Is it time to quit trading? Part II – SMB Training Blog

Over the weekend we started a discussion on Twitter and the SMB Blog about whether it was time to quit trading for an experienced trader who had emailed me.  He had had some past success. Then underperformed for a few years.  Had recently started a family offering another important variable.  We offered some thoughts via a blog: Is it time to quit trading?.   There was an unusually high response for this weekend blog.  This trader is not alone in his thoughts. That trader responds to our blog below:

Bella,

……..  Thank you for your thoughts.  It is a little unnerving to have such a personal situation put on display for all to see, but maybe there will be at least one other out there like me who can identify.

You really cut to the heart of the issue: I failed to adapt to a changing market.  Not for a lack of trying, but the results clearly point to the fact that my types of trades were not profitable over the course of many trades.  Back in my first few years I learned to do a lot of fading.  It was a strategy that I learned from my mentor.

We would fade with small size, trying to “buy” information as to weakness or strength.  It was ok as long as you didn’t get stupid and double down.  The strategy was it was ok to lose a little if it allowed me to “find” the bottom or top (or near the top)–then after that panic moment was in, we would load up on the way back up (or down).  It was a risky way to make money, but it did instill a great skill for reading the tape during spike moves.

Also, you almost always knew right away or within a few moments whether you were right or wrong.  This suited my trading personality as holding positions was and has always been a weakness of mine.  Of course, I added my own sorts of plays to the ones I learned.  I did a lot of momentum trading on shorting weak stocks.  I would try to find a level where I thought a stock would break, then have a position to feel it out, and then help to blow out the level when it reached there.  But again, rather than holding for long periods I would begin to piece out almost immediately.

I always like to know whether I was right or wrong as quickly as possible.  This is why I have found it difficult to adapt.  You guys write about Trades2Hold so much, and it is something I would like to implement, but have found the most difficult thing to do.  It seems like those sorts of scalp moves, where you know right away, are less obvious nowadays, though they still do occur.

But let me provide an example: I was in BKS the other day, when it gapped down big time.  After it held the $9.50 level off the open, I bought a few hundred at .60… then I saw strength so I added and had, I think, 700 shares from $9.66.  I sold 200 right in front of $10, just because it was a huge level that might offer resistance.  But then I looked at the longer term chart and felt like there was a good probability that there was a complete reversal off the open developing.  I thought there was a good chance it could run back up to $11 or maybe even $12.  By the time I was thinking all of this it had already run to $10.40s.

To my credit, I set a stop order.  This is something I have implemented to deter me from “panicing” to book profits that are disappearing on a pullback.  At least now I just pick the price.  But instead of risking most  or all of my profits and setting the stop at $10, or even $9.66, or even $9.50, I set it around $10.30.  It closed the day I believe $11.16 and never again touched $10.  Just 1 example among many where I made a good trade, but failed to properly exit out which would have approximately doubled the profits on the trade.

But back to your blog.  I most definitely cannot in good conscience blame my kids for my downturn.  Definitely there was more “distraction” and pressure.  But really, it wasn’t the pressure to perform.  More, I think (this is in hindsight, of course), the pressure contributed to a sense of panic when the scratch months started to pile on top of one another.  This led to a lot of pressing, forced trades when there wasn’t much there.  Trying to make something out of nothing.

Very often, the correct play is to do nothing, and wait.  You are probably correct, in that I should not have gone 3 years without making money.  We are most definitely not “independently wealthy”.  Through this time I have struggled with what I “should” or “shouldn’t” do.  What is correct from a moral standpoint?  Do I stick with it and give myself as long as it takes?  Or do I flip burgers at McDonald’s?  Is is selfish to believe in myself? (redacted)

I have a passion for trading.  This, I never lost, despite my frustration.  I really couldn’t care less about the money.  To me, it is only a way to keep score.  A completely objective tally that doesn’t lie.  This is what makes struggling so difficult to rebound from–I have a very Darwinian view of the marketplace.  Those who fail to adapt, die.  And rightfully so.  They are dinosaurs.

My mentor blew out his account in 08 (redacted).  He quit and moved back home.  I’m sure there are a bunch like him.  But I adapted enough not to go extinct, but neither am I thriving.  I’m in some no-man’s land in between that is untenable.  But it is what it is and I am where I am.  I can only look forward now.

I liked how you defined “skills” as a skill to be successful.  I really thought you would start talking about trading smaller, or tighter stops, or tape reading, or some such “skill”.  That is part of it.  But you are right.  To be successful entails rising above whatever tape is thrown at you.  It may not be what you expect, but in the end you have green on the screen.  Adaptability is the key to this.  Consistency and profitability will necessarily follow.

So what do I need to do, you ask?  I need to get back to basic fundamentals.  Setting up good trades that offer decent risk-reward ratios.  I need to stop thinking about the past and take it one day at a time, one trade at a time.  I need to work harder at my development of trading ideas.  More of my time could be spent analyzing charts and setting alerts, identifying levels that might necessitate a trade.  I need to be more patient, staying with ideas and trades that are working.  I need to implement Trades2Hold.

When I interviewed with Steve Spencer, I asked how do I get over the feelings of discomfort, watching your “profits” slip away?  He said you have to develop the skill, and to start by just holding 100 shares.  This I will do because the upside of learning the skill outweighs any paper profits I am protecting.  I need to can the lapses in discipline, which usually stem from a lack of patience, or pressing trades that aren’t there.  But most importantly, I must believe in myself that I can do it.  I need to scratch and claw and get myself back up off the mat.  It’s that simple: get back to basics.  Just MAKE ONE GOOD TRADE… and then ONE GOOD TRADE…. and then ONE GOOD TRADE, etc., right?

I am sorry for writing so much.  This probably exceeds my original e-mail.  But, believe me, I have thought a LOT about all of these issues.  Thank you for taking the time to reply and blog about me.  I appreciate your insights and thoughts.