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Jim wrote:
"So I elect to stay in, thus breaking a rule. Long story short...I could have
walked away with 4-5 pt loss, but ended up with a 12 pt loss...Now I have to
wrestle with Globex all night...Lesson? Follow your rules. No exceptions."
<SNIP>
First, I hope you got out of your position quickly and painlessly. And I know
you have been trading long enough to not be bothered by me using the example you
gave yesterday, so here goes:
When I read your post last night, I had just gotten my trading statements for
the day and I was looking at a good sized grain spread that was bouncing in and
out of profitability. It wouldn't break out to the profit side and it hadn't yet
broken away to the loss side to hit my mental stops. But there was a grain
report due out in the next 36 hours and the statistics that had led me to take
the position also told me to exit the position by Friday at market's close. So I
was watching a relatively large[for me] position that was floundering. I could
have gotten out of it yesterday. It was mildly profitable but was showing no
signs of following through; in fact, it closed at it's low. After I read your
comments about your position, I knew the right thing to do: I closed the
positions on the opening today. I closed it at a loss. I quit fighting the
position and took the loss.
Everyone on this list that trades, takes losses.
Everyone that trades, takes losses.
Losses are a part of this business.
The more you fight a loss, the more money, time and energy you waste.
In your example, Jim, the system told you to get out. A mistake left you still
exposed to the market. By the time you found out, your loss was larger. As the
market closed, the loss was even greater. And since you didn't close out the
position for the loss, you had to watch Globex and try to exit the trade with as
little damage as possible.
If you are trading a system or an indicator and they tell you to get out, get
out. Period. And if you find that a problem caused you to have a position you
didn't want, get out of the position. Period. You have no reason to have that
position. The system or indicator that you base your trading on doesn't support
the position. In effect, you are flying blind now. You have gone from trading
using a methodology you are comfortable and familiar with, to hoping that a
losing position will come back.
Discretionary traders are not immune to this problem. It's easy to try to ignore
a position that is going against you--You can blame it on the floor running
stops or rationalize that 'these are the weak positions getting out.' There are
a thousand and one justifications for staying with a losing position, but none
of those justifications will make you money. Taking losses is a part of this
business.
When you devote time and energy to a losing position, one that you meant to
exit, besides risking your hard-earned capital, you are wasting that time and
energy. That same time and energy should have been spent watching for new
trading opportunities. While you watch a loser and hope it turns back in your
favour, you could have been taking the other side of that very same losing
trade. Or maybe you would have seen that great opportunity in the oil complex,
for example, if you hadn't been so riveted to the screen watching each tick of
that losing trade. Or you might have caught the next leg up or down in the bond
market. You certainly would have felt relief once that position was gone.
We all know how hard it is to take losses. We can all improve our discipline.
It's an integral part of trading and it is probably more important than honing
entry techniques or learning how to use a new indicator or making refinements in
your trading system.
Best,
Tim Morge
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