This seems like the most appropriate title for this blog post. This post is good for illustrating the types of mistakes that retail traders can make – mistakes that are not even related to the charts and technicals, but much more to the trader himself (or herself). It looks so blatantly obvious on paper – it’s a different kettle of fish once you are sitting in the live arena!
“You are fired!”
As previously shared, I looked over some of the recent trades that I have done and concluded that my trading discipline has been well below par. After discussing my findings with my trading coach, he calmly explained that I had been working in a bank or a fund of any sort, that my ill-disciplined trading would have seen me being fired rather quickly. The general approach that banks use to manage traders who are not following strategy parameters: the first step is to remove their trading privileges for the rest of the calendar month, and on the second offence they are pretty much let go. Following such dismissal grounds, it would be rather difficult for them to find a trading position with any other entity. So point blank, if I was in fact employed by someone, I would have surely been fired several times over in 2014 alone!
I think this puts things into perspective somewhat. I got to take things more seriously and not just trade on a whim, like I have been for much of 2014. Clearly, I have not been successful at bringing my rigorous discipline from other adventures/projects into the trading arena.
Action/Company Policy: Going forward, the penalty for ill-disciplined trading – meaning trades taken in the absence of a valid setup – except if they are closed immediately – is removal of my trading privileges until the end of that week. Bonuses for trading with a high degree of discipline are yet to be determined.
Other key points from the discussion:
- What leads to me trading without discipline? Not sure, however I estimated it had to do with overestimating my trading abilities, over-anxiousness/impatience/greed to get to my trading goals and the fear of never reaching my trading goals. Although I can’t be 100% sure of what events may trigger bad trading behavior, I am confident that my methodology for keeping journals and trade logs will be quick to pick up when things are going off the rails.
- My coach pointed out that I often go against his suggestions: doing long working hours even when I know that I am worn out, breaking trading rules (I have a list of 10 rules that govern my trading activities), trading FX pairs/instruments even after I concluded that I currently can’t profitably trade them (e.g. GBPCHF last year, DAX30 right now), trading on incomplete candles, not monitoring my caffeine/alcohol intake and taking invalid setups. When reading this list, it comes to no surprise that I am not trading profitably. In fact the only thing that has saved me is that I am quite rigid with the money management aspects and that I am trading tiny amounts even though I have good trading bankroll behind myself.
- Excess caffeine/alcohol intakes – am I doing this because I have a tough time trading? Or am I trading badly because I am drinking too much caffeine/alcohol? I don’t know the answer to that.
- New strategies – it’s still good to trade new strategies in the live market (e.g. the post-news strategy) but it would be better to trade them with less risk – consequently, whilst I am still building the post-news strategy, I will use risk of 0.25R (rather than 1R) for these trades.
- Execution errors – these now happen very rarely. We confirmed that the best approach for handling these instances is to close the open trade immediately. Moving the stop to break-even (if this was possible in some situations) is not a good idea because it would teach my brain that I can be lucky sometimes and that therefore it’s not necessary to close the position – and this is not what my brain should be thinking.