Week 3 FX trading results

Chance favoured my account this week, allowing it to grow by 25.5%. I do not expect this run of successes to continue without interruption.

The greatest perceived victory has been in my fight against a horrible trading addiction that has plagued me through the year. I’m still some distance from having the addiction tamed as I remain conscious of a tendency overtrade, but I feel I am making steady progress in my struggle.

That said, the majority of my trades have been profitable so my trading addiction hasn’t been given much of a chance to surface. I know the addiction will only be really be put to the test when I am faced with a significant loss. That will be the acid test: do I continue to trade in an effort to recoup the loss, potentially entering in to a downward spiral, or can I face the loss and walk away? I’d like to be able to say that I would definitely walk away, but I need the loss to test my constitution. I do feel a little stronger than before, and the world is looking a little less dark. I feel ready to be tested.  

My biggest upset this week was that I wanted to score 9 or 10 out 10 for following my road map but I can only give myself a score of 7. Separate from the trading addiction, which remains the greatest threat to my survival, I continued to let the discretionary component of my trading approach erode a portion of my profit. I am tweaking my approach to further reduce to this discretionary component.  This should help me to quarantine my emotions and become a more rational trader. 

Given the leverage I am employing I know I am on tightrope. If I cannot consistently score 9′s or 10′s on my road map I also know this entire effort will be little more than an exercise in counting time until I blow up. I simply cannot afford to worsen my chances of ruin with behavioural deficiencies.

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9 responses to “Week 3 FX trading results

  1. Hi Caravaggio, great photos/pictures as usual!

    Your following quote is so clear and comprehensive, I would suggest putting it in large print near your turret:

    “That said, the majority of my trades have been profitable so my trading addiction hasn’t been given much of a chance to surface. I know the addiction will only be really be put to the test when I am faced with a significant loss. That will be the acid test: do I continue to trade in an effort to recoup the loss, potentially entering in to a downward spiral, or can I face the loss and walk away? I’d like to be able to say that I would definitely walk away, but I need the loss to test my constitution. I do feel a little stronger than before, and the world is looking a little less dark. I feel ready to be tested.”

    I can only think that seeing your online journal words nearby in any ‘heat of the moment’ is bound to give you a valuable helping hand.

    Regarding your lapsing in using discretionary methods, the parallel in my trading is my lapsing in using a ‘conceptual’ approach to trading instead of focusing on only tape reading and chart patterns to identify supply and demand. For example, I will decide that since winter is approaching that oil is bound to go up, or if signs of inflation is high then gold will go up. My win rate using this ‘conceptual’ approach is around 10%! And despite that, it still has a magnetic attraction. The difference now is that when I put on one of these ‘conceptual’ trades, I honor my well thought-out stop loss, and my lot size is correct per the risk I have decided to take.

    However, it still is a worthless technique for me, and takes a bite out of my successful approach of tape reading/chart patterns. I am inspired by your focusing on tweaking your approach to reduce futher your stumbling into using a discretionary component to do something similar for myself. So far I can only come up with that there still is a lack of committment and fear involving my embracing success as a trader. The self-saboteurs feel good when I lapse, sort of a bone I still throw them!

    The gremlin that encourages me to stride down this unsuccessful path of trading based on a concept is mostly the one that wants to be gratified completely and easily. It does not want to do the hard work of my routine preparation of targeting daytrades, it wants it just to happen because ‘I have an idea’, not because I have an edge. So I have now pasted a note on my screen stating, “ALERT: Instant gratification gremlin on the prowl.

    And there is no mystery to be solved when I have a long string of successful trades based on the tape reading approach as I have recently, that all of a sudden I get this ‘craving’ to go the idea route!

    One trader in France is on her guard while another in Great Britain is on his guard.

  2. Hi Michelle, Your idea of applying a more appropriate lot size and stop-loss to what is a losing strategy (ie: your conceptual trading) sounds like a big step in the right direction. It is very much the rational approach. Over time, if the success rate of the approach remains very low, the next step could be to continue to reducing the size of these bets, effectively starving the strategy of capital. I like the idea that a trading strategy has to earn access to one’s capital, even if I have been operating an ‘open door’ policy in this respect until now.

    I think I suffer from the same desire for instant satisfaction, perhaps combined with a need to always be ‘doing’, whether there is an edge in my actions or not. I have posted your ‘instant gratification gremlin on the prowl’ alert above my to-do list on my PC. This reminder should help me in the near future. Thanks, it is perfect.

    Lastly, I am also affected by successes in a negative way. I suffer from delusions of grandeur as I extrapolate recent successes in to the future. When this happens I also start trading with different approaches, as I falsely believe that it is ‘me’ who is successful and not my approach – a kind of invincibility syndrome. This always results in net losses. It is a contradiction on the surface, but this time around I am trying to be stronger by realising that I am weaker.

    We really are on our guard from ourselves.

    PS – Thanks for your emphasis on the GRADUAL.

  3. Pingback: Gremlin alert « the 3500

  4. Perhaps as an American, I can speak from the Land of Instant Gratification, witness the immense US debt levels, personally and nationaly for which one day, the collector will come, and the day is approaching. I would say that it is a rather common desire. Today I read the FT ‘How to Spend It’ section with a diamond-covered cell phone (bought by wealthy Russians so far) and wondered if there was any end to it all and of course, there is not.

    When I do well trading, I almost always decide that it would be smart to double the size of my orders – ha ha ha – you know the rest. I am learning more about the elasticity and tricks of my ego trading than ever before.

    However your photos are really good, maybe you are seeking in the wrong fields. When I previously suggested that you get out in ‘real life’, I meant that my trading obsession made me realize that I was getting very one-sided (ie using only one side of my brain) and that I needed to re-balance my mind, which I do by reading, writing, and cooking, right brain-left brain kind of thinking.

  5. “Given the leverage I am employing I know I am on tightrope. If I cannot consistently score 9’s or 10’s on my road map I also know this entire effort will be little more than an exercise in counting time until I blow up. I simply cannot afford to worsen my chances of ruin with behavioural deficiencies.”

    I enjoy your blog very much. Honest and refreshing.

    In regards to the above, I find trading pressure increases with the amount at risk and the frquency of trades. Walking on a tight rope becomes a lot harder to do the higher you are off the ground. Consider experimenting with different trade frequencies to find the one that suits you.

    Good trading

  6. “Over time, if the success rate of the approach remains very low, the next step could be to continue to reducing the size of these bets, effectively starving the strategy of capital.”

    ________

    very helpful, and something I never thought about. Really clever, as any trader who trades with small lots knows, why bother? But yet, I would be giving a bone to the gremlin with which to gnaw without seriously eating up capital to do the approach that is successful. And eventually the trader will just not even bother doing the small lots—it is the trading equivalent of not going cold turkey when quitting an addiction. Have I said yet, how clever and simple this suggestion is?

    “It is a contradiction on the surface, but this time around I am trying to be stronger by realising that I am weaker.”
    ____

    You thrive on paradoxes, you really do. Some people can’t do that, it is either one way or another. But you got the ability to look the paradox straight in the face and still function, using the conflict itself to resolve the problem.

    “We really are on our guard from ourselves.”
    ________________

    Thanks for that reminder!

  7. nonadamas – your earlier comments about connecting with reality have been a motivation. Trading also took over my life for the worse, but when I was at my lowest psychological point I found I couldn’t rectify this by adding balance with other non-trading activities, because these other activities no longer brought any sense of satisfaction. Starting this blog helped trigger a change of sorts, and I have found greater balance by taking more breaks, looking after my health, reading non-trading books etc, but I really feel for people who can’t find the trigger for a turn around – it is, quite literally, depressing. I can only stress the importance of not letting trading take over your life in the first place, as this strengthens the connection between one’s trading account and their emotions, creating an unhealthy dependency.

    Last weekend was the first time I didn’t buy the FT for many months, but a diamond encrusted phone? Surely that’s a bit much. I think the desire for instant gratification is also tightly related to a decreasing attention span in the western world (I think this is clear in the media, both the tv and written word) and the tendency toward short-termism (found in investor time horizons, executive decision making, politics etc). The gremlin really is rather pervasive.

    John – thanks for the sound advice. For now the tightrope stays high, but I will apply the advice I ever get back to break-even.

    Michelle – thanks for the compliments re the idea of starving capital. On a personal note, when I am acting rationally the sensory feed back from a small trade is almost on par with that of larger trades – perhaps it’s more about getting the trade set-up and execution right and less about the trade size itself. I think it’s right that the trader would eventually just give up trading the losing strategy; if they still wanted sensory feedback they could move down to trading the approach on paper only.

    ‘But you got the ability to look the paradox straight in the face and still function, using the conflict itself to resolve the problem.’ It’s hard but I want to deal with the reality that I am faced with, the root cause. I suppose this is okay, so long as I do not find myself in a muddle of contradictions.

  8. Would you like to give trading advise on the DJIA?

    THANK-YOU! GREAT BLOG!

  9. Thanks Ricardo. I am in no position to dispense advice on currencies (which I trade), let alone equities. All I have to say is that in the long run, equity markets should always yield a substantially higher return than government bonds. I believe long term investors are right to expect a real return north of 4% (after inflation). With the power of compounding, equity owners benefit from this strong upward drift – something that is generally not found in currencies. Of course, there will be many years of losses, since volatility is part and parcel of the market, and that is why patience and a very long time horizon are important (20 years and above). It is because of this drift that I believe the odds are stacked against those who play the market from the short side. That’s not to say they won’t succeed, but I just think it is very hard work indeed.

    Apologies for my broad response; it’s the only part of my opinion that is based on the facts on the ground (ie not pure conjecture).

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