3 More Reasons Why I Fail at Discretionary Trading

Last time I told you about how I was going to overcome 2 reasons I have failed at discretionary trading.  Here are 3 more reasons, and how I plan to defeat those.

The reasons I fail:

Overtrading/Revenge trading - sometimes in discretionary trading, sometimes everything looks like a signal.  Worse yet, sometimes I'd force signals to get back lost money

Too Many indicators/rules - Confusion reigns supreme, when the charts get complicated

Not Practicing Enough - Many people don't practice at all!


My plan for overcoming these obstacles:

1.  I have a set list of approximately a half dozen setups.  The potential trade HAS to be meet one of the setups. This will take mental discipline, and I might resort to step 2 to ensure I am not overeager to trade at the start of the day.  I may or may not be sharing these setups later on.

2.  At the beginning of the day, I am usually amped up a bit, and excited to trade.  Many times, I notice that I "see" setups that aren't even there!  So, I will track my first trades of the day.  If they look to be particularly bad, I might do one or two crazy things:
   
    A.  If I have enough indication that I am doing things backwards with the day's first trade, I might just take the opposite of the intended signal.

    B.  If I notice that I constantly take first trade signals that are not there, I might just take a random (coin flip) entry, and manage the exit.  This might take away that "first trade of the day" excitement.

   I'll be the first to admit that these options are pretty wacky, and I don't want to use them.  But realize what I am doing - I have identified a specific weak spot in my trading, and therefore developed a plan to overcome the weakness.  That is the takeaway lesson here.

3.  I am only going to be trading from 9 AM - 11 AM each morning.  That will leave me time for all the other trading activities I do (writing, developing mechanical systems, consulting, etc).  In that 2 hour period, I'm guessing 5 trades should be my maximum.  So, to prevent overtrading, I'll never take more than 5 trades in one day.  I think most days will be even less.

4.  I estimate I should hit 50% wins.  So, the odds of getting 3 losers in a row is 12.5%, or about 1 day every 2 weeks.  Since "revenge" trading usually hits after a string of losses, I will shut down for the day after 3 consecutive losses.

5.  For indicators, I'll just use candlesticks, and an EMA line.  I may also have a few pattern detectors programmed in, but for the most part I'll keep it very simple.  Simple is usually best.

6.  Every night, I will practice, either looking through days trades, old charts or by studying reference material.


Next time, I'll write about my specific goals and objectives.