Should this trader quit?

BellaMike Bellafiore's (Bella's) Blogs23 Comments

I received this email recently:

Hello.  This is a retail level trader with almost 3 years of trading experience in s&p mini futures.  During those grueling 3 years, I’ve suffered nearly 25k in losses, most during the 2008 crash where emotions got the best of me.  Since then, I have learned the importance of risk management and now I am at a point where my risk is 3 ticks to a point and a half in the emini futures per trading day.  However, my consistency in monetary terms is still quite poor even though consistency in the stats may be significant.  The 2008 crash might have taught me the importance of risk management, but it also dealt a significant blow to my mental game, confidence.

And that is where I am now.  I take daily screenshots of my charts with notes scribbled on them and have been keeping that sort of visual journal for over a year and a half.  This has allowed me to come up with 6 different ‘setups’ in the market that I trade, with 3 of them being highly consistent.  However, with this battered confidence issue, I lack the mental fortitude to push trades.  This and the solitary 3 years of my life devoted to trading have led me to this e-mail.

I figured that maybe if I were put into an atmosphere where my confidence could be bolstered, not to mention my daily dedication to improving my trading, I believed trading professionally with other traders would be the logical next step.  However, I simply do not know where to start nor am I aware of my eligibility into the field.

I am currently 26 years old, and have a bachelors degree in psychology from UCLA.  I basically started trading right away since graduating.  My hope in regards to this email is hopefully find out what I can do at this stage of my life, what can be done, and maybe even be able to trade at your firm.  Hopefully I can at least be pointed in the right direction.

This is a very ‘unusual’ email, I’m sure, and I must thank you for reading.

What advice would you give to this trader?

23 Comments on “Should this trader quit?”

  1. Become a trader psychologist.  You’ve analyzed your own trading, identified your drawbacks & seem to have found 3 settups that are profitable.  Take your lessons & background in psychology & continue the learning process by helping other traders.  

    There are very few good trader psychologists & it’s an extraordinarily lucrative field, especially if you can become a leader in it.

    All the best.

  2. 1. 25k is not an unreasonable amount to lose learning to trade futures
    2. take a short but meaningful (6 month) break
    3. make sure your setups really have an edge.  most traders are simply trading things that do not have an edge.  if you are trading “setups” that don’t really have an edge over random coin flip, failure is assured.
    4. index products are very efficient (from academic perspective) and are extremely difficult to trade intraday.  you might consider other markets. the skills you have developed WILL transfer.
    5. there is no one right way to trade. many different personality types are successful. it is hard to predict who will succeed and who will fail but the one thing all those who succeed have in common is that they simply did not quit.  this sounds dumb but it’s one of those super-simple profound truths.
    6. i think normal minimal learning curve is 2-3 years. personally, i lost money consistently for 2 years and almost quit several times. i dont think anyone should take their performance in first 2 years as any indication of their ultimate ability.  this process simply takes time… a lot of time.
    7. your emotions will kill you.  you cannot trade while you are under emotional pressure.  consider another market where you can take smaller risk.  this is very important.

  3. the trader mentioned the word ‘solitary’.  He wants his confidence bolstered.  This trader sounds like he needs to be around people.  I have a sense this trader would not be happy with his career even if he achieved CP.

  4. I would suggest reading Trading in the Zone by Mark Douglas.  It helps address the issues traders face when their confidence is injured – what impacts it has on us,  how to identify the core issues and steps to take to practice unwinding the negative energy.

  5. Trade a different product/market. In todays current trading environment, 3 ticks to a point stop loss is not realistic. If worried about risk, look into the Options market. 

  6. I see nothing here that indicates he should quit. On the contrary, his initial “large loss” has made him much more aware of controlling risk….so he is more than halfway there. Good Luck.

  7. I would say that this trader should branch out and try other vehicles within the futures marketplace. I’ve had solid success over the past three years, and a large part of that can be attributed to varying my trading vehicles. I trade ES regularly, but it’s very difficult unless stocks are rally making a trending move, especially given that the computers are always “first in line” and it’s tough to be filled on the bid or offer without it going through that tick.

    Commodities futures have been far better to trade over the past year as volatility has been far higher. Try trading CL, or GC to start, though SI and NG can offer good opportunities if you can handle the larger P&L volatility. I’m also looking into expanding into bond futures because I think that’s going to be the next market to get crazy and have lots of opportunity as larger players are forced to act when they don’t want to as moves get bigger and bigger.

    Or, go the other way and start trading individual stocks. That’s how I got my start (at a prop shop) and I think they can offer solid opportunity, though they require more intense research time than trading futures does because there are simply a lot more of them to loo at.

    Bottom line, if ES isn’t working, try something else… YM is similar but has 10 ticks for every 4 in ES, allowing better position management and an effectively narrower spread. Hope this helps some.

  8. Like Adam said, taking a break would be nice. I would suggest a complete break (no trading, no reading, etc…) for at least 1 month, then start reading about trading psychology for a couple of months. Books like Dr Steenbarger’s or Mark Douglas’ should be top priority.

    Afterwards, reassess. What are your strengths ? If you don’t know, take a look at your good trades : what did you do well, what are you proud of ? Same for weaknesses.

    Establish a plan based on these strengths/weaknesses : do more of what works, less of what doesn’t. Also, you mention you have 6 setups. This is a lot. Focus on only 1 and master it. You should sim trade it until you are perfectly comfortable with its ups and downs. Once it’s OK, trade it live.

    A word of caution with live trading ES : it requires a lot of capital to be traded well and comfortably. Of course, it all depends on your risk tolerance, but since you have lost a lot of confidence, I’d say you should trade 1 contract for 10k$ minimum, maybe 1 contract per 20k$. If you can’t afford that, switch to some ETF or whatever (Adam has written a few times about subtitutes to ES, look for these posts). You need to expose very little risk to get more confident.

    Dr Steenbarger has often said that the biggest catalyst to change was self-disgust and I totally agree. Now is the time to perform important changes that will stick with you. I’ve been in several drawdowns myself, the most recent was last July ; I made a break and reassessed, did not trade until October and killed it to finish the year in the green. Since then, I have been much more consistent and confident. I’d say that if you go through your current dump then you’ll have made the hardest part of your journey to consistency.

  9.  yeah good points here to original poster:

    1. your risk levels sound ridiculously tight.  you can’t be successful with stops that tight in ES.  well inside noise levels.
    2. make sure you are trading no more than 1 ES / $10k account size.  people always want to trade a lot more and it always ends badly. 
    3. i traded ES exclusively (daytrading mostly) for about 3 years so i do kinda feel like i know what i’m talking about.  it is very difficult to trade this market with less than 2 points risk per trade… (handles not ticks).  anything else and you are in the noise. (i used 3+ points)

  10. I agree that you probably need to take some time off and decompress.  It’s summer get out and enjoy it! Especially if you’re in LA… Congratulations on graduating UCLA BTW that’s no small accomplishment.
    A lot of traders, services, etc… don’t talk enough about their losses or their rough starts but guys like Bella, Adam, Peter Brandt, etc… add a harsh yet comforting dose of reality trying to survive the learning curve and the often times significant draw downs. http://www.mercenarytrader.com/2011/03/interview-with-a-trading-legend-part-i/

  11. If this trader were a psychologist, I would encourage him to draw from his UCLA education. If this psychology student is truly a trader, an investment in a good trading education would probably be a great confidence builder.

  12. It’s not easy to trade ES with tight stops (2-6 ticks), but it’s definitely possible if you’re reading volume, orderflow on the DOM, and/or a footprint chart.  It’s taken me months if not years of working my way there on my own, but it was the only way I was going to be comfortable interpreting and believing in my own setups.

  13. I don’t have much to add to the great advice that has already been given, but I will echo that you should probably limit the number of setups you are trading. You said three of the six you have identified are highly consistent. Well only trade those three for a while until you get your confidence back. Without knowing you I don’t know if lack of confidence is just manifested in your trading or if it spills over into other parts of your life, but you may want to work on yourself first before you worry about your trading. An unconfident trader is a fearful trader and fearful traders don’t seem to last very long. I know a lot of them are cheesy, but you may want to check out self-empowerment books like those by guys like Tony Robbins (not endorsing him specifically, but he seems to be the most well-known).

  14.  since no one else has mentioned it, why not do something much easier?

     the world is full of much better/more reliable ways of making a living.

     if you can find one, do it.  then come back to the crucible when you have a nest egg.

  15. Hi Mike. Going off the limited information – here is the case for either of the options as I see it:

    Option 1 : To continue. The trader has obviously made a serious commitment so far, time, effort, energy and money. Having invested this much and deciding to continue I would suggest some coaching to help and support him jump to the next level. He may have the potential to be successful, he has clearly worked hard, has learned much, and has the best teacher of all – failure. However, there seems to be some self-imposed hurdles holding him back, amongst these I detect a lack of self-belief, certainly confidence, and possibly responsibility.  – Though 2008 was a bitter pill, he seems to blame that for his lack of confidence, it is quite possible that this is merely an excuse and his lack of confidence may be down to something deeper. What leads me partly to think this is that he is suggesting that his confidence may be boosted by joining a trading group, this could be another red-herring in all probability, once there he may find a new reason to blame his lack of confidence. – He needs to develop some self-belief, accept responsibility for failings and start tackling his confidence, easier said than done.

    A coach could help him, first by addressing where this lack of confidence stems from, though this might need someone with a more psychological background if it is a deeper rooted problem, second by working with him to develop new habits and attitudes which could boost his confidence, self-belief and encourage him to start accepting responsibility. This would not happen overnight, it would be a process I would guess lasting a few months at least. – However if he really wants to change then this may be the way forward. – Investment in coaching, though not cheap, in the big picture could be money extremely well spent.

    Option 2: To move into a different field or business. – holding on just because of the commitment already could be a bigger disaster big picture, there are plenty of people who for one reason or another are not able to achieve success as trader ( The overwhelming majority of people who enter trading in fact ) but then take the experience and lessons and apply them in a different field. Everyone has different strengths, qualities and weaknesses, these might be put to much more productive use in a different field, there are numerous examples of people who turned their back on trading for one reason or another and became hugely successful in other fields. –  A behavioral assessment could highlight his key characteristics and may help provide him with him options for an alternative direction.

    I hope that is of some help.

  16. So interesting your comments about the trader needing to fix something inside of himself first.  I wrote about this recently here in an important post IMO http://www.smbtraining.com/blog/what-do-you-need-to-fix-first-about-yourself-before-you-can-become-a-better-trader

  17. With regards to point #5. Think about this. Everytime you survive one of these emotional valleys, the ones that put you on the brink of quitting. Someone else, doing the exact same job as you, put in just as much time as you, almost quit just as many times. But this time, this was it. They said “I just cant do this anymore” and they quit, and if you dont quit you can mark that other person in the pool of the 95% or whatever. You just got one more step ahead. You survived another round so to speak. Think about that and congradulate yourself, it feels good.

  18. 1. Carefully foster and maintain a good market feeling, especially if you are a discretionary intraday trader. 
    2. Try, at the same time, to trade a real time paper account, trade big size and do it seriously. It might be helpful to minimize your fear because, after a period time, you will become less stress on small size even it is real money. 
    3. As Adam said, you have to find setups have a real edge. Honestly backtest your setups will reveal true information. Also you will know your setups better if you study to “understand” the market. I recommend you read Adam’s posts and watch his webinars. Although what he said, sometimes, are inconvenient, these are really insightful understanding about the market behavior. 🙂 In addition, read Steve’s posts  to learn more about intraday stock trading.
    4. Unless you want to trade like a computer, 3 ticks stop is unrealistic in ES. In scalp trade, it is reasonable to risk 2 pts to gain 1 pts based on a very high win ratio. In swing trade, it is reasonable to risk 2-3 pts to gain at least 2-3 pts based on an inevitable low win ratio in swing trading. 
    5. You already know many psychology knowledge. Use them to find your own way to help yourself, relax and enjoy life. 
    6. Finally, read Adam’s response again. I believe that his response is one of the best you can get.
    I am not a full time trader. What I wrote is my understanding that I thought might be helpful. 
    Good luck.

  19. switch to stocks (futures move very little r/r is against you)

    find a play that you can understand (learn to read the tape)

    don’t risk much

    and prepare to never give up (if you didn’t gave up so far you can make it!!)

  20. switch to stocks (futures move very little r/r is against you)

    find a play that you can understand (learn to read the tape)

    don’t risk much

    and prepare to never give up (if you didn’t gave up so far you can make it!!)

  21. I agree with your #4 point, especially when the author states that he lost quite a bit during 2008 from “emotions getting the best of him”. That implies that he halted many trades before even his insufficient stops got hit. I think if he had back-tested his “risk-based” model, he would have seen that he would never have been viable. 3 points in the S&P E-mini back in 2008(or even NOW) can get hit just on noise alone. And true, 1:1 risk reward is not an unreasonable trade to get inookto in the E-mini, as long as he learned from that rough and tumble market to be very nimble in taking profits. That market requires the same skill level as trading equities, and requires lot of simulated practice…just as Bella emphasizes in his book(which I have read and liked quite a bit). Trading well is not unlike hitting 100 MPH fastballs out of the park….or even hitting it for single, SAC fly or bunt. You just need to know your market, and know what your market will give you…sometimes it’s nothing, so you wait for it.

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