When is the best time to step away from the charts?
In this episode of 2Traders Podcast, Darren and Walter explore effective ways of destressing and re-calibrating your trading mindset. According to Darren, it is important to keep track of your emotions when making important decisions and to search for this one thing with your trading.
Walter talks about a famous dentist in Australia and relates this to the anxiety many traders feel. If you keep track of this one thing, it will probably ramp up your trading.
Download (Duration: 20:57 / 23.9 MB)
In this episode:
00:46 – paradise
02:11 – step away
04:17 – use sabbaticals
05:00 – pet mistakes
07:33 – happy day
10:01 – urge to act
14:14 – pain and disappointment
16:26 – a mirror
19:10 – little valley
Walter: …So, does that mean that when I have a drawdown and have like six losing trades in a row, then when I go and smash that pint of ice cream, it’s not going to make it any better, Darren?
Darren: Well, there’s nothing wrong with eating ice cream. I mean, if that’s going to be your crunch, then that’s fine. You are going to get horribly overweight though…
Announcer: Two Traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.
Walter: Welcome to Two Traders. It’s Walter here and there’s Darren over there. Hello, Darren.
Darren: Hello, Walter.
Walter: You were in tropical paradise, how are things for you?
Darren: Really good. I am loving it entirely, mate. Just came back from a swim, probably relaxed.
Walter: Excellent! I was thinking Darren, in this episode, I wanted to talk about it’s really self-awareness or sort of re-calibrating. So, there are times when we and in anybody, it doesn’t… You don’t have to be a trader to have this where you go through those phases where you feel like you’re just off your game or you feel like you’re not really doing what you should do.
I’ve noticed that a lot of really consistently profitable traders, they have almost like a routine that they go through and they stick to it. They are very religious about it and I’m just wondering if we can talk about some of the things that you can do to be aware of when you’re off your game, when you need to recalibrate.
So, that can mean many things. It could mean when you need to step back into more of a disciplined approach to your trading. If you feel like you’re making sloppy decisions, for example, it might just be because you’re not in the right mindset when you sit down and make your trading decisions.
It could also be you’ve got other stressors in your life and they’re affecting your trading so maybe it’s just a good idea to step away and don’t trade for a week or two. It could be that you’re in a drawdown and because you’re in a drawdown, you want to fight your way out of it rather quickly and so you are changing your risk parameters or something like that.
It might mean that you needed just to step away from trading, take a holiday. Or, maybe it means you needed to jump into a backtesting and just do a whole bunch of work in forex tester to re-convince yourself that what you’re doing is a viable strategy and that you’re just in a normal drawdown. You just needed to work yourself out of it.
These are the things that I think a lot of traders think about and I don’t think there’s a one-size-fits-all but, I’m just wondering, are there any things that you do to sort of highlight? Is it the journal? Is it something that you can point to say, “Yeah, when this happens, I know that I need to do this”? Is there anything like that?
Darren: Yeah. I think for me, personally, when I’m going through a bit of a rough patch mentally about trading, I find that I start reading about other people’s trading too much, perhaps go on forums too much, perhaps take too much information in.
What I do now is every three months, I go on holiday for a month — and I still trade when I’m away for that month but not as intensely. It’s kind of par everything down and reduce my exposure and I trade a little bit.
It becomes more of a background thing rather than it being the most important thing I’m doing that day. For me, that works really well because I do get this effect when I come back where I just feel refreshed and I can think clearly and all of sudden, the important elements of my trading just standout and are obvious.
I find that as I get a bit tired towards the end of my three months, that’s when mistakes start slipping in and I start questioning my strategy. Bu,t when I first come back and I feel refreshed, then I can sail through the drawdowns and just stay positive in my mind about everything.
That works for me and I know a lot of other businesses use sabbaticals from work to get people to think more clearly, but I supposed if that didn’t work for you, you could work out some sort of a routine that incorporated taking a break from the charts and perhaps doing some exercise.
Those things are all proven to help dramatically and the obvious ones, like sleep as well, will keep you out of getting into a bad decision process kind of thing. Those are the things that are proven to work and improve performance when it comes to making decisions.
Walter: I wonder some traders listening, they might have sort of a pet mistake that they keep making, whether it’s moving their stop loss to give a losing trade more room or taking on too much risk after several losing trades or things like that.
It could be that you have this one thing that keeps creeping up on you and when that pops up you know that, “Okay, I need to do something here and I need to make sure that…” It’s like a little alarm clock sounding off saying, “Okay, you’re making this silly mistake again”.
To me, I think it’s going to depend on the trader, I suppose, but there’s an interesting idea. There’s this guy — I don’t know if I’ve talked about him before — he’s a famous dentist. I feel like I’ve talked about this guy before but… Anyway, he’s a famous dentist and he has a practice in Queensland in Australia and he goes around the world teaching other dentists how he runs his practice.
Now, apparently — I didn’t know this until I’ve heard about this — but this guy… Apparently, dentists have some of the highest suicide rates in the world. It’s a really horrible profession, apparently. Looking at people’s dirty mouths all day and working on their teeth.
Apparently, it’s just really a bad suicide rate and besides that, it’s a horrible place to work. There’s a lot of staff turnover. A lot of people who work for dentists, they leave. They don’t intend to stick around, tend to move around quite a bit.
Meanwhile, this guy, he doesn’t advertise. He doesn’t even have a sign outside saying he’s a dental practitioner and yes, he’s got a waitlist that goes down from months and months and months.
It’s all kind of a referral-based. If you’re lucky enough to be one of his patients, then you can recommend that your friend’s come into the fold too. It’s kind of like this club but what was interesting about his staff is that when they come to work — and they’ve all been working for him for like 25, 30 years and they haven’t left him. They all love working for him and everything.
What he found was that when they came in to work, they just put this number up on the board. It’s like a number between 1 and 10. It’s supposed to let everyone else know how they are feeling that day.
So, if you’re feeling kind of just okay, maybe a little bit tired or you’ve gotten to a fight with your spouse or whatever, you had some road rage on the way to work, you may put like 5 or 6 on there.
If you’re feeling really good — it’s a Friday, it’s a happy day, can’t wait to go out on Friday night or whatever — you might put a 9 up there. The reason they do that is so that everyone will know.
So, “Okay, Jill is in a bad mood today or she’s not feeling so good so we decide to be wary and just really be nice to her today. She’s a 6 or whatever.” Apparently, this works and I wonder if the same thing could be incorporated into your journal.
Like, as a trader, you’re not really talking about your trades, you’re just talking about you and so you can say, “Today, I’m feeling kind of whatever”, before you make your trading decisions.
So, I’m assuming that, basically, you have time between when you wake up and you make your trading decisions. I know in some places in the world, people just wake up and they frantically run to their computer to see if there’s a trade.
If you have time between when you wake up and you’re doing everyday stuff and then to the point where you’re now trading and making trading decisions, you could use that. You could have this journal where you keep and you talk about more about your feelings and how you’re feeling and you could go back and watch.
You can even record this in the journal where you look, “Okay, I was in a drawdown then” or “I had an equity high there” and so, you can correlate that the emotional feelings you’ve had with your trading performance.
I wonder if there might be something there for a lot of traders. It might be something that we don’t look at because traders tend to be introverted, analytical people. They might think that they understand what they’re thinking, what they’re feeling, but maybe just the active writing it out can. That changes the way that you process it.
Darren: Yeah, I suppose. And, there was an interesting webinar I watched where they studied trading flaw in London. They found not just a single trade, they’ve studied a lot of trading flaws. They’ve found that the flaw managers that listened to their traders and spoke to them about how things were going and how they were feeling performed much better.
Suddenly, talking about those emotions will help. I think knowing yourself when your personally trading bad or not and then something that you’ll always repeat, I think that is really a difficult thing to do because in the moment this feeling which is particularly strong to you tends to urge you to act.
I think it’s what you need to learn is a process of recognizing that feeling and then not acting it out to reduce those periods or even stopping trading completely for that period.
Walter: Do you have any rules that you would stop trading completely? Do you have like a thing that if this happens then just stop trading?
Darren: Not really. I don’t really make any catastrophic mistakes anymore. I tend to stick to my system pretty solidly…. I might. I do notice just two weeks ago, I had a really long drawdown, nothing completely unexpected.
I know it’s going to happen but towards the end of it, I did find it a bit harder to… When we did finally breakout of the consolidation, I find it quite hard to hold my trade til the TP.
I did feel myself being urged to perhaps close some trades early or I was starting to question my exit strategy based on what had happened. But, I don’t really make those kind of beginner’s mistakes that I was used to where I’d suddenly put on a trade much larger than I should.
Or, I’d just suddenly use a completely different exit rule or entry rule to make up. I’ve got passed that stage, really. What I find more is just I need to push myself a little bit harder when I’m in a particularly bad drawdowns or particularly bad losing streaks.
I just need to watch myself but I think I’ve tuned-in enough now to say, “I’m having some weird forts here” and “Okay, why is that? Well, it’s because I’m in a drawdown. So, what do I need to be aware of? Just stick to my system and over the long run I’ll be okay.” I think that’s the way you need to get to, psychologically.
I know it sounds a little bit like I’m a some sort of a guru or something here, like sort of Yoda, but I don’t mean that. What I do mean is that if you are being aware of these things and you stick to your trading long enough, you do get better at recognizing when it’s occurring and you do get better at making the best decisions in that moment.
Walter: Yeah. And, I think the reasons that you have for these things change as you progresses as a trader too. I tend to believe that when you’re an immature trader, so to speak — and I don’t mean immature as in you’re really cranky with your pips or whatever.
I mean when you’re new to this, you might have a drawdown and you might say, you’re might be more inclined to say the market has changed or the system doesn’t work anymore. The system is broken.
I think the more mature trader is less likely to fall back on that explanation as more likely to say what you’ve just said where it’s more about knowing yourself. It’s more about anticipating the likely drawdowns, knowing your probabilities. All those sorts of things come into play much more quickly for the more experienced trader, would you agree?
Darren: Yes, definitely. At that point as well, you’re being through those tempting times where you basically lie to yourself and say, “Okay, this isn’t the correct entry but I just took that stupid loss there. I want to win it back,” and you’ll take that entry.
After you’ve done that, 100, 200 times and then kick yourself afterwards because you’ve lost again on a trade that you should’ve never taken then, you do get to a point where you start to have to be honest with yourself and say, “Look, do I want to be a trader? Then this is clearly an issue.” And, “I need to put something in place, some process to deal with it.”
Generally, what you’re doing is you’re trying to remove a feeling of pain and disappointment and you’re trying to get rid of that feeling by taking an action. As soon as you realize that that is never going to work in the long run then you can start to deal with that.
Perhaps, you need to put process or system in place to help you initially but eventually it will become second nature. You will still get those feelings of, “Oh, 5 pips from my take profit there and it’s come all the way back.” You’re still going to feel that pain but you just realized this is about the system over a long period of trades.
That’s where the profits is going to lie. “This is essentially a part of the system so I’m just going to deal with that pain,” you might say. When that happens, go kick a ball around or something or go for a jog but you can train yourself to be better at dealing with those emotions.
Walter: You know what’s funny? When you were saying that, when you were saying about this idea, understanding that it’s not going to make it better whenever, I kept thinking so does that mean that when I have a drawdown and have like 6 losing trades in a row then when I go and smash that pint of ice cream, it’s not going to make it better, Darren?
Darren: There’s nothing wrong with eating ice cream. I mean, if that is going to be your crunch then that’s fine. You are going to get horribly overweight though.
Walter: Yeah, exactly. That’s the problem, addiction to ice cream. So, you’re telling me it’s a failed coping mechanism. It’s not going to work in the long run. Another thing — I think we should just bring up in this topic — in this realm is meditation, being self-aware. Tricks that you can use or techniques or whatever.
The one I like is… Actually, I have this “office” where I live. It’s a stand up desk so you’ve got to stand up to be at this desk. It’s got a monitor and I plug the laptop into the monitors so I’ve got these two screens and then on the other side of this stand up desk is a mirror.
What’s interesting about that is you can see yourself when you are looking at the trades and it’s not because I’m vain or anything like that. It’s because I use this trick where I like to picture myself. Like, if someone else is watching me doing trading, like making trading decisions on the computer, what would they see?
The real reason here is because you want to see: are you stressed out, are you really frustrated or feeling anxious or are you more relaxed in just executing as you should? I think that’s one of the keys and if you’ve get into the right mindset before you even sit down and make your — or stand up, on my case — and make your trading decisions, that might make it easier as well.
I think for a lot of traders, that might mean going through a simple ritual or mantra or meditation or hypnosis or something. Listening to music that you like calms you down before you sit down and make your decision because you can carry a bunch of crap that you brought in from other stuff.
Especially if you have a job or something like that and you’re carrying that into your trading station, that can be… You can start off on the wrong side right there.
Darren: Yeah, definitely there is a connection, isn’t it? The physical and the mental distractive, can definitely help.
Walter: Yeah, no doubt. I think that having a routine can help you. Journaling your emotions can also help you become more aware. I like the idea, the one that I used, which is imagining what it would look like if someone else was watching you.
So, you’re making your trading decisions to your trading, what if someone was on the other side of the room watching you trade? What would they see? What would you look like? Would you look like a person that was in pain or something or someone that’s fairly confident of what he or she is doing? That sort of things.
I think there are a lot of different ways to approach this. The important thing though, I think, is to become self-aware and to have a method of pinpointing when you’re in need of a break, when you’re in need of changing things up.
I think that’s critical here because, as we all know, anybody can follow a trading system but I think it’s this… The real trader, the long term trader who’s able to pull out of that drawdown and keep going and eventually get out of that, that little valley, that’s really, to me, that’s really what separates the real traders.
The traders that is self-aware and is able to get out of that and pull out of that over time. You can say it comes with experience but it also comes from knowing yourself. Knowing when to blame the market or the system or you.
Like we said, I think a lot of traders in the beginning, they’re going to blame the market, they’re going to blame the system. “The system is broken, it doesn’t work anymore. We need to fix it and find a new one.”
The more mature the trader is going to say, “No, I think it’s me here. I need to look at me and make sure that I’m doing the right thing”. That is how I would approach this. Make sure that you can put your finger on something that you can use so that you are self-aware and you know when things, when you need to take a break or change it up a bit.
Darren: Yeah, definitely. I think it takes time to learn but if you arm yourself with knowledge that these things exist and techniques to deal with it, then you can speed up process. Still, one of my favorite ways of dealing with it is locating the… Pinpointing the elements where you go wrong and make your mistakes and then having a little checklist that you kind of have a conversation with yourself whenever that happens.
So, if your problem is whenever you get stopped out or you have strings of consecutive losers, then the next time that it happens you have a little checklist and you ask yourself, “Okay, what am I supposed to do now? Is it a valid entry? Is it a valid exit?” etcetera, etcetera and you have this conversation with yourself before you take any action.
Walter: Cool, excellent! Thanks so much for your time, Darren. I really appreciate it and we’ll see you in the next episode.
Darren: See you next week, Walter.