[placing in beginners circle but wanted to share here in case you have that turned off]
Feeling a little inspired today. I was going to write this post for the crypto room as I have a ton of new traders, some millenials, that got into trading in the last year or so due to cryptos. As you can imagine the crypto trading room exploded in population in January as BTC was topping, and now is paring back, possiblly near a bottom, or a bottom of sorts in the crypto market. I have put some stress on myself to teach people who have never traded in their lives to not do much harm to their personal and emotional lives. And, as a person who just 'retired' from corporate life to be a permanent EWT'er, and full time trader, this is tough. Am I really able to do this shepherding? I'm just now kicking the engine over myself!.
I had some key reflections on my own trading and two 'ills' if you will, that I have to face. Perhaps this is worth sharing in the larger room?
The Handicap of Goal Setting
Goal setting is an essential part of trading. For me, I have a personal goal to make 150% of my daily corporate salary trading. Since cryptos are a big class I trade with a 24/7 market, I can manage that over more than 7 work days if I like. While this seems lofty, and most of the time I'm not meeting it, I'm trying to back up my some what unstable income source and meet financial goals I couldn't meet in my workaday life with little time to focus on trading. That means my goal is a stretch goal.
Goal setting is essential part of trading in my view. How else can you have a measuring rod as to how you are doing beyond raw PnL? If you want to trade for a living and 'cut from the man', how do you judge whether you are ready without rigger of goal setting?
But it comes at a cost- a handicap.
PnL goals are great and essential. However, they can result in an improper focus from trade setups to the dough you can make. This mal-focus can cause one to size up on bad trades, take more risk than necessary in general, and prevent one from walking away from the market when they need to. The market owes us nothing. And, since over 90% of traders do not make it long term, who says it should ever give us anything?
Instead a good trader in my view focuses on setups, and the parameters of the trade, the probability, the risk involved, and the potential reward. Doing so repeatably will make one profitable. Coming at the trade with only one of those parameters in mind, the potential profit, is a recipe for disaster. And, learning what not to trade, is as important as looking for a good trade. Taking a bad trade when a good one can't be found is a bad habit. In my opinion, trading a PnL goal before setups is a dangerous practice. It can cause you to size up on bad trades when few good trades can be found.
Of these two ailments, I can say I've made progress on this one. But it still ails me, especially with the new stresses of this life come calling.
The Curse of Success
In my early years of trading as a hobbiest, the worst experience I could have I could have had, I had- early success. I had to go through the financial crisis seven years later to really learn risk management. But I've experienced another type of success in latter years, really helped along by this site and cryptos and that's the building of a larger bank roll. And, that bank roll, though not huge to many of you, can be a dangerous thing. As it has increased, so have my trade size, by many fold, and with the emotion in each of those trades. When I had very little trading money, I developed the habit of holding very little cash. When my typical trades were $300-500, I had very little emotional or financial investment in each trade so I would hold very little cash and had plentry of room to add to my accounts if I had a bad run. Really I had developed gambling like behavior.
As I have transitioned from trading as a hobby, to trading for a living, I have had to break this habit. First, I have had to not give myself license to trade too big just because I have more money. Sometimes $300 dollar adds or slow builds are the most appropriate way to trade even though now tiny. Second, I now seek to hold a ton of cash as soon as I can. Iv'e found that if I'm not holding cash, not only is my risk immense but I have nothing available to make use of those special opportunities the market naturally affords us.
This is the hardest lesson to learn. In my retirement accounts my goal is 15% cash at all times, unless special. I have a real bad habit of seeing opportunity everywhere. But it is still a goal. Currently my short term cbrokerage acount is running at 10% and my retirement account 7%. I am off my goal, and need to look hard at my holdings to see what I cna trim, both long and short term.