Thanks for being here. Happy Thursday. So one of the things that can drive you crazy and to avoid going on tilt is if you’re looking at your P&L all day, right? Because the P&L doesn’t necessarily reflect whether you’re smart or you’re stupid or you’re making good trades or bad trades. A lot of times it’s just what the market is doing. And so you can exacerbate that by trading more frequently and trading bigger size. So coming out of this period of time, yesterday we talked about trying to avoid tilts. Sometimes that’s that’s a lot easier said than done. What you want to try to do here when you’re coming out of Draw Down and you’re fighting off potential Tilt is not actually look at your P&L because that’ll drive you crazy and only get you emotionally invested in whatever that’s showing you.

And again, you might have done everything perfect. Say you’re trading cup and handles. You might have handled the trade absolutely perfectly, but in this particular instance, the handle never formed and the thing sold off. You took a small loss, you could have, in other words, you’ve did everything correctly, but the market had other plans for you on this day. So what I would do is of course, look at your behavior. I would look at your daily behavior and say, am I doing everything that I set out to do? In that case, you win the day, you’re putting on the trades, they’re on your watch list, you have the right setups, the market’s going to go where it’s going to go. The best you can do though, is do your preparation and then put those trades on. So they say focus on process, not the results over longer periods of time.

I know for day traders, this is probably driving you crazy because it’s like, well, I need to show, I need to see results this today. Well, maybe you do, maybe you don’t. But I think within reason, you have to know they’re going to be days when you’re down. So I know some folks, they start trading and they’re risking $10 a day, and why do they do that? Because in the beginning it’s not about the money, it’s about the process. And that’s when you can start to take a little solace and say, okay, I have a hunch and I’m coming out of this draw down. My behavior is consistent. And then once the behavior is consistent, you can get yourself to a spot where maybe then you can start to unwind the techniques that you had used tactically to decelerate the draw down. Maybe it’s this way, it depends. See camera’s looking at me. But yeah, you want something that kind of goes down and curves and gets more flat from having looked like it really accelerated and put yourself in a spot where all I can control is my behavior. So each and every day, that’s what I’m going to actually measure. If the dollar signs of what you’re making or losing are tweaking you, then you probably need to change your size. Another little trick there is to not necessarily think you make or lose $500. Don’t internalize that and say, well, there goes a steak dinner at Peter Luger’s, a nice bottle of wine or a new pair of Golden Goose sneakers, whatever it is that you’re into.

This is trading capital and it’s not your spending account. So whatever money you lose really wasn’t going to be earmarked for consumerism anyway, right? So you don’t want to bring that, I don’t want to think that that’s irrational, but your mind can spin out like that and think about all the money that you’ve lost. So to wrap it up, I would just say when you’re coming out of that draw down and you recognize that your behavior is consistent, right, and you can see that the market’s about to turn, which you can have a sense of, then you can go back and say, okay, I’ve been behaving consistently.

My P&L is improving a little bit.

Now I can go back to saying, well, I had haircut my overall capital to 60%. I’ve recovered a few percentage points. Now I’m going to go back to trading all of my capital. I’m still going to trade only say one fourth of 1% risk unit and try that for the next week. See that everything is consistent, and then you go back up to trading your full risk unit. If that’s your style, if you trade your optimum size in and optimum size out, then you’ll be getting back to normal. But that’s really what I would do is I would reduce my position, reduce my frequency, and then if I needed to, I would take a haircut on my capital, whether the storm lessened, the acceleration of the drawdown, and then as I got back in groove, I would start to trade a hundred percent right?

Maybe add another setup back to the mix, and then at the end, go back to increasing your bet size. So everything is very uniform and you have a plan for this ahead of time. Maybe you could even kind of write it out so that this way, if you find yourself in a draw down, you’ll already have some of these tools to kind of ruminate about before you even put yourself into a spot where you would see yourself being in a situation where you might lose your mind for a moment. It only takes two minutes to take a big hit after going on tilt, which again, it hasn’t happened to me, but I totally understand the emotions around there.

Subscribe to the show

Click here to get your free copy of The Inner Voice of Trading audiobook.

This is an automated transcript

The post Amending your trading process in a drawdown appeared first on MartinKronicle.