Mailbag: Stop Trading When You Are Tired

Received a subscriber’s question together with his trade records organized in an Excel file. He asked how he can improve his trading performance as he is very frustrated that there seems to be a barrier blocking him from performing better.

Make no mistakes – he is profitable. He is actually a pretty good trader in terms of percentage winners. The odd thing is that he has these huge losing tradings here and there that whack his account badly.

Usually I do not have the time to read through trade records (with thousands of trades) but he organized his trade records so neatly that I gave it a try and found something that stands out quickly.

First, on a daily basis, he’s been profitable most of the time like 90%.

Those days he had a big loss early in the morning, he can recover to net winning by afternoon.

And the most interesting part, those days he has,

• more than 15 trades already by 1 pm, or,
• no trades at all by 1 pm, or,
• 2 to 3 trades with net small loss by 1 pm

are always the days he had those huge losing trades. And those losing trades are often bigger in size which to me a sign of averaging down or bet the farm mentality.

So I showed him the numbers and asked frankly what the h#ll was he thinking when he pulled the trigger on those trades. And right from the beginning I told him if I offended him then we should stop the email exchange on this very topic because there is no point to continue if he thinks I cannot solve his problem.

Interesting enough, he said he remember the last big losing day.

It was a very frustrated morning because all he did was 2 trades and both got stopped out. Then he could not pull the trigger again throughout lunch hour and saw this very good setup and jumped in double up. Then the trade went his way for a short while and suddenly the market tanked and he thought his setup was still valid so he lowered his stop several times. Had to cut the position by close as he does not enough overnight margin.

I asked if he ever tried to go back to the chart for that particular day and find out what went wrong. He said he has not because right after he closed the trade, he already figured out that a major support line was broken and that he should have cut that damn trade when it happened.

Sounds familiar? Many of you (including me) have done this and normally experienced traders would go with the advice like stick with your stops and it is wrong to double up, blah blah blah.

No. I do not think that is real the problem because he demonstrated in almost all he other trades that he is a discipline trader. So I asked him to try this out for a month – stop trading all together by 1 pm if any one of the conditions above happened. Make it part of his trading plan.

I am glad to report that last month he has not even one big losing trade at all and performance doubled by simply walking away from the market.

The reason – when you are tired, your performance degrade.

Trading is a decision intensive activity. Normal people going to work at a office can push paper around in a half zombie state because not much complex decision making is involved. Trading, and in particular daytrading, you have to make your trading decisions in real-time at least once every several minutes. That drain your brain power quickly. It is quite well known that many traders have headache after a hectic trading day.

You need your best condition to deal with the ever changing market conditions. When your mind is tired, your good judgement and decision making is replaced by tireness, frustration, or even anger. How can you expect great performance from such state of mind?

There are other solutions to deal with this problem.

First, you can take a break in the middle of the day so that your brain get a chance to rest so that it is ready for afternoon trading.

Second, reduce/streamline the decision making process using various alerts / pre-defined conditions / etc. to filter out most of the basic requirements your trading setups need. That way you can focus on the details and have the advantage of speeding up the decision making process too.

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