This post will be therapeutic for me. I hope you enjoy it.
There are times in the market when my system just doesn’t work. These are the times that I am supposed to stay in cash and wait for a trend to appear. I know this to be an absolute fact. Hell, I even know which type of market I need to avoid. Any guesses? Yes, the market we are in right now: constant chop with no identifiable trend. This type of market eats my capital alive if I let it.
I know this. Yet, I still find myself fiddling: running scans and adjusting my risk to take smaller positions only to witness repeated bounces and reversals leading to a string of small losses. Why the hell do I do this? Death by 1,000 cuts is still death and it’s pretty damn painful.
Brett Steenbarger, are you out there? Does this irrational behavior have something to do with my big fat ego? Am I such a simpleton that I believe traders must be trading and inactivity signals inferiority? Brett, you should also know that when I am overcome by this psychosis I tend to talk to myself; I say, “wow, that’s a great looking set-up. That’s a set-up that’s worked for me over and over again. Fu** the overall market, I’m taking this great set-up.” I do this despite the fact that I know with certainty that profitable trading can be as much about waiting as it is about trading. Brett, I’m afraid I might be clinically diagnosable, I mean I can’t possibly be expecting positive results from this behavior, right? Signed: Feeling Sincerely Stupid
Ok, here’s the point: If I’ve already recognized that my system doesn’t work when there is no identifiable trend, and there is no identifiable trend (A.K.A the market is choppy), then I need to stop trading. Capital preservation is pretty damn important. Not only is cash a position, it’s the only position that keeps me in this game. If I don’t have any, I can’t trade. And if my temporary psychosis causes me to have less of it, my expected returns in real dollars are necessarily reduced. It’s all so damn simple if I don’t make it complicated.
Now that I’ve formally lashed myself in the public square, maybe I can take a break, honor my cash position, and wait for a better tape. I hope you can too!