While we continue to focus on the events surrounding the trade’s failure, in parallel we must consider the different courses of action we could have taken and how these different actions would have led to different outcomes. These include actions we took, actions we actually failed to take (and the reasons why), the changes in the market conditions that were ignored, and changes that we were speculating which did not materialize - the sum total of this analysis (preferably written down, in a journal like this) now serve as a blueprint for gaining access to some hidden stuff that goes inside our minds.

By penning down the mental and external events surrounding the trade’s failure what we do in essence is that we bring out in the open sunshine all our underlying grey and hidden assumptions about the failure and the perceived causes of the failure. Once these assumptions stand naked on their own out in the sunshine, we can better see their plausibility and meaningfulness. Posting on nexusfi.com has this very real added advantage – forum members can help us make sense of the failure which we have now laid down factually in front of them – they come to our rescue during anguish by highlighting the correct parts of the information, implausible rantings, and some may even assemble together for you any pieces are missing (by inference). This will enable us to search for more and more information and again reconstruct and develop the explanation for the failure.

As we go through this process of creating multiple theories for the trade’s failure – and we see that with each refinement and discussion on the forum they make more and more sense. Soon we begin to spot the patterns in our thinking and thus we gain a deep understanding of why the loss REALLY occurred. This understanding allows us think differently about ourselves and our trades – instead of hating the world around us we realize that we can break our emotional anguish associated with a perfectly logical occurrence and the failure is no longer interpreted as a totally unexplained event that earlier seemed to have ‘shocked’ us out of the blue. We realize that we are more in control (thus 'random' markets provide us with more autonomy, and we typically invest more passion in the trading activity) than we think we were when we were trapped in the victim line of thinking!



No compulsion to vote, but I will consider it as a personal favor if you do...

All this upmove is a preparation for a larger downmove, however.

The best way to avoid the constant blows of bigger size losses and roller coaster rides is NOT TO GET INTO SUCH SITUATIONS IN THE FIRST PLACE.

Bigger losses start off as smaller losses, not vice versa. A swimming pool sized hole starts off as a little golf tee hole.

Thus once you learn who is the boss between the market and you - actually the market, but you need to pretend that you are and behave accordingly!!! – then you can start learning the NEXT strategy for managing your capital and that is: AVOID SLIPPERY SITUATIONS!!


If you think why this makes sense, avoidance of getting into bad situations allows us to stop thinking about the stress that will be caused by the trade and its failure (which we now accept as OUR responsibility – remember who’s boss now?
As the CEO of the ship of your capital you prevent all the feelings inside Pandora’s box which are so overwhelming that you can feel you cannot handle them. You also avoid the secondary problems and stresses that would have been caused by the big failure such as rebuilding your account.

These negative emotions, memories that could’ve started to consume our mental resources , reducing our abilities to objectively process information that the market is giving us are all arrested. As a result, we make progress in understanding the causes of each next trade’s failure or success, and we begin to feel better. As a corollary, if we add on stressors we feel worse and worse and finally succumb to feeling depressed and sad. Suppressing emotion can be exhausting and can have negative physical consequences. In such circumstances we are trading with our mental gas tank running on empty so our engine of capital could have been essentially worthless.

And remember that the ‘traumatic’ emotional reaction to a failure does not occur only at the time of the failure event. In the next post I will describe the 'in situ' strategy for quieting the hidden potential of pent up losers and disarming the illogical mind.

POST-FAILURE

As I said in my previous post, the emotional baggage to a failure (blowout) does not occur only at the time of the failure event and then disappear into ether.

Actually the truth is the once touched by these emotions of the massive trade failure your mind can store these subconsciously and they can linger for a long time after that bad event to cause obstructions in your (actually simple) learning.

Not only that, it can alter your whole intrinsic view of trading – you soon start having emotions triggered by just the anticipation of failure! Emotions that are triggered even in anticipation of an event are also in competition with ‘intuition’ and some can actually pose as intuition but deep inside the emotionally wise mind knows these are excuses not grounded in reality.

Good trades are often profitable right from the start. We often observe that when a trade is performing poorly it usually continues that way. The question is not whether it will fail, but when! As we as traders, whose primary job is to MANAGE RISK, despite knowing that a trade is failing and won’t recover find it VERY difficult to kill it, and we hesitate putting the final nail in the coffin and instead watch, mesmerized, so to speak by the price action.

Because of this incredible reluctance to pull the plug we ACTUALLY TRIGGER THE FAILURE EVENT AGAIN AND AGAIN – each of these next times WE are the ones responsible for account blowouts not the random market!

We “throw good money after bad” even in the face of mounting evidence that the trade is performing
poorly, will not recover, and will eventually fail! Some traders just go on a Martingale doubling spree! KNOWINGLY!

This is because we often think of persistence and determination as good qualities. But for terminal trades i.e those trades that are destined to fail these qualities can easily become financial liabilities.

What is happening here?

- We believe that our decisions are made in error at a finite point but call upon hopium as our guardian angel - we believe two errors will negate themselves as a convoluted survival strategy.

- Delaying exit of bad trades itself provides us chronic relief and we justify the procrastination with earlier trades which FINALLY worked out just because we did not exit the bad apples. (We forget to remember the complete analogy that one bad apple is all it takes to make the whole barrel bad).

- We avoid the short term not-so-terrible consequences and instead continue with our course of action and prepare mentally even for the terrible mind-numbing consequences of a full blown loss.

All these can be avoided if we refuse to identify with our trade. We are a trader NOT our trades!

Basically we become a SEQUENCE OF DECISIONS that support each other instead of one singe bad decision. We fail to recognize that this is simply the ego trying to protect itself. All course of action is simply to justify the previous decision. Actually the decision to terminate the trade NOW based on new information happening NOW does not invalidate previous decisions at all – but the foolhardiness to persist on the course of action based on the information that is already past and prime its value is perceived correct!

Despite the cost of failure from immediate termination of a trade going bad being known right at that moment is black and white AND lower than the expected mathematical cost of delaying the impending failure, trades (including me!) often take this ridiculous risk.

On the other hand, we bet MORE CONSERVATIVELY once we are up.
Conversely, in a situation where we are in a net loss, we become RISK TAKERS to get back what we have lost!

We also seem to internally know that ending a losing trade actually reduces the cost of failure and even provides an opportunity for a new positive outcome for account recovery —we can quickly engage in a subsequent trade that will more probably be a winner because of the underlying conditions than this loser we are clinging to.

The reason why we forgo a short-term emotional small hit in the face of possibility of even greater risk is our internal self-defense mechanism we used to use when we would be faced with a threat since the beginning of time. The emotional threat of a failure is dealt with by avoiding outcome of the situation till the maximum extent of time possible.
Just the thought of all the negative emotions that will be released by the failure creates real anxiety and stress. Hence by avoiding thinking about the decision to exit the losing trade we diminish your anxiety and distress!! Nature supports us this way, and the experience feels good – however it reinforces the ostrich head-in-sand pattern of avoidance. Supported by nature this habit is very tough to break – hence as a newbie (and it is never too late to acknowledge a bad habit) – make sure that you ditch this habit.

In the next post I will outline how….

When the Ego rears its head, we believe that our success is in our control alone. Also, we feel personally responsible for our failures and losses. Actually both these statements have some ground in truth, but the Ego manipulates our gullible self into admitting that our self esteem is based on our equity.

The problem is that every act of learning requires willingness to suffer injuries to self esteem - self esteem and ego are basically shells trying to protect a fragile inner being.

The problem does not actually lie with self esteem but with this inner being. Failures have the capability to render your self to feel less capable. When faced with an account blowout the inner self retreats and hides inside the shell of self esteem - and a traumatic blow can actually potentially shatter this whole shell of self worth. Once inside the mind faculties are all used for creating numerous will-o-wisps and deceptions for protecting this fragile self - any delusional package protecting idea gets a pass.

However the whole development process works directly on this inner being - either this inner self can be compassionate towards itself OR criticizing towards itself.

Thus, any hard rules, strict discipline which we start off with during trading leads to a harsh voice which is overtly critical and basically behaves like the most antagonistic person in your life at that moment. The logical voice gets replaced by a delusional voice which is simply existing to protect the ego and as its sole purpose.

The way out is developing a voice which is compassionate to oneself.

How much do you love yourself? That is the most important question for success in trading.

It is my belief that the 6E upmove is now completed.


Some more squeezing and I will be in when it breaks the box. The stop will be above the high of the squeeze.




The other scenario is that the box breaks upwards. I have not decided on the course of action if and when that happens.

As this trade plays out let me humbly complete my series of posts with the aim of helping new traders on the forum.

Being compassionate is easy - we are often kind to others who are going through hard times.

But have we stopped and noticed how harsh we are on ourselves when we fail?

When we berate ourselves too harshly we lose the objective enthusiasm to make it in trading.

We are already are aware of the hurt we feel over trade failure - the feelings can be intense. Being compassionate to yourself means that we realize we are feeling emotional pain and using actions and words that soothe and not escalate the simmering explosive feelings.

Being compassionate to ourselves does not mean we are giving ourselves a free pass to do as we please. Nor are we passively and meekly calling ourselves failures and smiling. The opposite is actually happening with self-compassionate people.

We realize that in the highly uncertain environment of futures markets mistakes and failure are very very common.Despite realizing the commonness of the failures we still feel bad when the trade fails. It is great to look into the rearview mirror to see where we were and what we just hit, but what we require is still anticipating what is around the next blind turn. We need to keep BOTH failure and emotions in check. Forums like this one allow sharing of our personal failures and allows us to lessen the degree of self blame and harsh judgements and sanctions that we place on ourselves.

Sharing and compassion in the face of hardship provides a buffer against anxiety and prevents failure from tripping up the ego and trying to protect falsehoods. When we interact with individuals who are self compassionate we are able to assess our failure humanely and keep our emotions in balance and thus learn from the negative experience and apply the learnings in subsequent trades.

The most important facet of self compassion is MINDFULNESS.

When we observe the painful thoughts in a balanced state of awareness instead of other states like self pity or anger, we separate ourselves from these emotions and do not identify with them. Thus we approach our successes and failures with openness and the curiosity of a small child instead of shame and guilt.

Observed thus, we suddenly realize that our feelings are LOADED with important information and then we are in a position to process that information.

We realize that emotions do not need to be controlled - emotions are as much part of the process as setups or market contexts.

We start tolerating our own inadequacies and flaws that led to the failure. We allow scanning of the signals that we are sending to ourselves and are able to interpret what patterns mean. We come to understand that the plausible stories we are telling ourselves are simply emotional bonds that have to be broken. Once this is achieved we reduce our emotional reactions to trading and free up critical information processing capacities that were occupied previously with telling stories to ourselves.


Thus we continue our learnings by making sense of multiple failures using our enhanced self-awareness of emotions.

We observe ourselves in action and continuously keep asking the questions "How do I feel about the current trade?"

Our personal growth is achieved more quickly when the dynamics of interpretation are maximized.

Trading complex markets can be broken down into a series of more modest wins. This gives us an first hand opportunity to experience a number of small wins which help us build self beliefs that "Yes, I can be successful." This enhances performance on more difficult trades.

Similarly repeated mindful exposure to losses with self-compassion desensitizes our ego protective self-talk that tries to kick-in.


Does it ever become easier to fail? What becomes easier is bouncing back. That’s really the most important thing.

You separate individual trades and not get cluttered inside.

Tip “SUCCESS IS THE ABILITY TO GO FROM ONE FAILURE TO ANOTHER WITH NO LOSS OF ENTHUSIASM.” —SIR WINSTON CHURCHILL

Gratitude and love to all - thank you for taking the time to read my journal and taking the time to vote for it...

I've exited my M6E short position for a 4 tick profit and am standing by observing further developments.

Looks like the market could go either way. Flat is better for objectivity in chop, and the MAE was also not looking good based on where I had entered.