Monday, 20 December 2010

When is Enough, Enough? and Happy Holidays

I'm taking time off until the New Year, unless something major happens in the markets.

On Friday, we saw the volume shrinking. I have never forgotten a X-mas period in, I think, 1981 or 1982 when my head was handed to me. I lost a 100,000 dollars in two weeks. That certainly brought me down to earth. I blamed it on the slow holiday markets, but on reflection it was probably a much less experienced man's lack of discipline and skill. Nevertheless, I usually don't trade over the X-mas/New Year period.

My final post for the year is about an email I received a couple of days ago:

"One other philosophical question....

-When is enough....enough???  My biggest struggle is overtrading.  I am the worlds best trader (just in case you haven't heard of me), but I am the worlds worst money manager. 

-I recently came across a simple "blackjack formula" that went like this...Today I am willing to lose $250 per day and every time I have a winner or loser I subtract that from that $250.  So, if I had 3 winners and was up $200 and the next trade was a loser of $60 then I should be done trading for the day with a net profit of $140 (per contract).

-Now that sounds all fine and dandy, but I struggle with the fact that it's 10am and I am done working for the day.  I grew up in a family where one has to work 50 hours a week to justify what you are doing.  Maybe its the midwest mentality or maybe I have ants in my pants, but I just struggle being done for the day.

-How have you handled this over the years???  I know there has to be others like me out there."
As with many things in trading, the answer is simple but not easy. Trading is a business, not a computer game. The basis of my business is the same as most successful businesses: I have a business plan. As I have written before, my Dad taught me to work with inspiration, not perspiration. My goal in my trading business is to make money.

In writing my trading plan, I had to decide many things, including how many hours a day I trade, whether I have a daily target or daily stop loss, as well as a host of other things.

Making my TP very specific helps my discipline. I try and have as few decisions to make in the heat of battle as possible. I don't want to have to work out whether I should stop trading if I have had 4 losers in a row. I don't want to have to decide whether to stop trading if the market is trading sideways on the day before a Fed announcement. All these decision have been made in a quiet and considered way beforehand so that when sh*t happens, and it does, I can react instead of having to work out what to do while under pressure. These days I try and save the sweating for the sauna.

If I'm finished trading for the day, I have a long to do list that will keep me and my brain busy. My work ethic is so strong I also have a hard time not doing something.  If I've followed my plan and trading is done, then I've finished my business for the day and I move onto something else. Whether it's taking care of my longer term trades, making a training video, mentoring a student, getting some exercise, doing research or just walking with my dog.  

If you feel that you need to work longer, make a daily agenda like you would if you had a 9-5, but fill the planner with things you like to do or want to do. Back testing or research if you want additional trading work or working on your hobby, or learn a new one. Have lunch with your wife or girlfriend or other friends or help your kids with their homework, volunteer, etc.  The list is endless and you will find that you will feel more energized and ready to trade the following day.  Your brain needs that switching off from trading so you can see the next day's trades with fresh eyes.

Sadly, a lot of it comes down to money. The less money you have available to trade, the more urgent you believe it is to take the next trade to make more. Sometimes working at trading less, makes more money. Taking the better trades with bigger size or staying out of the dead zone and giving profits back. Over the years, I've tested every trading scenario I could think of. The idea is to optimize your time. I remember when the S and P pit was a big deal, there were locals who only went down onto the floor for the first hour and a half and the last hour.

I wish you and yours all the best over the holidays. Be well and safe and ready for the year to come. There will be a bunch of what I hope are interesting new things to come from ElectronicLocal in 2011. Posting resumes again on January 3, 2011.


  1. jenrique42
    the overtrading can be a drawback as we can to make us believe what we are not, and that in this business is very dangerous.

    for that we have two weapons to protect us, one is the one you referred to the trading plan, however there is one in which few people think, is the financial plan, and this is the one that tells you which is your daily target and how many traders do to get it, but that one has to ask how much you want to win, and goal, for example in a year

    For example, if you want to win an amount of about 100.000e a year and having an average of 220 sessions would have to get a 450e in each session, in a market like the German, the DAX each point has a value of 25e so it would have to make, net, about 18 pts
    In my experience, albeit short, I found that a trade of about 10 points, fits almost all the movements that the dax, so it would have to do only two trades in each session, the rest would overtrading, of course this would be a single contract

    el sobretradear puede representar un punto en contra ya que nos puede hacernos creer lo que no somos, y eso en este negocio es muy peligroso.

    para eso tenemos dos armas para protegernos, una es la que usted hace referencia, el plan de trading, sin embargo hay otra en la que poca gente piensa, es el plan financiero, y este es el que te dice cual es el tu objetivo diario y cuantos traders hacer para conseguirlo, pero para eso uno se tiene que plantear cuanto quiere ganar, como objetivo, por ejemplo en un año

    por ejemplo, si uno quiere ganar una cantidad de unos 100.000e al año y teniendo un promedio de unas 220 sesiones se tendrian que conseguir unos 450e en cada sesion, en un mercado como el aleman, en el dax cada punto tiene un valor de 25e por lo que se tendrian que hacer, netos, unos 18 ptos
    Bajo mi experiencia, aunque sea corta, he comprobado que un trade de unos 10 puntos, cabe en casi todos los movimientos que hace el dax, por lo que se tendrian que hacer SOLAMENTE dos trades en cada sesion, lo demas seria sobretradear, claro esta que esto seria con un solo contrato

  2. I wish you and your family a very merry Christmas and a happy new year.

    Kind regards,

    Tim Mack

  3. Merry Christmas to you and your Family and a very Happy 2011. You have helped me immensely by your dedicated posting and daily lessons. Thanks.

  4. Happy Holidays!
    And looking forward for your new year posts.

    BTW,this kind of overtrading, sometimes, probably is a psychological problem that relates to the self-acceptance and "fear" of success. The deep reason partially comes from the conflict of a trader's value system that drives the trader to "work hard" overtrade to unconsciously "justify" himself. The result is often returning the profit. I remember that some trading psychology books mention this kind of problem. Just add my two cents in case it's helpful.


  5. Hi EL,

    Your trading lessons are the best. No one else even comes close.

    Thank you for everthing you do for us. May the new year bring you and your family excellent health and great prosperity.


    Dedicated EL Fan

  6. EL. New reader and new to MarketDelta's market profile charts. I have used eSignal for last 4 years. Perhaps you can answer a tech question on the platform? I noticed on one of your charts you split your profile up. Do you find this helpful vs. keeping the profile together? And do you mind briefly explaining how you accomplish this? many thanks...

  7. Anon, I split when there is a new beginning, usually a breakout, by clicking on the letter. If it's the Euro, I break it into the three time zones - U.S., Europe and AsiaPacific - to start. The guys at MD are very helpful so just drop them an email if you need help. Best support in the biz.