|Anyone who tries to trade all day and night will wear themselves out mentally and emotionally. The process of constant give and take will surely cause them to break discipline and fight the market sooner or later. Whether you are using real money or a simulated mode, the same behavioral process unfolds over time. It is basic human nature. On the other hand, if you set for yourself a reasonable objective, such as targeting +4 points to +5 points on the S&P 500 emini index (ES), more days than not, you will find yourself reaching that goal (assuming you have a solid trading approach). That, in turn, gives you positive mental or emotional self-reinforcement to remain disciplined and avoid breakdowns.|
Here's a hypothetical example; There are approximately 250 trading sessions per calendar year and your results look something like this:
- 33% of days you will end the session near equity peak
- 33% of days you will end the session in middle of equity peak
- 33% of days you will end the session at equity lows
It is very possible that on some of those 66+% days where you fail to finish at equity peak for the day, a bunch of those sessions were modestly to highly profitable early and then eroded from there. That is due to a number of factors you cannot control. Sometimes price action was favorable early but was not favorable all day long to the end. Sometimes random fate happens. Your best trade of the day got stopped out to the tick for a loss instead of a big win to finish at highs. Sometimes technical issues happen like Internet outage, or computer failure. Other times the dog gets stung by bees and needs medical attention, a logging truck crashes in front of your house, unexpected emergency calls demand you leave to respond immediately. I've had all that happen (and more) in the past.
Sometimes you are focused early and generally distracted later due to illness, lack of sleep, personal distractions (such as new babies or children home from school), or dealing with divorce issues, etc. There are endless reasons why traders fail to finish at peak equity highs every day; some reasons are market related and some are unrelated. But that's how it goes, regardless.
Let's walk through Friday, June 14, 2013, and look at the S&P 500 emini index (ES) trading efforts. I won't attempt to explain the logic behind each trade because that is not relevant to the discussion here. My goal for the day is to capture, book, and keep at least +4 index points from each emini ES futures contract. How that happens is of no concern. What is of concern is that we don't draw down unbalanced realized losses in the process.
|Figure 1: THE FIRST TWO TRADES. The first trade was stopped out. The second trade resulted in a +1.0 point profit.|
|Graphic provided by: NinjaTrader.|
|The first trade (Figure 1) of that session was long from ES 1631.00 in the September contract. It failed to progress anywhere much in favor and soon stopped out for -1.5 points. The second trade (Figure 1) was simply a reentry at the same spot when price action reconfirmed buy signals following said pullback that hit the initial stop. I entered long at 1631 with price action projecting to the 1637 area and higher. It reached a peak high of 1635 for exactly +4 points in favor or +3.75 points maximum actually available to capture. I made the calculated decision to advance my stop +1 point above entry and hold for 1637 area targeted to fulfill. That didn't happen, the stop was hit, and the result was +1.0 point.|
|Figure 2. THE THIRD TRADE. This trade resulted in a +4.75 point profit.|
|Graphic provided by: NinjaTrader.|
|The third trade entry (Figure 2) for this session was short from 1630 with price action projecting to 1623 area first, and 1618 area from there. The initial stop of 1632 held the subsequent pullback up, price action continued lower as it predicted for itself, and the trade was eventually stopped for +4.75 points result. All or any of that was done only with the benefit of hindsight unavailable in real-time, which is when all decisions must be made.|
|But you know what? If that is the best you could ever accomplish on average across the 250 trading sessions per calendar year, you would pull some $250,000 out of said market. A quarter-million in annual gains not enough for ya? Well, go ahead and add contract size to your trades. ES will accept whatever you can afford to throw at it – five, 10, 20, 50, or more contracts.|
|In the case of trading all day and night, you will be statistically rewarded 1/3 of the time and mentally "punished" 2/3 of the time. Anyone who tells you to shrug off being up $2,000 early and ending up +$400 or down -$2,000 after many further trades is giving you empty advice. If you do that enough times, you'll start to break discipline in trying to reach your subconscious goal of ending at peak equity high every day. It is much easier mentally and emotionally to accept the results of each trade as parts of the whole sum (target shooting) to reach a daily goal versus judging each single trade sequence as a success or failure to result in maximum performance (trade every signal) through the entire trading period.|
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