onto my winners longer;
I have a solid understanding of the market dynamics for the products I trade, and I find my instincts about market direction and S/R levels are very often correct, even if I sometimes lack the stones to take a position in line with my instincts;
I am better at avoiding high-risk, low-opportunity trades; and
My ability to read price action and understand it within a larger supply/demand context is better, resulting in more efficient entries and exits.
In spite of all of these improvements, I still suffer greatly from my unwillingness to accept and deal with losing trades. To no avail I continually try to remind myself that…
"I can't be hurt significantly if I never lose more than X ticks per contract."
"My instincts are usually correct, and I should exit immediately when they tell me that the market is going to move against my position."
"If I don't like a position I can always exit, re-assess, and re-enter."
"I will never notice a $125 loss at the end of the day -- $1000+ losses hurt."
But in the end, I consistently let single trades hurt me significantly and I hold onto trades which my instincts scream to dump. As I tend to enter the market at very fluid areas, my trades rarely sit still -- they typically move rapidly for or against me. I have had some success in reversing trades which are not working, but I find that the mindset which keeps me in losing trades thwarts my reversals. Although my intention to reverse would nearly always be correct, I'm often left trying for an extra tick or two and miss my opportunity to reverse altogether -- right is right and wrong is wrong, so why do I let myself care about a tick or two?
I cannot make a sensible accounting to myself as to why I allow this behavior to continue. At one point I had concluded that I don't need to understand the basis of this problem overcome it, but instead I simply need to deal with it -- now I'm not so sure. I think that understanding my psychological motivation might be helpful. There is clearly some need that is attempting to be met by holding these trades. I am always left very unhappy when I damage my account, trading week, and emotional well being by holding these self-destructive trades. My discipline is good in other ways: I don't chase trades, I wait for my set ups, I avoid impulsive trades. It's this one particular area that kills me.
I always know when I'm screwed on a trade, and typically within a few ticks of entry -- it's an absolute mystery to me why I won't deal with them. Clearly, the possibility of being made whole by the market coming back is enticing me to keep the trade open. It must be that I fear missing those long odds of a crap trade turning around to even or positive. Certainly that happens from time to time, but I don't want to stake my success on that outside possibility -- I want to stick to the short odds, the likelihood of which my instinct reliably warns me before the fact. Apart from basic human nature, why do I go with the long odds? Why do I ignore the voice of instinct that I know is correct 9 times out of 10? Why can't I be happy with small losses? These seem like basic questions, but there is a deeper pathology that is causing problems. Greed is an easy answer (and I know I succumb to greed more easily than I do fear), but knowing greed is the driver doesn't help me.
What I find most frustrating is that I have the ability to consistently generate profits sufficient to meet my income expectations, but continually give my money back to the market like a fool. Attached is a summary of my trading results for the past six months. The dollar values of the gains and losses are both understated slightly by the fact that P&L on Euro denominated contracts are reported as dollars -- the Total Net Profit should be slightly lower (i.e., more negative) because of the currency issue (approximately $500). Please note that except for the top-line numbers, NinjaTrader reports all trade analysis results at the contract level (i.e., a single 5-lot losing trade will show up as 5 consecutive losing trades -- average losing trade of X dollars will be X dollars per single contract). Also, all of these results are after commissions.
Looking at these results, the problem is crystal clear -- the average winning trade is $87.39 and the average losing trade is -$306.83. A loser to winner ratio of 3.5:1 is crazy! I could meet or exceed my current trading goals starting tomorrow if I would simply deal with this problem once and for all. Interestingly enough, my behavior doesn't change based on the trade size I have on (although I have cut back to trading a one-lot in recent months to reduce the carnage). Also interesting (to me) is that my behavior is the same whether it's real or simulated trading (all the results are for real trading). I use sim trading for practicing reversals or other execution strategies.
I truly feel like I'm at the end of my rope, yet I know that I'm a skilled trader who is just inches from consistent success -- but those inches seem like a mile in this case. After each day when I have lost a bundle through stupidity and stubbornness, I tell myself that I will simply not let it happen again. Yet 3 or 4 days later I will repeat the folly. Anyway, I have babbled enough, and I truly appreciate your patience if you're still reading. In the end I must fix this problem or stop trading -- that I know.
Thank you.
