Friday, February 20, 2015

Best Practices in Trading: Self-Control Routines During Trading Hours

During market hours, it can become easy to so focus on trading that we neglect the person who is doing the trading!  Once we lose self-awareness, we can make decisions that we would never make if we were calm and focused.  Self-control is easy when we are not facing stressful situations and dealing with fight-or-flight responses.  During periods of emotional, cognitive, and physiological arousal, however, our state shifts can take us very far from our initial planning.  That is why self-control strategies that can be employed during trading hours are a best practice.

Today's self-control methods are illustrated by reader Gus Joury, a short-term trader of crude oil futures.  Here are some of the daily practices that aid his trading:

"1.  I start my day with 15-20 minutes of meditation/mindfulness.  I practice breathing meditation and or TM to clear my mind and keep me focused and aware of my emotions before I start trading.  During this time, I use the inner balance app with a heart rate variability monitor to measure my performance for that session and I record my score.

2.  I go over my checklist to make sure I had a good night's sleep, protein breakfast, and workout.  I also rate my physical condition, distraction level, and overall emotional and mental state for trading.  

3.  Before I start trading, I look at market conditions and rhythms at different time frames to try to evaluate whether the market is tradable, whether it is trending or choppy, etc.  This helps me decide which tools and setups to use and whether it is worth trading or not.

4.  I start my first trade with small size (1-2 contracts) to test the waters and see if I am in tune with the market and to get a feel for the overall market environment.

5.  Once I start with a winning trade, I start increasing my size in the following trade by adding to the winners.  I like to start small and if the market goes in my direction, I add to my position using buy/sell stops and then scale out at the first target and second target and then trail my last position with one tick below/above the previous bar low/high to maximize my profits in the trade after having pocketed earlier profits.  This strategy makes me less anxious to take profits and helps me hold my position longer with a trailing stop.  It gives me good risk management and allows my winners to be much larger than losers.

6.  During my trade, if I experience any anxiety or discomfort, I take deep breaths in and out in order to maintain my focus and stick to my plan.  

7.  After closing my trade, if I feel any anxiety, regret, or discomfort, I take a breathing session break for 5-15 minutes until I clear my mind and refocus.  I also do some EFT tapping (emotional freedom techniques) with breathing to release negative energy.  I sometimes take a break by walking out of the trading office.

8.  Once I hit my daily stop loss, I stop trading.  I also stop trading if I lose 50-75% of intraday profits." 

Notice how Gus combines methods for physical and emotional control, such as the breathing, with methods of money management.  He attempts to stay in winning trades, exit losing trades with smallest size, and regulate the losses he can incur on any given trading day.  All of these are methods of self-control, and all of them help him stay focused on markets rather than focused on P/L.  

Money management is an essential part of self management in trading.  As I've mentioned in my books, I never want to lose so much money in a day that I cannot have a profitable week; I never want to lose so much in a week that I cannot come back for the month; and I never want a losing month to ensure a losing year.  A major aid to optimism and positivity is ensuring that you always have enough dry powder to mount a comeback after a loss.

Further Reading:  Self Control and Working Memory