In This Episode
- What we've noticed traders who can multiply accounts have in common
- How to use word association to find out why you're losing
- The Market Wizards books
How to Find Out What's Really Going on with Your Trading
It's a fairly common story…traders do really well for a time…then they start losing money. In this episode, we answer a listener question on how to figure out why she goes on a winning streak, but then seems to lose immediately afterwards.
Read the Transcript
Walter: Hi, Hugh. I was talking to a trader in my forum and she was talking about how she kind of gets into this rhythm where she does really, really well in her trading. In her live account, she kills it basically but then inevitably, she has this terrible drop off from her performance. She was wondering why this has happened. I think she is onto the right thing because obviously, there could be many things but two that come to mind would be, just a reversion to the mean.
So, you’ve been doing really well but if you have a fifty percent win rate and you have eight winning trades in a row, maybe you are going to have a few losers. Four or five losers in a row but actually, I think what’s going on with her — I think, she has identified this — it is really coming down to her performance like confidence and overconfidence.
You know what they say with athletes? If they’re on a win streak and they’re just really hot. This team who’s really hot is going to the playoffs; they are so hard to beat. It’s kind of like that with trading but the problem is because so much of your success in trading comes down to how well you execute and how well you prepare yourself to execute. Which is really what this podcast is all about, isn’t it? It is about that aspect of trading.
I suggested to her to just really focus on how well she is doing that. So in other words, it is so tempting for us to blame the strategy or the markets when we are in fact the reason why we end up with this really difficult losing streak. So what I told her is this should be something that you can track.
There should be a data point. You should have data points in your journal that are telling you how well you are taking your trades at the beginning, and how well you are managing them, and how well you are getting out of your trades.
If you have those data then you could go back and say, “It looks like every time I start to get really good and have lots of you know, get really lucky and have a win streak, I start to get sloppy and I start to consider trades that I would not normally consider because I am feeling so invincible. I take these so-called subpar pattern setups” or something like that.
So that is really something I think is one of the key things to look at. It could have of course be, normal reversion to the mean but in some cases and I think in her case, she was right to suggest this or to ask this you know, it could be performance-related.
So that means keeping a track. Screenshots of your entries. Screenshots of your exit and also keeping a track of how, what do you think about this entry trade. Like, how good does this look at inception, at the beginning of the trade and how good does it look at the end of the trade. How well did you get out of that according to your rules? It is all according to your rules so that is one way that you can fight this.
You can also keep in your journal like how confident are you in your trading. If you can ask yourself this everyday or every time you take a trade like how confident are you in your trading right now. On a scale of one to ten or whatever. You can track over time.
What you can see is you can map that on your equity curve and see if your confidence goes up and then your equity curve goes down. Do you know what I mean? That is sort of a precursor to draw downs. Which again, would indicate that it’s performance-related and not anything to do with the markets or strategy.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.
So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.
Hugh: Totally true. This could go either way like you could use it as an excuse or you could use it, or it could be a valid reason but some people have this circuit breaker. Where they think they do not deserve success or whatever and then they kind of just sabotage it.
On one hand, some people blame that for their losses but in reality, like you’ve said they are not tracking their stuff so they don’t know if that is the case or not. They just kind of blame it on something. I think in some cases they are legitimately people who say, “Oh no, I am successful. What am I going to do?” Then, they kind of sabotage it. Maybe subconsciously but I think that is another thing to look at.
Walter: They could be both. It could be exactly what you were saying and that sort of manifested in the execution. You can go to a hypnotherapist and ask them to find out what you think about your trading. They can kind of probe things like that or you can do what is called a remote association.
You can write down, you can literally go to a source. An online source and copy all the words that mean wealthy or successful like all those synonyms. You could copy all of those. Paste them down in a column and then print that out and then what you can do is you can just go you know, calm yourself down. Get really relaxed , deep breathing and stuff and then bring that sheet of paper out and you look at every word.
Write down the first synonym that comes to your mind on the other side of it. So wealthy, you write down whatever comes to mind like rich. You write that down. Successful, millionaire, all of that stuff. You write down all of your thoughts and then see if you can see a pattern.
If you are writing down all these negative adjectives to those words, to those synonyms, that is telling you something about what is going on. Why you are having these repeating patterns. I know traders who pull out their money once they hit a hundred grand. They pull it all out and they start over at ten grand.
Just work it out. Just keep doing that because they can self-sabotage when they’re trading a five hundred thousand dollar account. I am not saying that you have to do that. That is like a work around. I think actually you’re better off working on the root of the problem but at least you know what is going on.
There’s actually a fascinating interview in the The Market Wizards book. It is the last one with the hypnotherapist. He talks about what this guy he had. He hypnotized him and he found out that he kept taking his statements from his broker and he would hide them from his wife or whatever.
Hugh: I remember that one.
Walter: Do you remember that? That is an example of that you know. Maybe I can link up that book. It is in the last chapter. I cannot remember which book it is but those are definitely some things that I think are much more common than we recognize.
Hugh: It is really interesting. I know a couple of ladies who can double or triple their account in like two or three months but both of them said that, “I can only work with a ten thousand dollar account. Next month, I am going to pull out everything plus the profit and then start all over again.”
My buddy actually got one of those ladies. I think it was like half a million to trade or something and she couldn’t do it. She almost blew it out. She actually came back but then the investor pulled out. It is really an interesting psychology.
Walter: And the dynamic between the trader and the investor is interesting too because a lot of times the investor is not educated in terms of like, they didn't know the likely draw downs are and all that stuff. Do you know what I mean? It’s actually really hard to be a trader and have an investor who knows a little bit about trading. That is a really difficult thing.
People who get into that will always say, you need to have an agreement that says that the money is tied up with for this amount of time but there’s also triggers. Like if the draw down goes to this level then all bets are off. You can pull your money. Safe guards on both sides. It is really a tricky thing to do.
In my experience, the traders or the investors who have the least amount of money like the lowest amount of money are the biggest headaches. It is the guy that gave you the five grand that you are going to worry about. Not the guy that has five hundred grand. It is so funny. It is so true.
Hugh: Exactly. I think a lot of these platforms kind of set a lot of traders up for failure because their draw down is like ten percent. Well, how much money are you going to make with a ten percent draw down? It is really tough and then they only give you like five thousand dollars to trade with. That is kind of a tough business too.
Walter: Absolutely.
Hugh: Thanks, Walter.
Walter: Thanks, see you.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
Enter the Monthly Contest
We give away a trading prize every month, so be sure to enter to win.
You can win by doing one or more of the following:
Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.
The giveaways can include books, coaching sessions, trading tools, or surprise gifts.
Click Here to Suggest a Podcast Topic
Listen to the Audio Version
Click the play button below to hear the audio-only version. You can also download the mp3 file below.
Podcast: Play in new window | Download
How to Get New Episodes of The Think Profit Podcast
You can get notified of new episodes of the podcast by subscribing to our email list, or subscribing via any of the major podcast platforms that can be found here.
If you enjoyed this episode, a 5-star review on your favorite podcast platform is always greatly appreciated!
Thanks for listening and we hope that your trading is going well!
