Too Strict Rules / Over reliance of Indicator - Affecting Psychology

[C ROD 0]

Hi everyone, (sorry if its a long post, just want to get my thoughts out and see if anyone has comments)

I wanted to know if there was a topic or experience someone has had on having your rules too strict & it affecting your trading?

June 23: I was on SIM / QR (Quote Replay) for 4 months (took about 60 trades) and had a profitable edge at the end of those 4 months so I decided to go live. In the first week I had a decreasing equity curve (8 trades over a week) and no green trades past 2R. Firstly, I re-evaluated why I was losing and thought I was not choosing the same stocks as in my SIM/QR. So and went back to compare the trades I was doing before, I made some small tweaks to my trade book (added more required confirmations) and went back to live. Another 4 red days in a row.

July 6: Next I thought it was my psychology because I was breaking a lot of my rules , I ended up finishing Trading in The Zone (which is a great book) and I began to understand myself more. I thought I was breaking my rules because I thought I was outsmarting the market and ignoring my rules because I expected the market to behave how I wanted to. (Which was wrong and since thing have fixed this mindset; I truly believe the market is unpredictable and must follow my rules like a casino). Went back to live and 3 red days in a row.

July 28: At this point, I'm like wtf man. So I dig deeper into myself and my 4 months of SIM & I think have found the source of my problem. During my SIM / QR training I tried many different strategies but really enjoyed (& saw the potential) trading at open specifically 60 min Breakouts. Using Aiman's tradebook as a starting point, I began just focusing on these set ups. During this training I still felt unsure about the direction of the breakout can go and felt it was very random. I wanted to know which direction it would go and predict it well. In order to fill this fear of entering into a "wrong trade" I went to learn more about the market. (I know understand this was a wrong mindset because I was looking for certainty in the market where there is none.) Doing some youtube searches I came across the MACD Indicator and instantly loved it. It made me feel more confident and certain in my directions / timing of breakouts; so I added criteria to my tradebook based upon repeating (successful) MACD patterns on the 60min chart. Maybe around month 3 of training I added these criteria. 

Solution: Looking at all my recent live trades in retrospect I think my problem for not being consistently profitable is my over reliance on the MACD indicator in my 60min BO tradebook and too many other requirements to enter a trade. By having created such a strict tradebook (to compensate my previous fear of uncertainty) I have created another psychology problem in my trading. I have been breaking my rules many of the times in LIVE because I simply can't find stocks that match perfectly with previous MACD patterns and other requirements to enter a trade. 

Next Steps: 

1) I am going to stop trading LIVE for now and really review all my trades I have previously taken in SIM / QR.

2) I am going to remove the MACD indicator from my charts and tradebook. Then I will need to re-trade all my trades again to see if I truly have a winning edge. (I'm pretty sure I do but numbers don't lie so I need to redo my stats to make sure before I go back to live)

3) Instead of over relying on the MACD indicator, I'm going to continue improving my daily chart patterns and selection. (Which I have improved a lot in the past weeks)

4) I want to get more feedback / advice on how I should go about adding requirements or rules to my tradebook. For instance what I have been doing is cross refencing criteria on all my trades and analyzing common patterns (ex. Do not enter if 8am 60min candle is Long Wicky Hammer) because I noticed the stock never went my way (4 out of 4 times the candle appeared) so I would add that to my tradebook to avoid. In retrospect, I do not know if by adding avoiding criteria is in fact a psychological compensation of fear avoidance or if its smart because it will save me money. 

 

Note: Quote Replay was used for trades during Jan 2021 - Feb 2021.

See my tradebook for ref.

 

Any feedback on my entry would be super helpful! (Takeaways: over reliance on indicators, too strict tradebook, thoughts / experiences of adding a rule to an existing tradebook based on failed trade(s) / pain avoidance)

 

ChristianRodriguez_TradeBook.pdf

[Bailey Nevener 83]

In the period where you aren't consistently profitable, I would suggest staying away from the "avoiding criteria" as you called it.

Specifically I am suggesting reducing the amount of requirements to enter a trade.  It is a bad idea to draw almost any conclusions when you are starting out.  It is better to just foster an environment where you feel like you can follow the rules that you have set for yourself, no matter how basic they are.

This is an example of a no-assumptions trading plan:

Find a 60 minute range break candidate.  (Why you are looking at the stock)

Enter at the 60 minute range break with your stop below the nearest technical level. (How you are managing risk)

Let the trade go to 2:1 and take 90% of the position. (Giving yourself a reason to exit)

Hold onto the last 10% to 4:1 or get stopped out at your original stop or breakeven. (Allowing yourself to become more experienced with the price action)

 

This breakdown is meant to be changed, but only after you "just can't take it anymore".

Let the data change your strategy, and keep it as simple as possible until that happens.

Good luck hombre.