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I During my first year as a local (independent trader) on the
floor of LIFFE, I bought and sold 8804 FTSE futures contracts,
about 40 contracts per day on average. The result was a loss of
£61,620 or -£267 per trading day. I was profitable on 55% of
days with an average gain of £1009, my average loosing day was
-£1780. My biggest one day gain was £7730 and my biggest loss
-£12,426.
As you can probably
imagine, this was a difficult time for me. I was trying to work
out how to make money consistently. It was the consistency that
seemed so hard to find. As you can see I was having a regular
experience of making money, what was killing me were my losses.
It seemed that every time I got ahead by £5-6000 over a period
of a week or two, I would lose it all and a few thousand more in
the space of a couple of days.
At the time I was too
unhappy with my performance to be willing to spend any time
analysing my results. If I had I would have discovered that
during this period all I needed to do to go from a loss of
£61,620 to a small profit would have been to avoid just 10
trading days. Those 10 days cost me a total of £69,169!
At the end of this
period I was so frustrated, fed up and stuck that I decided to
quit trading and return to a more secure career. It only took me
a few weeks to abandon this plan and return to trading. I felt
sure that I had the raw talent to become a consistently
successful trader, what I needed, I reasoned, was some support.
Support to stop me having the huge losing days that were
crippling me financially.
I approached a firm I
knew that backed traders on the floor and they agreed to back me
with £20,000 of trading capital. We would split profits 60:40
and I was set an initial daily loss limit of £500. If I hit my
£500 limit the firm’s floor manager would come and tell me to go
home. The third day trading I lost about £3500 and nothing
happened, no one came to ask me to stop trading. I felt very
foolish, but continued to trade for the remainder of the week
while avoiding any contact with the floor manager. The following
Monday (the week’s losses had totaled about £5000) I got a
message to meet with the director with whom I had made the
agreement (it transpired he had been away the previous week). I
was sure that he was going to say that the deal was off.
Instead, to my surprise, he told me how important it was that he
could trust me, he needed to know that when the market was
volatile he could trust me not to be racking up big losses. He
suggested that I start afresh. Needless to say I was both
relieved and grateful. So I went back to the trading pit that
morning with the determined intention to not loose more that
£500.
The next two weeks
turned out to be one of the toughest periods of my trading
career and one of the most rewarding. Stopping when I was down
was hard. I realised that what had been at the root of my large
losses was my inability to accept loosing at all. To me loosing
was unacceptable. Such was my intolerance for loss that I lost
for ten consecutive days. But as the days progressed, even
though I continued to loose £500 a day, I found my mood lifting.
I actually started to feel OK about loosing as long as it was
within my limit.
At the end of this
10-day period of losses a seeming miracle happened; I started to
make money. My target was to get to +£1000 and then not give
back more than 20% of my gain. So when I had a profitable day I
was making between £800 and £2000, for an average of about
£1200. Not only did I start to make money, I did so for 15 days
in a row, three entire weeks without a loss.
This marked the
beginning of a new era of trading for me. In retrospect, I
believe that I had been trading scared, scared that I was really
a looser. The two weeks of rigidly sticking to my loss limit
caused me to revaluate myself. I started to feel good about
myself for sticking to my limit. Before it was bad if I lost
money, now it was only bad if I lost more than my limit. Before,
I never knew whether I was going to make £1000 or loose £5000;
now I knew that the worst case was a loss of £500 and that was
OK. I started to see that sticking to my trading limits was a
sign of strength and my confidence started to rise.
Looking back at my
first year’s loosing streak, if I had restricted my losing days
to -£500 my loss of £61,620 would have turned into a profit of
£83,525. Not only that, I think that had I been sticking to a
loss limit during that period, my confidence would have been
that much greater and my percentage of profitable days would
also have been higher.
Scared money never
wins, as the saying goes. If we are scared what are we scared
of?
"Our deepest fear is
not that we are inadequate. Our deepest fear is that we are
powerful beyond measure. It is our light, not our darkness that
most frightens us. We ask ourselves: "Who am I to be brilliant,
gorgeous, talented, fabulous?" Actually, who are we not to be?
You are a child of God. Your playing small doesn't serve the
world. There's nothing enlightening about shrinking so that
other people won't feel insecure around you. We are all meant to
shine, as children do. We were born to make manifest the glory
of God that is within us. It's not just in some of us; it's in
everyone. And as we let our own light shine, we unconsciously
give other people permission to do the same. As we're liberated
from our own fear, our presence automatically liberates others."
Nelson Mandela
Whatever is at the
root of our fear, in order to become consistently successful
traders, we have to overcome it by developing trust in
ourselves, trust that we will always act in our own best
interest. When we trade fearfully, we undermine ourselves and
end up taking the very action that confirms our fear. The
question is how to develop an unshakeable trust in ourselves?
We develop trust in
others through repeated experience of them acting in ways that
inspire trust. In the same way we develop trust in ourselves as
traders by building up a history of action that supports our
goal to become consistently successful traders. The more
frequently we adhere to our own trading plan and limits the
greater our self-trust. Now this sounds like a catch 22
situation, if you find like I did that you cannot help yourself,
how do you start to develop self-trust through right action?
In a way I was lucky,
my back was against the wall, I knew that if I broke my limit I
would be out. So I had to stick to my limit and in doing so I
gave myself the opportunity to confront and finally reject my
fear of being a loser. To go from being a net loosing trader to
a consistently profitable one, we need to set ourselves
achievable targets of behavior. My problem was allowing loosing
days to turn into huge losing days, so to set myself the
objective of stopping trading for the day when I was down £500
was appropriate for me.
For others the
primary problem can be the resistance to taking a trade when a
signal comes up, be it intuitive or mechanical. An appropriate
exercise would be to take a simple mechanical trading system (it
does not have to be much good, break even would do) and set the
goal of taking the next 10 signals without hesitation,
regardless of how you feel. We need to build up our trading
skills one at a time, when we are confident we can cut our
losses we can move onto execution, then we can work on holding
on to profitable trades etc. Tennis stars don’t become stars
just through competition; they hone their skills one by one on
the practice court and they continue to practice throughout
their careers. As traders we need to identify the individual
skills we need to develop and focus on them one by one. Someone
new to tennis does not expect to go out and win competitions
straight away, they know they will have to spend a fair amount
of time practicing and learning first. Short term trading, like
tennis, is skill based, and those skills can be identified,
practiced and mastered.
Malcolm Robinson
Good luck
http://www.themasteryoftrading.com/ftc/cb.php
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