Last week I mused over a rookie mistake that I made by not checking the liquidity of the options I was trading. This is a very good lesson to learn as you may find as I did that liquidity can change. The particular equity that I was trading was one that I had traded plenty of times before and never had a problem with. This particular equity was the darling of a particular industry a few years back and had lots of volume and open interest back then and instead of rechecking an old watchlist I just got enamored with the chart setup which I think all technicians can be prone to sometimes. The lesson to be learned from this mistake was that just because something works in the past doesn’t mean it doesn’t require our utmost attention in the future.

This week I want to delve into how these mistakes can happen and what we need to focus on to prevent this from becoming an issue bigger than just a trade or two that has gone wrong. Sometimes these types of mistakes are just a brain-fart and are typically a one-off or two-off type of thing but what happens when these mistakes start to become more like a habit and less like a blip in an otherwise good trading session. If you find yourself struggling in your trading or you seem to be making a bunch of mistakes whether those mistakes are the same or even a bunch of different ones? How do you know whether this just a losing streak or it this a bigger problem? This is a common frustration for a lot of traders. What is the solution to a problem like this? Well, if I may, I will offer some thoughts about this dilemma.

First up we have to figure out whether this is an extended losing streak or whether the market breadth has changed and the system we are using is not built to perform well under these types of market conditions or perhaps our mental capital has been damaged in some way? Any one of these scenarios could be in play. So let’s examine each one and then talk about help for each one.

Let’s start with an extended losing streak. For some folks who don’t track their trades this one is really hard to see. If you have been using a solid tracking method and you have an idea of what the probabilities of your system should be then you should be able to decern if you are entering the trades properly and if this is just a tough go and that the probabilities should kick back in if the sample size is large enough. To figure this out one only needs to review the trades and match that with one’s trading rules to see if the entries have been correct or not. If you match the rules and the trades and they seem in sync then this could just be a rough patch.

The above leads us nicely into the next scenario and that is whether our system is right for the current market conditions. If we find that we have been following our rules and entering the trades properly and we are still having issues then maybe our system is not built for the current conditions. If this is the case then doing some backtesting of the system through different market conditions should reveal any flaws in this particular system.

If after going over the two above scenarios and the system seems built for the current market conditions and the trades have been entered correctly then the other possible scenario is the damage to mental capital. Perhaps subconsciously you are doing things to sabotage your trading? If this is the case, it might be harder to figure out that than the other two scenarios and it will most likely require outside help to figure out why this sabotage is occurring. One can do a self-assessment to see if the problem can be discovered but one may find that a fresh set of eyes is required to really dig into the root of the issue. There has been extensive research done on the link between psychological mastery and trading success. If you read any decent trading books you will find this component embedded in those pages. If one is still struggling after doing all this then this is where a mentor or a coach or perhaps time with other traders can be beneficial.

This gist of today’s blog is that sometimes we need to step back and look at the big picture and then put in some work to make sure that we are tripping ourselves up on our trading journey. As has been the theme of this week and last week, sometimes we need specific help to solve our problems. 

I believe it was Einstein that said: “we can not solve our problems with the same level of thinking that created them.” So don’t be afraid to ask for help. Here at Tackle, there are a million sources of help in Trading from the shows to the blogs to the Clubhouse! Be sure to get active and you will see a stark improvement in your trading!

Trade well all,
Coach Holmes