Description

My basic trading philosophy can be summed up by one simple quote:

"Trade the ticker, not the company" - Nate Michaud


Saturday, November 21, 2015

Working to Break a Slump

For the past several months, I've been suffering through the worst slump I have ever experienced since I started trading. You really could say that ever since my PBMD loss in late May, I haven't been the same. I let myself turn into a stubborn trader with an inflated ego, someone who cared more about making "enough" money than about trading well. I notice that many of my favorite setups still work well, but my ability to trade them has greatly deteriorated due to mental and emotional mistakes. It has been incredibly frustrating and humbling, and one day in October it led me to ask that dreaded question, "Am I sure I want to keep trading?"

99% of the time, I absolutely love trading. I love the challenge of it and the potential reward if you're performing at your best. That's why it was so surprising to me to find myself in that place emotionally, because I'd never been there before. I had to stop and evaluate why I had suddenly had been pushed over that edge, when I hadn't even felt that low back when I was first learning and struggling. 

When I finally came up with the answer, it was actually pretty frightening. I felt that I had lost the ability to control myself and my emotions. I wasn't losing because I couldn't make sense of the markets. I wasn't losing because my favorite patterns stopped working. I was losing because of ego. I was losing because time and time again, I would watch a stock blow through my mental stop point without taking it off. I was losing because I couldn't even get myself to put in physical stop losses, as I vowed I would do. I was losing because I'd get frustrated by all of this and then play the next setup with ten times the size I'd played anything else recently. You can guess how that usually ended. I thought about quitting because I couldn't stand the thought of possibly throwing away everything I'd worked so hard for, especially due to what boiled down to a lack of discipline.

Of course, we're talking about my lowest moment here. The other 99% of me that loves trading won out with ease, because I still believe in myself and enjoy trading so much. But it was still uncomfortable to find myself asking that question, and it was even more uncomfortable realizing how hard changing these bad habits really is. For example, I've been talking about needing to cut losses better since my LAKE loss last year - and two six-figure losses later here I am still talking about it. This is exactly why so many traders fail. It's easy to figure out the changes you need to make, but so many of us lack the fortitude to follow through and actually make and sustain those changes.

I don't want to be another failing trader statistic. I don't want to become a story about someone who made it big and then threw it all away. So now I'm going to truly get serious about changing, rather than just jumping back into the market as if everything is "business as usual," like I normally do after a bad run. I read my first trading book ever, Momo Traders, and am currently working through my first trading psychology book, The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist. I've lowered my position sizes drastically, telling myself that I will now only risk $1000/trade, or $2000, if it is truly an exceptional setup. I have also identified the three most costly trading mistakes I make and will be meticulously tracking them and working to eliminate them.

  • FOMO (Entering a trade due to Fear of Missing Out, rather than waiting for my ideal setup)
  • Trading too large (Sizing in with more than my planned $1000/$2000 risk for various reasons) 
  • Failure to cut losses (Continuing to hold a stock beyond my planned stop point)

Every month, if I make one of these mistakes and take a loss, I will enter it into my log. At the end of every month, I'm going to use this blog to help hold myself accountable. I will post an end-of-the-month recap and share all of my losing trades that broke these rules, with details. The goal will be to see improvement every month, as I, hopefully, slowly eliminate these mistakes from my trading. ONLY when I've seen significant improvement will I begin to consider sizing up again.

You can expect a post from me in early December, recapping my November trading. It has already been a wild ride as I lost discipline for about a week and a half and fell into some very frustrated/emotional trading. More on that later! 

25 comments:

  1. Thanks for the blog post Tim, always appreciate/learn from them. I can relate to this, as have dealt with some of those mistakes as well, especially this month, which has been my worst since I started trading. Looking forward to keep learning from your blog posts. Was actually rewatching some chapters of your DVD this morning, since I believe your comments on the trades are so helpful. I agree that trading psychology is one of the toughest things to master, as it boils down to mastering our own thoughts. Best of luck in your journey! Manuel M. Freije

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  2. Hey Tim, I haven't had your success in the markets as I'm just really starting to make the "turn" after 5 years. = 17K profit on a 25K account this year. I'm extremely familiar with your style of shorting. Anyways, I think your fundamental issue is that all OTC's went to zero, and therefore, your mind was "trained" to hold losers because they normally come back and were extremely profitable for you. Obviously, this isn't always the case with Nasdaqs that can keep going for crazy reasons. What worked for me to "train" my brain to cut losers was to meditate each morning with a couple of sentences.
    1. Never, ever, ever, ever delete stop-loss market orders.
    2. You have to stop out to win.
    3. You have to stop out because something may have fundamentally changed in the stock.
    Then, I literally practice putting in stop orders and allow myself to be stopped out with screenshots. Overall, this has helped me to stop "freezing" on losers.
    My opinion is that you have to have hard stops to truly eliminate freezing because it's always those 1 or 2 outliers that destroy your style of shorting. It's a process man!

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    1. Thanks for the advice! I actually used to be great about cutting OTC losses, part of the reason I was so successful with them. Not sure why that hasn't translated over to this sector for me. But I like your ideas about stop losses and respecting them, I definitely have to find a way to implement this into my trading I think market orders just pain me so haha

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  3. Tim,

    I myself have been going thru a trading slump for some time. In fact a make similar mistakes this month on VLKAY. I know that I have told you but, I will say it again. I really appreciate let me know that you are not the perfect trader. Though, you do keep working towards it. Thanks again

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  5. My suggestion for what it is worth would be to trade with smaller accounts for a while. This would allow you to gain confidence, focus on the better setups and not risk losing everything as you put it.

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  6. This was a great post Tim, I want to say thank you and elaborate on my appreciation.

    I know you're struggling but as a new trader it's comforting to know that even experienced traders suffer from mistakes. I think your attitude is on point, you're extremely analytical and regardless of how hard you are on repeating bad habits you're changing as a trader every day. You might not feel it, but I guarantee you are. Failure is inevitable, just continue to grow. Somebody once told me "You will fail your way to success", just keep taking those hits and you will recover and move forward. I think the next thing in front of you (after you are happy with how you have changed your habits) will be defining in detail what being a successful trader means to you. Thanks again Tim.

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  7. Hey Tim,

    I've been going through a trading slump for a few months and I haven't enjoyed any success in the market yet but I've recently read a few books that helped me a lot:

    Trading In The Zone - Mark Douglas. It's a trading book based around psychology, he shows you a different perspective at the market and it really helped me outline my problems. The best advice in the book is to think of trading as an odds game. If you have a 70% winning strategy then over say 100 trades you should win about 70, but you never know it what sequence. Think of flipping coin, you can never be sure if it's heads or tails but you can be almost certain after 100 flips they are both going to land around 50 times. Don't let a random sequence of losing trades delude you into thinking you're trading is flawed, it is not reflective of your talents.

    Market Wizards - Jack Schwager. It's a book interviewing America's top traders, it's self-evident of the priceless advice in there!

    The Art of War - Sun Tzu. Yes it's a war book and sounds completely mad as advice for trading but the concepts and philosophy Sun Tzu teaches can be applied to almost any pursuit. It's a small book also and is packed with valuable advice. Just replace the term 'enemy' with 'market' and it sounds like an amazing trading book! Here's a few of my favourite quotes:

    "“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

    "Rouse him, and learn from the principle of his activity or inactivity. Force him to reveal himself, so as to find out his vulnerable spots"

    Hope this comment can offer you some help as once before you offered me some!

    Liam


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    1. Also check the 'If' poem by Rudyard Kipling.

      http://www.kiplingsociety.co.uk/poems_if.htm

      Liam

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    2. Appreciate the book recommendations Liam! I definitely need to do more reading, especially on the psychology aspects as that's where most of my struggle currently is

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  8. Life goes up, life goes down. Can't always be good.

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  9. Tim, Thank you for sharing your experience with us. I am a relative newcomer to this trading world since I am 50 years old and come from the "old-school" teachings of buy-and-hold. However, about six months ago I discovered Tim Sykes and your story. I must say that your story is what kept my attention because I am not attracted to the pomp of Sykes's promotions (but I completely understand the reasons). Yours was a real life story of starting from zero and learning from a mentor and studying and working HARD. Some people call things lucky but I choose to look at it from the perspective of hard work can show itself as luck in some people's eyes. So, back on track, I followed your story and know that you recently had one of life's BIG moments (big moments are: losing a job, death in family, divorce, marriage, severe illness) in getting married. Do not underestimate the affect of this on your psychological status. Although a wonderful thing, there are consequences to our lives when one of these big moments happen. Believe me, I have had these things in my life and am currently dealing with the loss of employment by layoff. I am not one to be able to offer advise to anyone, so all I can tell you is my course of action when something like this happens. 1)Back to basics & 2)Helping others. Those are my go-to actions when I am set back or stuck. I am living evidence of the success of these simple rules as they have brought me out of low points of my life.
    Again, I really appreciate all the valuable information that you share with us on your website, blog, twitter, etc. You truly give back to the institution of investing by giving insight to your world and offering your learnings.

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  10. The best way to put an end to your ego is to stop putting yourself in the line light. I too wanted to be a chat room hero. Then I thought what was more important having a bunch of Internet traders looking up to me or being a good trader. Old school traders like Jesse Livermore and others were very secretive and would never be giving out info on every single entry and exit.
    For me I trade much better when I turn decided to turn off Twitter and all the other website hero bs and just concentrated on my trading. Ask yourself if it's enough for you to be a great trader that people have to work hard to gt info about or a trader statistic that everyone watches crash but is well known.
    Just food for thought.

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  11. "I don't want to be another failing trader statistic." - Law of attraction. don't fear ANYTHING. truly accept that anything can happen because it can. we take controlled risks in our favor and over time we will come out on top. like a casino. losses are part of it. in probabilities there will be draw down periods, sometimes to a human they seem like they take "too long" dont let your mental structure get affected by this which can lead to more losses due to a mental failure. i have read so many books on psychology for trading and there are so many to recommend but i have come to the conclusion that they are mostly there to read and re build confidence. the confidence is rebuilt when you feel you have learned enough to come back to the game. you got this dude. confidence building. focus on long goals. achieving them and doing everything you truly ever wanted. do something you have never done before, something you always wanted to. jumping out of a plane? PILOTING one?? confidence boosters bro. *high five*

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  12. "I don't want to be another failing trader statistic." - Law of attraction. don't fear ANYTHING. truly accept that anything can happen because it can. we take controlled risks in our favor and over time we will come out on top. like a casino. losses are part of it. in probabilities there will be draw down periods, sometimes to a human they seem like they take "too long" dont let your mental structure get affected by this which can lead to more losses due to a mental failure. i have read so many books on psychology for trading and there are so many to recommend but i have come to the conclusion that they are mostly there to read and re build confidence. the confidence is rebuilt when you feel you have learned enough to come back to the game. you got this dude. confidence building. focus on long goals. achieving them and doing everything you truly ever wanted. do something you have never done before, something you always wanted to. jumping out of a plane? PILOTING one?? confidence boosters bro. *high five*

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  13. You are an inspiration! Seriously. Thank you for sharing.

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  14. Tim,

    Loved your DVD and glad you're identifying and addressing these leaks. I hope you come back stronger than ever!! (so i can learn more from you!) I've been a poker professional for a long time and wish i found trading a long time ago lol but anyway Tilt is something i have a lot of experience with. I've seen a lot of people including some close friends just go completely off the rails w/ huge bankrolls b/c of tilt. I've read a lot about it and identifying what tilts you (it's different for everyone) is the first step.

    FOMO (in my opinion) isn't what puts you on tilt. It may get you in bad situations, but its not what actually puts you on tilt. I think there is something else you need to be identifying. I feel like i have a very similar style and thought process to you (partly why i really really enjoyed your DVD) but if you're anything like me in poker.."Mistake Tilt" was my biggest problem. If i played hand well and someone sucked out, never bothered me in the slightest, but if i made a mistake on a hand that i knew better than to do it...that was the one that could send me off the deep end. I know there are many many different types of tilt but i feel like addressing that will be a great place to start. Jared Tendler was a Professional Sports Psychologist for PGA players dealing with anxiety, pressure, being mentally off their game and was hired by a Poker Professional to help him address his tilt issues. From that he wrote an amazing book called the "The Mental Game" and while it was geared towards poker, it covers Tilt in general. Here is a fun summary and quick link to his 7 types of tilt,

    http://jaredtendlerpoker.com/wp-content/uploads/7-Types-of-Tilt.pdf

    Hope this can help..if even a fraction of how much you've helped me. Cheers and good luck.

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  15. whatsup man,
    i wanted to offer you a piece of advice in regards to your recent struggle with minimizing your losses. real fast i will give you a little background on myself so you know who you are dealing with;my name is ryan i am 23, currently an auto repair mechanic and a charter fishing boat captain. i am currently a student in another mentorship program, ive literally spent over 1,000 hours educating myself over the last two years and continue to forever further my education, im currently simulating and will be until my performance on paper is top knotch. i aspire to be the trader you are today some day. the reason i am commenting you primarily is because in reading this post, something that i learned from my mentor really stuck with me and i am confident that it will help you drastically! (i hope) anyways, my mentor had a hard time cutting losses somewhere in the middle of his trading carreer. virtually to the same emotional extent that you make it sound like you are. SO..... his mentor at that time made him take 20 trades using 5 cents risk using hard stops on every single one as an exercise. he did not tell him why.... but he was stopped out of every single one. (he was trading small at the time so he didnt lose much money) in the following days his mentor had him go back to the same size and trade normal using hard stops and in those following days my mentor realized that he no longer had a hard time honoring his stops and was not bother by taking small losses. in essence as my mentor explained to me; his mentor "mr.miyagi'd" him into accepting a small loss and being okay with it instead of letting a small loss snowball into a big one as he had been doing in the past.

    im certainly not trying to be a mouse telling a lion what to do but if this appeals to you in any way as something that is worth trying i dont think it could hurt! trade small for a few days, set super tight stops (hard stops) on everything and get used to letting it hit. when you go back to trading normal size i really think you have no problem honoring your exits! anyways thankyou for all the inspiration you have provided me with your youtube videos and your blog posts! you dont know how humbled i would be to hear that this is in any way helpful to you!!!

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  20. I wrote a pretty harsh post earlier and decided to re write a kinder more gentle one lol. Theres a saying Don't Confuse a Bull Market with Brains. I've been in this business for 35 years and I've seen 1000's of super star traders like you come and go. Markets move in cycles and volatility moves in cycles and you have only been trading 4 years and the average cycle is 7 years so you are not a proven trader till you've lived through all cycles. The markets have changed there is nothing wrong with you. I actually like you and of all the young guns out there I think you actually have a good head on your shoulders. I personally despise Tim Sykes and the rest of the penny stocks gurus selling total crap to the masses of wanna bees but I do think you have some brains and there is hope for you. I've seen it all kid and if you really want to learn to trade smarter then look me up on skype ssptrader.

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  21. great to see you haven't given up. You got this don't worry about it, don't forget the fact that you turned couple thousand into couple million, you know how to trade. You're a much better trader than me, but I believe an outside perspective can be useful at times. I personally don't agree with your 'cutting losses intelligently' rule NOT because it doesn't work, but because you're opening up a pandora's box when it comes to cutting loses. Cutting losses intelligently helps you get out at a better price most of the time, and it will work if you follow it perfectly but it comes at a cost.. following your stop loss and executing it becomes extremely extremely difficult, because you're not used to a hard stop loss anymore. The fact that you're focusing on your stop losses and following them is a step in the right direction i believe, i think you'll lose trades more frequently from now on, because of the hard stop losses but that will in turn help you make better entries with no big losses. My .02, but gl and you've inspired many ppl including myself

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  22. Hey Tim, thanks for all the info. FWIW, I just finished 'The Playbook' by Mike Bellafiore. I found it an EXCELLENT resource on trader psychology. Lots of other stuff in there that didn't speak to me, but I learned a lot about my bad habits from reading it.

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