Is It Me or The Market?
What is the Actually Cause of the Performance Issues?
Day trading is not just about analyzing the markets and taking trades with Edge. It also involves being able to manage your emotions and assess whether your decisions are being influenced by psychological issues or by changes in market conditions. It can be confusing for traders to identify the root cause of their suffering performance – sometimes questioning their trading plan when a mental-game issue needs to be addressed, and sometimes focusing on psychology when in reality their trading plan needs adjusting.
Here are some practical tips to help you assess which of these factors may be affecting your performance.
1. Keep a Diligent Trade Journal
One of the most important things you can do as a trader is to keep a trading journal. This allows you to track your trades and analyze your performance over time. This is an especially important tool when attempting to problem-solve your performance issues.
In your journal, make sure to record your emotions and thoughts during each trade, as well as the conditions and contextual situations of the market for each trade. This can help you identify patterns in your behavior and decision-making, and determine whether your losses are due to unfavorable market conditions or your own trading decisions.
It’s also important to track your errors and volatility. If you notice that your performance is suffering due to increased/decreased volatility, for example, you may need to adjust your trading plan accordingly.
2. Seek Feedback From Other Traders
Connecting with other traders can be a great way to gain insights and feedback on your trading approach. As traders, we are often skilled problem solvers, but we can be blind to our own emotions and biases. By seeking feedback and discussing market conditions with other traders, we can more easily identify common psychological pitfalls and overcome our own biases. This is especially valuable because many traders experience similar emotions while trading, so discussing these emotions with others can help us recognize and address psychological issues more quickly. Ultimately, having another trader check your biases and provide feedback on your trading strategy can have a significant impact on your trading performance.
3. Take a Top-Down Approach to Analysis
Sometimes we get stuck in the weeds, analyzing the markets from a very narrow perspective. It’s important to zoom out and look at the big picture. Restarting your analysis from scratch can help you to clear existing biases that may be hindering your performance. Clean all of the lines, drawings, etc. from your charts and restart with fresh eyes, analyzing from a higher time-frame, down to a middle time-frame, then with your execution time-frame.
4. Take a Break
If you are feeling overwhelmed or stressed, it’s important to take a break from trading. This can help clear your mind and refocus your energy on making sound trading decisions. As a first step, take some time completely away from the markets and screens. Cease the frustration and come back in a few days with a level head. Next, spend a day or two observing markets but without the pressure to take trades. Use this time to re-evaluate your biases, analysis, trading plan, and risk parameters.
The solution may be as simple as reducing your size and expanding your stop in relation to increased volatility. Failure to notice the changes in markets causes increased frequency of stop-outs and can cause a trader to feel like he/she no longer has an edge. If you can’t determine the source of your suffering performance – a few days off is likely warranted.
Learn from Livermore
One final thing to keep in mind is that even the most successful traders continue to experience doubt and fear. You may have heard of Jesse Livermore, a legendary trader from the early 20th century. Despite his great success, Livermore suffered from extreme emotional swings that led to large losses. After making a fortune, he lost it all on more than one occasion. In the end, he lost everything and tragically took his own life. The lesson here is that trading can be mentally challenging, and it’s essential to take steps to manage your emotions and maintain a healthy perspective. Your emotional capital is as important, if not more important, than your financial capital. By implementing the tips outlined above, you can work to consistently improve your trading performance, set up guard-rails, and gain some clarity that you are headed in the right direction.
– Landau Lang (@CT-Jaguar, Community Manager at Convergent Trading)
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