Monday, 14 September 2009

Inexperience

This Saturday was a good example of why I need to ensure I can maintain the rules and disciplines before ever contemplating raising my stakes. My inexperience got the better of me and although I was mentally strong enough to hold my resolve for most of the session, I was unable to keep it for the entire time. Included in my errors was taking one race's closures IR (£7.64 loss) which occurred right at the death. I am glad it didn't work out as it reaffirms my mental state towards the end of a session, and has triggered me to address this issue more specifically. I ended the day with a total loss of £3.93.





Escalating downward spiral
At some point towards the end of a session, whilst I am feeling drained I make a sequence of poor decisions. This sequence is what I now identify as an escalating downward spiral, which if allowed to take its full course concludes with an IR closure, and ultimately results in a huge relative loss.

When I started trading parttime, shortly before starting this blog, I was taking about 25% of my races IR. Just thinking about that now is quite shocking. My efforts so far have reduced this to maybe one a session depending on whether I manage to hold out until the end of the card. Catching this spiral early is what I am managing to do most of the time, but not consistently all of the time, and on every session. In my head I have counteractions for each stage of the spiral but have not written them down or analysed them with the attention that I now feel is necessary. I feel this is key in the next stage of my development.

Methods for breaking the spiral
Having analysed the poorly traded races, broadly speaking this is what I have noted as the main stages of this downward spiral:

1. Poor trade entered into the market
2. Fail to close trade quickly when market moves against me
3. Do not focus on market information (remaining married to my opinion)
4. Enter another trade (or two) attempting to scalp the deficit down (typically against the market trend)
5. Realise the red increasing dramatically and hesitate to react
6. Place full closure on first green increment on ladder (typically 5+ ticks out of the money) and hit ‘Keep all’
7. Wait for race to go IR and hope for the speculative closure is matched

The first stage is inevitable. I need to enter trades into a market to make money and accept the risk that comes with this. My strike rate is quite high and my analysis has given me the confidence to be assertive when necessary and ensure that entries are based on quality information. They will sometimes go against me no matter how good the trade looked.

Stage 2 is the first opportunity for me to end the cycle. This is a tricky one as it can differ depending on each scenario. For instance a small mini-move of resistance might cause me to go into the red temporarily, but would not be adequate reasoning for me to close as the main market trend will soon push the price back into the green. However on some occasions the move is not a mini-move at all, but a sharp reversal of the main trend, and the sooner I decide to close the more money I save. I think it is apparent that the only way I am going to know which is which is through solid market experience. As a safely net I feel closing early on each occasion will limit the risk so I am inclined to do this more often than not, even if it means I miss out on the odd swing and would have been correct to hold on. I will reintroduce strict stop losses from now on, as admittedly I have been complacent and not placed them for each trade. This counteraction alone will eliminate the possibility of a large trend reversal going against me at the expense of a small percentage of my profits and reduced strike rate.

Stage 3 links to stage two in regards to reacting to what is on the screen. Whenever I am in the red I sometimes remind myself to refocus on the market data and forget about the red figure. This often works when I am fresh and not tiring as it requires more energy. I feel implementing automated stop losses will help here until I can build up my ability to focus harder at critical moments and for longer periods.

Stage 4 is what I need to cut out completely. The risk to reward ratio here is too high. The stop loss should have taken me out of the market at this stage, however if I am in a situation where it has not I must focus on closing my existing trade before starting a new one. I think closing and immediately re-entering on the opposite side is often not profitable, as it is quite impulsive (often not based on quality info) and would mean that the trend would have to continue for a few more ticks for me to make any significant amount from it. With the footage I have analysed, it is just as likely to reverse once again which would leave me with an increased red figure if I had re-entered. I will not rule it out but will only do this if I feel it is the beginning of a strong trend.

Stage 5 is a sign of my inexperience. Although this is happening less and less if I let it get this far I am typically quite uncomfortable and unfamiliar with the situation. I have read much about handling these situations and one method to accelerate the development of the coping process is to expose yourself to these scenarios repeatedly until they become familiar and the correct reaction is consistent and automatic. I will be implementing this strategy, perhaps not specifically to getting out of poor trading positions, but more geared towards my reactions to losses. I think it will be along the lines of finding something challenging to lose at repeatedly to familiarise myself with experiencing loss. Bit experimental but I feel it will help (I have never been the most gracious of losers and I think improving this will directly improve my trading).

Stage 6 is my last preoff opportunity to get out, and although will leave me with a large red figure on my P&L, if I get to this stage I have to close out no matter what. Messing around with placing my net stake closures and clicking on ‘Take SP All’ I feel is not helping and just wasting time. If I get this far down the spiral my only option has to be click on current close.

Needless to say stage 7 should never happen unless some technical issue has forced me IR. If I find myself in this position I need to hit current close at whatever price available.

I think I am going to print off a small list of this spiral and have it on display next to my monitors when trading. If I ever find myself in one of these stages I expect it will help prompt me to react in the correct way.

Methods for increasing my mental stamina
I think it is a bit ignorant or perhaps even arrogant for me to think I can match the concentration, discipline and focus of fulltime traders straight away. What I have been trying to do upto now is trade for a whole day (like what I would do if I was fulltime) and then take a six day break. This is far from ideal when I am trying to drill in new, demanding and strenuous disciplines, for two main reasons.

The first is the single long trading session is too long for somebody with my experience. The quality of my decisions disintegrate until the errors pile up and negatively affect my P&L. Obviously the aim is to trade for this long eventually, but to try to do it immediately is just not being realistic. As with other aspects, such as staking, this will need to be built up gradually.

The second is the 6 day break, this gives me plenty of time to forget what I have learnt, and allows me to re-establish the old bad habits. My learning process although very analytical, is not very practical. Ideally to learn something efficiently I would need to do it repeatedly throughout the week as opposed to many hours on only one day of each week.

Working fulltime Mon-Fri makes trading daily harder to arrange. However I do have options as we have evening racing each week from Weds to Sat at the moment. I will need to incorporate this as much as possible into my schedule. I will have a word with my boss to see if I can finish work at 5 on these days, this will allow me to be home by 6 and wikk give me about 5 races or so a day on Weds, Thurs and Fri. I will keep trading Saturday but not all day. Will trade for two hour sessions, with long breaks inbetween sessions. Once I can prove to myself I can handle 2 hours without my concentration diminishing I will increase these Saturday sessions gradually. By implementing this I now have at least four trading sessions a week on at least four different days.

In short this will not only allow me to build up my mental stamina, but also learn more effectively due to the repetition on four days a week as opposed to just one.

My analysis of the footage will continue as I feel this is helping me build up market experience. Instead of waiting around for 30 minutes inbetween races during the evening meetings, I will try to use this time to instantly review each race straight after it has gone off. I'm hoping this will save me time as I will not need to make time to analyse them later.

Right I think that's it for now, I will report back roughly in about a week.

Goodnight out there, whatever you are!

4 comments:

Betting Exchange Trader said...

Thanks for your comments re my short post on swarm theory. Really admire what you are doing on the trading front - I do not have the patience to do what you are doing to small stakes! But it is the way to go. Just remember the dynamic can change quite a lot when you increase your stakes - but I am sure you are aware of this...good luck!

JS said...

Thanks for stopping by. Tonight is the first night of the new shorter sessions experiment, quite looking forward it. When it comes to increasing stakes I will do this on a % basis of my bank. I'm hoping this will ease the dynamic transition. My main focus now though is drilling in the disciplines outlined in the post.

Best of luck with it all mate.

Sonja said...

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