Long & Wrong

I was about to hit “Publish” on a post that describes the future of this blog when I noticed my first ever reader request. I’m happy to try and answer it, not because I am nice, but because it gently inflated my ego still further.

I was wondering if you might make a post about your “bad” trading days – bad meaning you lost money, just traded badly, or both.

More specifically, how many “bad” days you tend to have in a month, and how you deal with them the following day. I know that “days” have little meaning with regard to the trades themselves because it’s really just a never-ending stream, but psychologically it’s easy to let those days have a negative effect.

Firstly, I am not sure what I can add as the question already includes two important conclusions.

1. Trading badly days and losing days are not one and the same.  It is possible to trade well and lose, trade badly and win, as well as the two other combinations (or is it permutations?) that you can add for yourselves.
2. Splitting the trade history up into days is indeed entirely artificial. You might like to experiment with the day lengths of different planets as these can make a remarkable difference to your state of mind if not the account balance. Splitting the trade history into statistically significant ‘blocks’ is a more practical suggestion, especially for those making only a few trades/day.

My personal experience is that losing days are regular  (I take 35+ trades/day. The more trades and higher WR%/ lower RR then the lower the daily variance), losing weeks are rare and losing months are almost non-existent.

The best advice that I can give to help deal with the bad days is to get to grips with the inescapable nature of variance. You can do this mathematically (once you have a handle on your historical WR%,RR, etc.) or just by trading for long enough to realise that variance is a  fact of random probabilistic events and not a feature of you or the way that you trade. I know that I have a certain amount of variance that I just have to grind through, it has averaged out profitably in the end before and, within certain limits (limits I have calculated but that it probably only for the hardcore geeks), I can only assume that it will again.

Ultimately the result of every trade is the same, the product of the risk and your long term expectancy. If there is (an impossible) goal then the ability to treat each trade in that dispassionate way might very well be it. If you have a positive expectancy then every day is a good day, even if it doesn’t always feel like it.

So I’ve dodged the question by trying to hint at a mindset in which there are no bad days so no need to be able to cope with them. The alternative is to have the emotional intelligence to be able to enjoy the highs and tolerate the lows, that is however something that I know even less about.

My implicit assumption throughout the above is that we are discussing the ‘shit that happens’ with a positive edge, with a negative edge then nothing is going to save you because bad days turn into bad weeks, months and years.