Psychology Question - Trading Under Stress

[jeremyjohnolson 19]

I have some questions which I am hoping will spark discussion and get some ideas and input from people out there in the BBT community.  My questions here relate to psychology and basically how our brains functions when under pressure.

For the past several months I have been practicing in sim at trading the open, trying to learn how to do it successfully.  I have been focusing on only the 1 & 5 min opening range break out strategies and trading only these strategies.  I have been gathering a lot of good information about these strategies when I journal and look back at what I did.  Overall, I have been profitable, in sim, on these two strategies, but I still want to improve certain things before I feel comfortable going live with them.

In order to tee up my questions, let me give a basic summary of my morning trading routine.  I get up each morning at 4 am since the market opens at 7:30 am for me, Phoenix, AZ time, and that’s how long it takes me to get ready, eat breakfast, and tune into Carlos’ and Norm’s premarket show and do my morning premarket prep along with them.  Then, as the clock starts ticking down to the open, my adrenaline starts ramping up just a bit more the closer and closer we get to the opening bell.

Eventually the bell rings and it's go time!  I wait and watch for the first minute to see what happens.  Once I see a stock I want to trade, when it breaks out of the 1 min opening range, or sometimes on a pull back after it already broke out, I take the trade.  I use KyleK29's hot keys to dynamically manage the amount of shares and set my stop.  Once that trade is done, which usually happens pretty quick, I either make a quick profit, or I stop out, I then quickly change modes and start looking at the 5 min charts and look for a good set up on the 5 min opening range breakout and repeat as similar process on the 5 as I did on the 1 min opening range.

These trades all happen very quickly.  Once I am done trading the open, I always go to Chartlog and journal the trades immediately after.  I normally spend about 4 times as long journaling the trades as I do actually executing the trades (about 15 min trading, and an hour journaling).

In the journaling process I often gain valuable insights into mistakes I made, things I missed, or things that can be improved, etc.  These things I notice while journaling are often patterns that repeat and which, with fairly simple solutions, if remembered to implement, could increase my win rate and overall profitability substantially.  The problem I have noticed, is that I only tend to recall these valuable insights once the fast pace of the market open is over and I go back and reflect and journal my trades.  Even if I write them down, I tend not to remember until after it is too late and I notice that I repeated the same mistake again.

My first school of thought on fixing this problem of forgetfulness is that I simply need repetition in order to commit these lessons to muscle memory, or, in other words, until they become habit.  That way, I can devote my conscience mind to concentrating on other things related to trading while many of the lessons and rules I learn from journaling simply become second nature, which I can do in my sleep without even thinking about it.  Making a new habit requires time and much repetition so I would want to keep trading in sim until I always (or nearly always), follow certain rules and trading patterns out of habit.

Then, on the other hand, another school of thought I have is maybe I need to focus more on relaxing and getting mentally loose in the morning at the market open so that I have more brain processing power available for recall and I do not have a mental freeze and forget basic things that I should know.

Maybe it’s a combination of both.  Maybe both of these solutions go hand in hand, one feeding into the other.  In other words, as I start to commit lessons learned to habit and memory, I will build more and more confidence over time and thereby be more relaxed and looser while trading.

Does anybody have any opinions or thoughts they could share on this topic?  If so, please share.  Thanks in advance!

Edited February 1, 2021 by jeremyjohnolson

[jeremyjohnolson 19]

I was talking to my wife about this problem and it occurred to me that I think a good solution is to mentally role play through scenarios where I would have to follow certain rules or react in certain ways based on lessons learned in the past and go over and over these scenarios in my head and even in sim, not during actual market hours, just when it is slow and I have time to process and think clearly.  That way I can start to make these behaviors become habit so when the market is open, I do not forget to follow them.  I think of it similar to playing a sport, like basketball for example, you don't have time to change up your technique or analyze how exactly you want to do a layup right in the middle of an important game, that's what practice is for.  During a game, for the most part, you must react quickly which is a lot based on muscle memory and instinct, learned habits.  But during practice you slow everything down and analyze each detail and change patterns and try to change long learned bad habits and then practice the new way over and over until it becomes a new habit that you can execute upon in the heat of the moment during an actual game.  It’s not wise to try to change and establish new habits in the middle of the game.  I think that's the approach I need to take whenever I decide on a new rule or trading method I want to try out.  I need to practice it repeatedly in my head and actually going through the motions in as realistic a setting as possible in addition to trying to remember to follow it when actually trading.

Edited February 2, 2021 by jeremyjohnolson

[Bailey Nevener 83]

Hello Jeremy!

 

I was specifically able to successfully combat this problem by using DAS replay.

What I would do is, go to the moderators' watchlist in the morning and write down the names they were watching.

 

Then I would trade in the morning how I regularly would.

 

On the weekend I would select one of the mid-cap stocks I knew that were in play from that day, but one that I did not trade.

I would try to one-off trade on DAS replay with no pressure of actual money and with a time line (9:15 a.m. - 10:00 a.m. EST) when I would stop.

 

If I ended up not taking a trade because the stock was trading like trash, then good. (A whole 45 minutes of no trades, ouch!)

If I lost money, but I followed my rules, great!

Then I would replay it again, and try to get the perfect execution in regards to my strategy, but I would do it with the simulator still in real-time.

 

I did this to take my 'visualization' a step further.  I would replay as many times as I could to force myself to 'get it perfect'.

That way I could sensitize myself to proper management and be able to say, "This is what proper trading feels like."

The passage of time is the same, but in this instance, you are performing as a 'pro-trader' would.

 

This is legit what I did.  I still do it when I fall off the deep end.

 

Bailey Nevener

 

Edited February 20, 2021 by Bailey Nevener

[Alastair 114]

On 2/2/2021 at 12:50 PM, jeremyjohnolson said:

a good solution is to mentally role play through scenarios where I would have to follow certain rules or react in certain ways

 

I do this 5 mins before open.......why ? cuz I am feeling the pressure then, heart is racing............and so I calm myself down "knowing" I have a solution........required continuous practice.  U can only manage it, if ur mindful tht it is there.

Edited February 20, 2021 by Alastair

[Christopher 129]

Well, I think that 1 min and 5 min orbs are deceptively difficult. There is a lot more going on than just a well defined opening range near vwap. You need to be fast, have very strong psychology and also have an EXCELLENT intuition for momentum. I'm not saying you can't do it, but what I am saying is that it's a difficult way to trade. From my perspective it seems like most traders that are great at trading the open spent a LONG time trading other non-momentum strategies. I know Thor was trading ascending / descending patterns for a while, Aiman doing ABCDs for like 8 months or something crazy, Andrew has a lot of content trading VWAP strategies when he started ect..

OF COURSE you're nervous, how you perform in the market any particular day is boiled down to how well you trade within a 10 minute window, it would be strange not to be nervous. And you know what? The market isn't always going to give you crisp nice 1 or 5 minute orbs on a daily basis, it's just not gonna happen. I'd spend time on strategies that are not based on momentum to practice dealing with the emotions that are tied with risk (mostly fear), risk management, and VPA. Andrew makes it look easy, but make no mistake, the dude is a stud, and he's been doing this for years. 

If you're WAY too stressed, then I think the answer is always to risk less, even if it's in SIM. Trading In The Zone by Mark Douglas is a great book too, I think you can get the audio book for free on Audible for a month. 

Just my opinion 😛

Hope all is well,

-Chris 

[jeremyjohnolson 19]

Thanks everyone for your responses.  I agree with the idea of risking less.  I am going to go live 3/1/2021, but I am only going to risk 0.1% of my total portfolio balance on any on trade max, mostly I will only be risking 25%-50% of that amount, so really only 0.025% or 0.05% on a trade.  For example, with a $30K balance, I will risk only $7.50 to $15.00 loss on one trade and my max loss for the day will be set to only $30 with a profit target of $60 a day.  So basically, it's almost the same as trading in sim since my share size will be so small it's nearly meaningless in terms of dollars but will get me use to trading live again.  I will only start to slowly scale up on a monthly basis as I am consistently profitable.  If I am not consistently profitable I will not scale up at the end of that month and might even consider going back to sim until I get it figured out.

I have Trading in the Zone on Audible.  I agree it's a great book!

The reason I am focusing on trading in the morning is that I have to go to work at 9, AZ time, which means that I only have about 1 hour to trade each morning.  Since I have been trading since October in sim and have been net profitable each month, I feel like I am confident enough to risk 0.1% going live, but not more yet, I do not want to jump in with full size right off the bat.  I figure I can continue the learning process in live.  I do not have to be an expert before going live, I just want to have a good plan and probability of success.

I know that trading live will be very different, from a psychological standpoint, than trading in sim.  I know this because when I started out my trading career (if it can even be called a "career" at that point LOL) I started out as one of the dumb rookies that thought he was going to start trading and be instantly profitable haha.  As you already could probably predict, I was dead wrong!  After blowing up my account, going from about $26K down to $8.8K, I finally admitted to myself that I was not doing it right and went to sim and back to the drawing board.  Fortunately, I made back all my money, and then some, on a longer-term investment/swing trade on $DIS, so now I have $30K.  I don't want to blow it up again!  I will manage my risk and I won't blow it up again!  It's amazing looking back at all the earlier trades I took when I blew it up and how obviously wrong they were.  I basically made every mistake in the book.  After 1 year, I am still a newbie, but man have I learned a lot since then!  Now I just need to continue trading live the same way I have been trading in sim for the past 4 months or so and I will continue to be net profitable and can eventually get the confidence to scale up.

Edited February 22, 2021 by jeremyjohnolson