Focus on process and stay out of the results. Performance will show up if you trade a system with positive expected values. By focusing on the process or your system, you become the casino. Each time your system is open for business [trading], you are making money. You should strongly consider investing in a backtesting simulator.
When I started trading, I put a high level of emotion of making money on myself. That became expensive and I became frustrated about doing things that weren’t paying off. They were never GOING TO PAY OFF, but I didn’t know it at the time. I live by the adage that hard work will pay off…it was my turn. The thing is, I wasn’t working smartly. And worse, I had no definable trading edge.
The funny thing is that as soon as I detached from the money spiritually, my trading improved in leaps and bounds, both emotionally and financially. I found out that expectations have built-in disappointments.
Nowadays, I think of the money as points in a video game. I don’t actually play video games, but I still look at the net equity as how to keep score. As in poker, your money [chips] are your ammunition. I know when I make bad bets, I will most likely lose. Once in a blue moon, I’ll get random luck and split a hand or everyone will fold to me. That’s not a good business to be in though.
I can remember that as soon I had become emotionally invested in the outcome of a trade before I put the trade on…I could feel the disappointment before I offset the risk.
Losing Money But Making Good Mistakes
One good thing that I can say about this time was that I was risking real capital – not paper trading. I also was taking the risk home with me which is what I always advocate. New traders should not be focusing on 5 minute bars. Focus on the intermediate to long term moves, and once you master those [in 2-3 years] come back to shorter time frames risking 0.10% on trades so you don’t do any lasting damage to your portfolio.
Holding a trade for three months doesn’t make us investors. It says that we have stepped aside and let forces that are much more intelligent and powerful than us take over. All we can do is enter our stops and let the market go where it’s going to go.
If you find yourself trading 100 shares but offsetting them before the market close, consider trading 20 shares and taking them home if you making money on them at the close. You will learn about your emotions from the experience which is invaluable and can only be done by living it.
If 20 is too painful, try 10. But I also ask you to do this: why the lack of trust? Is it you don’t trust yourself or you don’t trust your process? Where does that come from, meaning, what scientific study did you read where it delineated that you should offset winners NO MATTER WHAT at the close and go home flat?
If you take home 10 or 20 shares of a winning trade, you’ll learn a lot about yourself emotionally as a trader. That wisdom is priceless to us. Learn and understand what your emotions are trying to teach you. They want to be advocates, not antagonists. If you feel the opposite is true, your process is likely the reason why.
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