Most Day Traders I know have been very frustrated with the market the last few weeks. Even those of us who still managed to pull out some consistent money agree that it’s been more difficult than normal. Many days recently we’ve just been glad to get out alive. In chat, we’ve discussed ad nauseam our theory behind the current market conditions (earnings, low volatility, seasonality, our crazy political climate, etc.) but that’s not what this blog is about. What I want to discuss today is how to handle days, weeks, or maybe even a month when the market is making day trading even more difficult.
First, you must admit and understand this will happen to you from time to time. It happens to all of us. There are times when things just don’t work as well, and even times where nothing seems to work at all. These “things” can be YOU, your set-ups, your rules, the market in general, etc.
So, what do you do?
ADAPT! (a·dapt - become adjusted to new conditions)
When these "things" start to happen and you begin to struggle, you must quickly adapt your mindset and your trading. This is where too many traders go wrong, usually in one or two ways:
They don’t adapt quickly enough.
They adapt too drastically.
Let’s dig into these a bit:
1. Adapt too slowly: Often when things aren’t going well, traders just continue to do the same thing day after day after day. Then finally, they realize how much money they’ve lost and wonder what’s been going on for the past few days or weeks? Some don't change a thing and continue down the path of frustration. They hope and even pray that things will get back to normal soon. “Normal”, lol. Others will finally adapt their trading but only after a lot of damage has been done - damage to their P&L, not to mention their confidence.
For me, this is one of the many reasons it’s so important that I track my trades. I closely monitor my win rate % along with my “R”. If my win rate % is slipping, this can be an indication that the market is changing and my set-ups aren’t working as well. But it’s usually the “R” that gives me the heads-up first. Poor “R” tells me that my set-ups aren’t following through as much. This is usually an early sign that things may be changing. When my “R” starts to slip, I adjust my scale out process and sell more shares sooner, keeping SOME for the bigger move that may or may not come.
Being able to quickly adapt like this is a key element to becoming and staying consistently profitable over the long haul. I suggest that any long-term trader who is still spinning his/her wheels is probably struggling with exactly this.
2. Adapt too drastically: This is the one that usually does the most damage. Some traders get so frustrated that they throw everything out the window. They forget their A+ Set-Ups, the checked boxes, all the rules and just say $WTF! They start throwing darts at anything and everything they see. They even allow the peer pressure of a chat room and/or $TWTR talk them into following some random trader they don’t even know. For example, they’ll take a random flag break even though they see a wall of sellers that’s mostly likely going to prevent any sort of move. Still, they choose to ignore the sellers and everything they just learned. They’ve become desperate for a win. If they happen to get a win, they just reinforced bad habits and the market will quickly find a way to take that money back. Yes, I’m talking about $CCCR but there were countless others the past few weeks.
What should you do instead? Be even MORE disciplined. Be even MORE consistent. Be even pickier when it comes to taking a trade. Cut your share size back a bit. Trade LESS not more. Scale out more shares sooner and protect your entry on the rest. Don’t just sit on your hands until they’re numb, sit on them until they fall asleep. Trade only when something sets up and you’re in LOVE. EVERY BOX IS CHECKED! Sure, you may miss a couple trades here and there, but that’s ok. I’d be willing to bet your “R” would kind of stink on those misses anyway. Just be patient and wait for the market to change back.
Guess what? The market WILL change back. The lull will be over soon, you just need a little patience. When? Why? For how long? Who knows!? It just will when it wants to (we have ZERO control). When it does change, you must be ready to quickly adapt yet again. If you’re too slow to change back you’ll miss out on some great trades. As soon as I see my “R” start to tick up along with my win rate %, I’m back 110%. I’m trading more frequently and trading with size. I will continue with this mindset until the market tells me to slow my roll again. When will that be? Again, no one knows...
I mentioned earlier that traders who have been doing this for a while and are still spinning their wheels are likely struggling with this. They take way too long to adapt. They’ll make good money for a while. Then something changes and they start giving the money back. The don’t adjust their trading and just keep doing the same things day after day. At some point, they finally get the message the market has been sending them. They’ve finally had enough and are willing to change! But guess what? It’s too late to change. They waited too long. Now, the lull is ending. It’s actually time to put one’s foot on the gas again. Instead, now they finally trade less and/or with fewer shares. NOW they sit on their hands. They should have done all of this days/weeks before, not now! Now they’re going to miss out and the frustration level is just going to
increase. This kills one’s confidence.
In short: Traders must learn to adapt quickly on both the way into and out of a lull.
One other thing I want to note with all of this: This is one of the biggest reasons I don’t have a monetary daily goal. My daily goal is to trade well and follow all my rules. There are going to be times (like this week) when I suck and can barely pull any money out of the market. There are going to be other times when the market makes things less hard (notice I didn’t say easy). Times when everything is just clicking. My set-ups are working and they’re following through (stronger win rate % and nice “R”). It's those times when I must take full advantage of what the market is giving me. I push on the gas a bit more and ride until the market tells me to slow down again.
So, what will Monday bring? Are things going to pick up now that the bulk of earnings season is over? Or is all this political risk going to screw with things? I have no clue and won’t waste a second of my time and/or energy trying to figure that out. It’s just noise and as you know, I tune out the noise. I’m going to show up on Monday morning with bells on and do what I do. When I see a trade that sets up and meets all my parameters, I’m going to push the buy button. If in a day or two my results are showing me what I want (better win rate % and strong “R”), I’ll be trading more and with larger size. If not, I’ll still trade my A+ Set-Ups but continue to let off the gas a bit.
Finally, I know this is a lot harder than it sounds. Part of the reason I stopped writing another blog I’ve been working on and wrote this one instead was I needed to remind myself of all of this. Friday, I WAY over traded because I was extremely frustrated all week. The picture at the top of the page? That was me. Luckily, I caught myself and I’ve already adapted. I hope this blog helps you do the same.
Thanks for reading!
Questions? Comments? REACH OUT and/or leave a comment below.