I received the email below from an SMB Blog Reader:
I’m sure you are really busy so I don’t necessarily expect a reply or anymore of your time..I do want to say Thanks again however.
I have pinpointed my issue..and it seems crazy. I don’t seem to have the balls to saty in winners long enough. Every thing I went long in this week, and covered yesterday is up substantially more today…and , the one trade I took this morning ( GGAL long 15.85) I did not put enough size on it..I seem to be chickenshit with profitable situations..and don’t know how to fix it. The classic mistake..not letting my winners fully blossom.
Don’t expect a reply or a fix..I will just keep working on it. I guess its a good problem to have but a problem none the less. LVS in play again today as well but not in it. Must be trading scared money and playing like a wuss because of it.
Thanks for letting me talk thru this…
A ?4 the Trading Community
1) What do you like most about his trading analysis?
2) How would you review this issue differently?
3) What solutions can he seek to improve?
I will be back later with my thoughts but would rather hear what you think.
Mike Bellafiore
Author, One Good Trade
22 Comments on “A ?4 the Trading Community”
This gentleman does have a “good problem” in that he is working on managing wins. However, the bad problem is in his behavior, calling himself a wuss, chickenshit, etc. Read this for help:
http://www.brettsteenbarger.com/Behavioral%20Patterns%20That%20Sabotage%20Traders.doc
Most traders problems do not really have anything to do with guts or discipline or any of that, in my opinion. It has to do with uncertainty. It has to do with NOT KNOWING. The question is how do you deal with not knowing?
Here is something I’ve been thinking about, I’m overweight. I’m fat. I don’t want to be fat. I only eat when I’m hungry and do exercise. I know from past experience that the more I exercise then the more I eat, this is true of many athletes. How do you think I can fix my problem? I have to start measuring how much I’m eating and how much I’m burning. I have to start tracking my progress. This quantitative analysis can prove very useful in answering the finer points of many questions.
You need to do this analysis of your trading. You need to understand how much risk you are taking on a trade and either be willing to accept it or not place it.
Your problems are not really what you believe they are and to improve you will need to develop new tools and methods of thinking.
http://traderfeed.blogspot.com/2009/05/focusing-on-trading-solutions.html
become solution-focused aka growth mindset aka what do i do well instead of what do i suck at
1) Excellent at realizing one’s mistakes and reaching out for help/advice. The willingness to improve is key.
2) Having a plan before getting into the trade in terms of where to stop out of winning trades. Let stocks test new support levels on way up and having a clear support/intraday trend line to follow. Don’t get out just because you are up x dollar amount, but let a specific intraday technical level tell you it’s time to rethink everything.
3) Keep working harder and having reached out is half the battle!
Just to kinda follow-up, I know that when I work out all the time then I will be able to eat all the time and still lose fat. I know that if I don’t do anything that I’ll get fatter. What I don’t know is really the most important thing, I don’t know the least amount that I can do and consistently lose fat. Yes, I do have some understanding of my problem, like you do with yours. But, I’m not applying the tools that will allow me to make real change and those are tools of measurement. No matter how much I want to lose fat doesn’t put me any closer to my goal without application of proper tools.Those tools, in my case, would be:1. Measuring tape, caliper, and scales2. Measuring cups and calorie counts for foods3. Exercise and estimates for calories burnedThe questions you have to ask yourself, what tools do I need and do I lack? You see you believe, “I sold because I don’t have balls.” No you sold because you didn’t know what was going to happen next. You need to find the exact trigger that caused the sell. Was it some uncertainty or announcement? If so then maybe selling was right but you needed to jump back in. You have do this and it has to be refined, it has to be nuanced.
Thanks for your input ( I’m the guy that wrote the letter)..I believe I have a clear understanding of the risk on each trade..and cover if/when the stop is hit. The issue is more of protecting profits and exiting profitable trades too soon..in other words, exiting on emotion and an unwillingness to give profits back..possibly based on the mindest of trading a small account..but..thats all the trading capital I have so it is what it is.
I agree that I need to grow and develop new tools and methods of thinking..so I Thank You for your input on the subject…still workin’ on it !
Visualization can be used for trigger happy sell fingers. Visualize the situation, that you are getting antsy with your winner, that you recheck your plan, is there any reason to sell, no?, then hold on until there is. Practice the visualization several times before trading, daily.
I fully agree that there needs to be a target technical level for exits, My experience has been that often when exiting before the target( on emotion), I watch the stock go right to the(logical) target without being onboard( CLF is a prime recent example).
I believe that scaling out of profitable positions might be a technique that is helpful.
In short..its a discipline issue..Dr Brett calls it “The Pain of The Gain”..and that is what I am struggling with when I let my guard down.
Dubble, you are not alone with this challenge. My change work regarding this issue is:
Only trade your plan (which is of course adaptive) and do not focus on the money side. All the money monkey shit in our heads prevents us from letting the edge play out (if we have one). Focus strictly on the process. Trade small and do visualization about focusing on the process and letting monetary thoughts drift away.
Cheers,
Markus
Jump back in ? There’s a tool I don’t have.I tend to see things as All or Nothing..once I’m out I’m out..and to re enter at a higher price is not something I do..so far.
Thanks MP !
1) What do you like most about his trading analysis?
It is important for a trader to recognize your mistakes and seek advice. This trader is doing so.
2) How would you review this issue differently?
The trader said that he does not expect a fix. This is a bad way to examine one’s weakness. Especially one that can be easily worked on. I would review this differently as examining the issue as one that I have identified and will work on until it is fixed.
3) What solutions can he seek to improve?
I think the way to look at the situation is to develop a system to let your winners run. For example, if the trader has examined a situation in which he really likes his trade then he will only sell when the trend line breaks. Obviously there must be variations for different situations but an overall system could aid in a fix of this problem.
I will be back later with my thoughts but would rather hear what you think
Step One. Build a sizable database of instances in which your setup occurred and start experimenting with different methods and mechanisms to capture satisfactory profits. After several weeks you should have something you’re willing to go to war with although you may find it challenging at times to come up with something that beats a simple time-stop.
Having time-tested techniques in your quiver will give you the confidence to ignore what Joe Blow is cautioning on CNBC, the fact that some other sector on your screen is flashing red lights while your holding is hanging in there, a sudden blitz with size from a seller or whatever other demons that are currently showing a tendency to un-saddle you from your horse.
Step Two. Start keeping a results spreadsheet detailing the differences between what your profit-taking methods would have returned you and your actual exits. After a while the frustration and self-loathing that will build from seeing what you are consistently leaving on the table will reach the point where it will transform you. You’ll become a “I don’t care if XYZ suddenly plunges to my stop-loss…it is either reaching my target to the penny or I am holding until my time-stop” kind of a trader. And you truly won’t care if a mid-size gain gets away from you – that’s a fish you would have thrown back anyway.
The trading books say that newbies spend too much time thinking about entries and not enough on their exits. However, if you’ve really done the work, I think you’ll find that exits have a tendency to take care of themselves. I feel I’ve come full circle to where the entry really is the most interesting part of the process. [Disclaimer: my post reflects the mindset and experience of a swing trader who is experimenting with daytrading after having read One Good Trade and beginning to follow this blog]
Dubble,
Market is volatile and so naturally we are all jumpy. I’m managing this with scale-out method. It is difficult to go all-in and all-out, too much stressful. Also, if I fail say on the long side twice or more, then I try to prevent revenge trade mode, by going short small 100 shares not to make money, but to protect my psychology. Read Mike’s book, great one. I need to put a review at amazon.com. Thanks Mike, appreciated very much for this blog and your time.
1) You recognize that you have a problem letting your winners run. I, too, have this problem most of the time.
2) The problem is almost certainly not that you “don’t [ ] have the balls to stay in winners long enough.” Negative self-talk like this won’t help you get better, it will only serve as a self-fulfilling prophecy. Instead, focus on what is likely the real problem: not having a trading plan for your profit exit.
3) Before you even enter your position, you should have a target for taking your profit. When it comes to trades2hold (particularly buying into pullbacks), I try to calculate where I think the next upmove will end (based on prior price movement) and sell one of my lots in that “zone” when the tape tells me the move is likely over. Having a plan and sticking to it will certainly help you with your problem. Easy fix = if you find your plan is still leaving profits on the table, then adapt it!
3)
1) What do you like most about his trading analysis?
It is good that he understands a weakness in his trading and is trying to fix it.
2) How would you review this issue differently?
Spend more time thinking about what you can do to fix your problem rather than beating yourself down and calling yourself names.
3) What solutions can he seek to improve?
He should understand that successful traders must be confident in their ideas and their plan. In order to have a proper plan, you need to have an entry and exit point before you enter the trade. Pick an exit price before you get into your trade and stick with it. Get some confidence in yourself. Also, try revising your emails before you send them.
1) The thing I like about his analysis is he is trying to improve as a trader. He recognizes there is always room for improvement.
2) I think he should have predefined entry points and exit points before the trade was made. He should have discovered levels in which to add size with his technical analysis. If his plan was to exit when he did then he followed his rules for One Good Trade. The result of the stock continuing to rise is of no consequence and should not be viewed as a failure.
3) A defined trading plan. He should measure his success by whether he followed the plan or not. He should review the trade and look at ways he could have improved his performance. The analysis will help him identify setups and situations in the future.
thanks,
Derek Vanderpool
1. Being open minding about your trading and being able to both see and actually admit your mistakes is vital to become a successful trader. The fact that you can not only do this, but also reach out and seek advice proves that you are proactive as you develop as a trader.
2. First, as good as it is that you can admit your mistakes and are willing to take the steps necessary to resolve the problem, the fact that you bring yourself down by calling your names in unacceptable. Trading as as much about psychology as it is about anything else, and running to yourself to the ground will 100% inhibit you from becoming a long term successful trader. One great thing about being open minded about your trading, as you are, is that you can fix the problem, so be proud of yourself that you recognize your areas of weakness. Not to mention, your problem isn’t even a bad one!
3. Next time, look at your stock’s charts on different time frames. Identify shorter and longer term levels, and make a detailed plan around these levels. Specific entry and exit points is critical.
1) great that he realizing ways to get better
2) I would evaluate them by his plan and execution, not by results. Traders should always have a plan before entering a trade — entry, profit potential, exit strategies, position sizing, area to add, etc. It would be an issue if he did not follow his if/then statements.
3) I also have this “selling winners” too early issue, but it gets much easier for me when I visualize trades before I enter a trade and right after I enter a trade. Standing up after entering the trade (pulling yourself away from the keyboard) also works for me. Before I sell, especially when its at a profit, I would take a quick peep at my quote from @popdoctrader that says “Are you working in your own best interest?”
— Chris
A couple thoughts.
You have identified an important problem that plagues many traders. I blogged about this exact problem earlier this week, so some of my thoughts there may be helpful:
http://www.smbtraining.com/blog/the-400-pound-gorilla-in-the-room-exits
your exits must be consistent with your timeframe and risk taken on each trade. there are many ways to trade profitably, but there are also many “wrong answers” to the exit/risk management question. for instance, if you are a guy who trades with large stops, taking lots of tiny winners will probably not work.
you have to work this out, but realize that you probably are not going to make the kind of money you want to until you have an exit strategy that is at least as good as your entry strategy. it may be an issue of being chickenshit as you say, but that can be fixed by many exposures to the stimulus that causes the fear (ie keep trading and the emotional charge will eventually decrease.)
also, be aware that we never feel like we have enough size on our winners and always wish we held them longer. this is the trader’s curse, but what really matters is that you have a consistent, logical, profitable (ie “the math works”) trading strategy. it is also possible that you don’t have the personality to take big wins and are better suited to scalping or trading smaller swings… this is fine, but you have to be consistent within your framework.
lastly, you cannot hold trades unless you have a very good understanding of trend structure and buying and selling pressure… and this, to me, is the whole point of technical analysis.
good question and good thought process. keep working on this issue, it is extremely important.
Recognizing trading deficiencies and then seeking advice on ways to improve those deficiencies are critical components of a successful trader. These admissions are difficult, but necessary in order to perform at an optimal level. Good job!
Instead of focusing on the negative aspects of recent trades, try to emphasize everything you did correctly. You had winning trades that were profitable. Spend your energy on reviewing how and why you entered those trades, and how you can continue to find profitable trades in the future. Remember, trading is psychological, so stay positive.
From a technical viewpoint, one way for you to remain in winning trades is to draw a trendline, and then stay in the position until the trend is truly broken. But from a more important, psychological viewpoint, you must gain more self-confidence. Believing in yourself and having confidence in your abilities will allow you to let your winning trades continue.
Love the Dr. Steenbarger post here! Thxs for finding it.
It can be difficult to combat an emotional problem with a rational fix, i.e., a trading plan that doesn’t address this emotional issue. The emotional components of your brain will nearly always dominate in times of stress, and you will decide to override the plan, as you seem to be doing.
You’re experience loss aversion. We all do, and it can be destructive to profits. This is what I did to combat it. Perhaps it will help.
First, I recognized that I needed to train myself through dedicated practice. I needed to create actual situations where I stayed in the trade, not just a trading plan that told me to stay in the trade. I believe, at least initially, this involves scaling out of trades (and I saw that you mentioned that in your comments). You need to satisfy that emotional portion of your brain that needs profits. On a profitable trade, scale out a portion of your position (maybe even most of your position), move your stops up (perhaps to break-even), then let the remainder run.
Second, define two areas in your trading plan.
1) The reason that you will exit the trade. MAKE A CHECKLIST. Do not exit manually unless that checklist is satisfied. This will likely be challenging for you, and, at first, almost certainly, your checklist will not offer you the most profit possible on the remainder of your trade, but that is not the goal. The goal is to change your behavior, so in the future, in the higher time-frame of your trading life, this behavior will come naturally, and you will consistently make more profit on your winning trades.
2) The reason that you will, again, move your stops up.
Try to do this on every winning trade. I wish you well.