Psychology of Managing Trades for an Income

[Enigmatics 10]

I was just sitting here ruminating over a non-decision I made today with a certain stock that pulled back slightly on me as I tend to get very OCD sometimes about decisions I "should've" made. I'm up pretty nicely for the month on 4 other trades though. It's the largest month I've had ever. I could've been up about 5 times what I've made though ...... but I chose to take profits on two stocks that hadn't hit my targets yet. The mental relationship to being up the most I've ever been in a month was just too strong and overtook my ability to stick with my analysis/convictions.

 

Alas, the stock today was reacting stubbornly from a mix of OPEX shenanigans, shorts trying to hold the last line of defense, and profit taking from last week's big move. I had multiple opportunities to exit the stock at or slightly above break-even ...... but as the ego would have it, I couldn't get myself to pull the plug. Clearly there was some fear-based decision factoring "Well what if it starts to move". The irony is, what is the worst that can happen? I can always re-enter. Not quite sure why that was such a tough conclusion to come to and execute.

 

At any rate. For those of you who trade for income ..... how do you juggle expectancy in terms of targets with the necessity of needing to also book profit every month? Some of you are well beyond that stage because you've padded the account so much that you have now afforded yourselves the "patience" required to sit back and let the trade attempt to fulfill your analysis. I might even be answering my own question with that last part in a sense that I am not at that level where my account is padded in such a way.

 

I'm constantly waffling over whether it's better to stack compound gains or stick to my longer targets though. I feel like part of the reason I held that stock today was because of the profits I missed by selling two previous stocks prematurely. So I've gone from "Damn, I sold those too early" to "I should've taken profit". I feel it's in my best interest to get this mentally flip-flopping under control.

Edited August 14, 2013 by Enigmatics

[SIUYA 11]

make of it what you will as it is completely subjective......

 

What you have is not unusual.....and is at the core of one of the great trade offs in trading.

The trade off between taking profits and letting them run and compound. The aim for consistency v capturing those extra profits if they appear. (even hedge fund types have this dilemma - the trade off between steady positive but small returns v setting the world on fire)

and when doing it as a portfolio of different stocks you were influencing one set of trades over another thinking it makes a difference, leaning on a trade based on what happened elsewhere......dangerous.

 

IMHO....If you need to actually get income from it and you are being focused with the ability to get back on, with little worry, and good entries etc....then stick to that. Dont start thinking 'could of, should of would of' - it will likely stuff up what you are doing well.

Dont lean on one trade based on previous different trading decisions and outcomes.

 

You reached the best conclusion when wavering - exit - as you can always get back in.

 

If you wish to let things run, then treat it as a separate strategy, separate account, separate pool of money - i was never able to chop and change between the two strategies at will in the same accounts - exactly because of the flip flopping you are having.

 

(I have also only seen one person do it well, but he had a big account, lots of stocks and arguably some inside info where he really made his money - whoops I mean enhanced information flow. While other traders I know who require the income find they trade best when they just keep chipping away at taking profits and they best spend their time waiting for opportunities. They have the same issue, but find various solutions )

 

Combining Long term and short term in the same accounts will probably also lead you to self deception in records and mindset - Only by separation can you accurately measure what works for you , what feels comfortable, what you want to actually do, and which is likely most profitable. You might need to build enough of an account for this....but if the short term trading is good - leverage it a bit more for extra kick????

 

You need to find a trick/a measure to work out when out are flip flopping and a solution - exit, separate accounts, more leverage and reward the extra PL by using a different strategy - or you will likely hurt what you do well rather than improve what you do badly.

Edited August 14, 2013 by SIUYA

[kuokam 10]

You can earn a year's profit in one month or week. Why try to book profit every day or so, as if it were a per hour job? Anxiety?

 

As for the "you can always get back in" part, I 've always found very easier said than done.

[Enigmatics 10]

You can earn a year's profit in one month or week. Why try to book profit every day or so, as if it were a per hour job? Anxiety?

 

As for the "you can always get back in" part, I 've always found very easier said than done.

 

You can .... but are you "guaranteed"? Obviously never. My point was if you don't have a lot of cushion in the account and you have to trade for income, sometimes it gets tougher to sit there and let the position do its thing as the clock is ticking for you to book profit to make ends meet.

 

For someone who's up considerably in their account (let's say 6months reserves, etc) they can just sit back patiently letting the trade attempt to fulfill the determined targets.

[SIUYA 11]

You can .... but are you "guaranteed"? Obviously never. My point was if you don't have a lot of cushion in the account and you have to trade for income, sometimes it gets tougher to sit there and let the position do its thing as the clock is ticking for you to book profit to make ends meet.

 

For someone who's up considerably in their account (let's say 6months reserves, etc) they can just sit back patiently letting the trade attempt to fulfill the determined targets.

 

Even if you dont need to book the income - the issue will remain - which is why you need to work out a trick/method (?) to get around this.

 

Kuokam has a point, but that is exactly it - if you get out and cant get back in, there are probably other issues. Once again it goes back to strategy and sticking to it - whatever it is. Everything in trading is easier said than done, so do more of the the things that work and are easy, and less of the things that are hard and dont work.

[Enigmatics 10]

Even if you dont need to book the income - the issue will remain - which is why you need to work out a trick/method (?) to get around this.

 

Kuokam has a point, but that is exactly it - if you get out and cant get back in, there are probably other issues. Once again it goes back to strategy and sticking to it - whatever it is. Everything in trading is easier said than done, so do more of the the things that work and are easy, and less of the things that are hard and dont work.

 

I can only speak for myself personally, but it would appear when I don't have bills in the back of my mind, I trade better ..... I'm more willing to sit back and let my trade attempt to fulfill my analysis. I know that sounds ironic given that I'm trading for income.

 

The issue with getting out and getting back in, again has to do with my analysis of the position at the time as it is doing it's thing. My perception of the "I need to pay bills" often does get in the middle of things and start casting doubt over the viability of hitting the target by the end of the month. It then grabs the trading wheel and takes the profit, eliminating that uncomfortable moment when you acknowledge uncertainty.

[SunTrader 10]

Trading is all about probabilities - there is no should.

[trade_canada 10]

Keep in mind that your primary role as a trader is to manage risk. Use these emotions as an indicator to tell you when to scale out a bit, I find locking in profits while maintaining a position to be a confidence booster.

[SIUYA 11]

I can only speak for myself personally, but it would appear when I don't have bills in the back of my mind, I trade better ..... I'm more willing to sit back and let my trade attempt to fulfill my analysis. I know that sounds ironic given that I'm trading for income.

 

The issue with getting out and getting back in, again has to do with my analysis of the position at the time as it is doing it's thing. My perception of the "I need to pay bills" often does get in the middle of things and start casting doubt over the viability of hitting the target by the end of the month. It then grabs the trading wheel and takes the profit, eliminating that uncomfortable moment when you acknowledge uncertainty.

 

It sounds like you are really reinforcing an aspect of that old saying - "only trade with money you can afford to lose."

 

It happens when other motivations influence the mind as well. Which is why I think the idea of a set strategy, set of rules, mandate etc is important.

Prop traders will alter their behaviour if they are paid a percentage of their income in much the same way if there are caps, time limits etc. When bonus structures change their mindset it will be the same result. They will hollow log, fudge numbers, deny, or sit on their hands pretending to be busy.

Hedge fund managers even have similar issues - a small up months every month are more highly rewarded by investors than big wins and extra PL volatility - even if on a risk reward basis one way makes more money and has a better risk reward profile....it still affects the mindset.

In all sorts of ways these affect people with various amounts of money or motivations. So dont feel like you are alone in this.

You need to know and understand - and either incorporate feelings into the strategy methodically or ignore them.....a half half approach probably wont work IMHO.

 

Another trick is to look only at % - it standardizes the amounts.

If you are thinking in terms of - this trade cost/made me a nice dinner/car/holiday/house then you will always mind f..k yourself. If you think in % you will be able to say, normally this type of trade makes x%, we are now at X+y% which normallysays I should lighten off its easier to quantify.

 

(War story fade in fade out. I was sitting at a desk when two guys running a very dodgy fund - they had no real strategy and were essentially salesmen. They were discussing what to do. They had 4 macro positions on that all went their way in one day they made 7% over about 2 days when their yearly target was only about 12% and they did not know what to do......I pointed out the obvious above simple maths, and then added - you can always put the trades back on the next day/week/month, but you should lock it in as that is your job/aim/mandate.....after another 30mins discussion they exited their positions.

The next day it all reversed, they would have lost half the gains....they were busy patting themselves on the back about how smart they were...:doh: --- their fund is now down about 30% over the last 4 years. To anyone watching what they were doing as an outsider it seemed obvious, but they were blinded by the lights like the bunnies/muppets they were (I have a history with these f,,,wits)) but I am sure you get the point.)

[BlueHorseshoe 10]

Hello,

 

I wondered whether it might be useful for you to try to distinguish whether the issue is:

 

a) a psychological/disciplinary issue to do with following a strategy?

 

b) an issue of what the best parameters for the strategy would actually be, based on your need to generate relatively steady income?

 

Hope that's helpful . . .

 

BlueHorseshoe

[Enigmatics 10]

I have not taken a single trade since August 13th and I've only conducted 5 trades the entire month. My total profit output is twice that of what I need for my monthly bills and is the largest month I've ever had. In the past it would've taken me 25+ trades to hit my monthly numbers. The results are not surprising to me though. I finally stopped trading options full-time. I have focused my efforts on trading the actual stock and I've backed out of the smaller/noisier intervals (2min/5min) in favor of the longer ones.

 

That being said, it's kind of strange. There have been 4 prime opportunities (each fit all my criteria) that I passed on since August 13th, simply because I'm happy with the month I've had and do not want to do anything to jeopardize it. Clearly that is not a T/A-related decision, moreso a "relationship to money" one. I'm just trying to get to the point where I'm not second guessing myself for not taking those extra trades. It's inevitable that I'm going to have to get back on the horse again at some point. But I know from my experience with my method, there will be enough opportunity in the following month.

[SunTrader 10]

If it were me I would still be trading because I prefer to limit losses, not wins.

 

Per day/week/month.

[zdo 20]

If it were me I would still be trading because I prefer to limit losses, not wins.

 

Per day/week/month.

 

Precisely...

 

 

Enigmatics,

 

a "relationship to money" one

is one of the ways of keeping yourself just inside the cusp of ‘pack membership in the mean’, etc, etc, or etc. or ... pick your way of describing choking, folks … regardless of how good your method always is “next month”...

 

mark my words – you will ultimately need any and all those outsized gains foregone via “Psychology of Managing Trades for an Income...”, or however they are foregone ...

 

In another thread someone mentioned learning from Larry Williams. Instead of oops bullsht, a much more important ‘thang’ to learn from Larry Williams is to press your runs hard... (and no, before you think this is all gamblee jankee - that doesn’t mean going reckless in sizing, mm, etc. at all!... )

 

Wishing you all the best,

 

zdo

[kuokam 10]

Maybe this is the month you could have earned a year's profit. But if you have a method that make all months equal, then I understand you acting as you did. But I thought you were expressing some dissatisfaction?

 

 

I have not taken a single trade since August 13th and I've only conducted 5 trades the entire month. My total profit output is twice that of what I need for my monthly bills and is the largest month I've ever had. In the past it would've taken me 25+ trades to hit my monthly numbers. The results are not surprising to me though. I finally stopped trading options full-time. I have focused my efforts on trading the actual stock and I've backed out of the smaller/noisier intervals (2min/5min) in favor of the longer ones.

 

That being said, it's kind of strange. There have been 4 prime opportunities (each fit all my criteria) that I passed on since August 13th, simply because I'm happy with the month I've had and do not want to do anything to jeopardize it. Clearly that is not a T/A-related decision, moreso a "relationship to money" one. I'm just trying to get to the point where I'm not second guessing myself for not taking those extra trades. It's inevitable that I'm going to have to get back on the horse again at some point. But I know from my experience with my method, there will be enough opportunity in the following month.

[Enigmatics 10]

If it were me I would still be trading because I prefer to limit losses, not wins.

 

Per day/week/month.

 

 

,

is one of the ways of keeping yourself just inside the cusp of ‘pack membership in the mean’, etc, etc, or etc. or ... pick your way of describing choking, folks … regardless of how good your method always is “next month”...

 

mark my words – you will ultimately need any and all those outsized gains foregone via “Psychology of Managing Trades for an Income...”, or however they are foregone ...

 

In another thread someone mentioned learning from Larry Williams. Instead of oops bullsht, a much more important ‘thang’ to learn from Larry Williams is to press your runs hard... (and no, before you think this is all gamblee jankee - that doesn’t mean going reckless in sizing, mm, etc. at all!... )

 

Wishing you all the best,

 

zdo

 

Trust me, I understand everything the two of you are saying. That is another step I'll inevitably need to take. It's why I'm sitting here questioning my decision to sit tight til the end of the month. I mean today I had a nice 90 tick opportunity in a stock that I follow closey, but I just couldn't get myself to pull the trigger. That little internal voice was yelling at me "Don't screw up the month you're having!"

 

Maybe this is the month you could have earned a year's profit. But if you have a method that make all months equal, then I understand you acting as you did. But I thought you were expressing some dissatisfaction?

 

Can't remember if I previously mentioned it in this thread, but I had two positions at the beginning of the month that I bailed prematurely on before my targets were hit. I did it simply because I had never been up that much so early in the month. Had I held, we're talking five months worth of cushion.

 

I definitely trust in the fact that based on my methodology there is enough opportunity every month ..... but yes, I am experiencing some dissatisfaction with my decision to sit tight due to my pragmatic mindset.

[SIUYA 11]

Trust me, I understand everything the two of you are saying. That is another step I'll inevitably need to take. It's why I'm sitting here questioning my decision to sit tight til the end of the month. I mean today I had a nice 90 tick opportunity in a stock that I follow closey, but I just couldn't get myself to pull the trigger. That little internal voice was yelling at me "Don't screw up the month you're having!"

 

 

 

Can't remember if I previously mentioned it in this thread, but I had two positions at the beginning of the month that I bailed prematurely on before my targets were hit. I did it simply because I had never been up that much so early in the month. Had I held, we're talking five months worth of cushion.

 

I definitely trust in the fact that based on my methodology there is enough opportunity every month ..... but yes, I am experiencing some dissatisfaction with my decision to sit tight due to my pragmatic mindset.

 

FWIW - I also agree with Sun trader and Zdo, but I think you are also doing the right thing for you at present.

You need to get comfortable and be able to make a decision which strategy to follow or have tactics to know when to push, and the belief/knowledge/trust that your system will produce enough opportunity every month is a good thing as it allows you patience.

Hindsight is a wonderful thing, and I can equally imagine you writing another thread where the opposite occurred - ie; you wanted to push and let things run and yet they all reversed, what then would the mindset and advice be??? This profession is a continual trade off, work out the trade off and then stop meddling.

 

Dont sit and just question what if (if you are getting nervous about pulling the trigger this sounds like what is happening) - design what you would have done differently, how you might profit more next time, what scenarios might have occurred especially while its fresh in your mind, how to keep going and not sitting on the past trades. This will be a very handy reference when you choose to push trades next time or not.

We delude ourselves and referencing past ideas to put things in perspective is a pretty humbling tool. This is the opportunity to do this, not when the moment has passed.

[MightyMouse 12]

...Had I held, we're talking five months worth of cushion...

 

 

Did you get out when you should have stayed in? If so, then was it because of a lack of nerve or a misread of the market? Or, do you wish you had stayed in, but there was no reasonable and objective reason for you to stay in, given your methodology?

 

Another question: given your behavior for the month, would you typically have done the same thing if you had 2 losses? In other words, do you quit trading when you have losses too or do you continue trading, but only stop trading when you have decent wins?

 

You don't have to answer these questions publicly, but you do have to have decent answers to these questions.

[Enigmatics 10]

Did you get out when you should have stayed in? If so, then was it because of a lack of nerve or a misread of the market? Or, do you wish you had stayed in, but there was no reasonable and objective reason for you to stay in, given your methodology?

 

With the first two trades I conducted this month, I exited prematurely simply because of how much I was up. It was a sizable amount and gave me some breathing room. My methodology had not given me any reason to exit the trade though.

 

Another question: given your behavior for the month, would you typically have done the same thing if you had 2 losses? In other words, do you quit trading when you have losses too or do you continue trading, but only stop trading when you have decent wins?

 

You don't have to answer these questions publicly, but you do have to have decent answers to these questions.

 

It's a very fair question and I'll be the first to admit that there are times when I continue to trade. Since I do it for a living and do not have large reserves, if I'm down on the month I have to continue to try to make money. However, I do have a daily loss limit.

[kuokam 10]

"The toughest thing in the world is holding on to profits... Learning how to lose is more important than learning how to win".

 

Stan WEINSTEIN