Two Reasons For Trading Slumps, And What To Do About Them
The
market hit new 52-week highs again today and continues to look strong. Not
much has changed since my column on Thursday. The long side still looks better
to me.
I recently received an email
from a trader who was going through a bit of a slump and was wondering if I
had any suggestions. Since slumps happen to everyone, I thought I might
share my two-day slump-busting plan.
I believe the biggest key to
getting out of a trading slump is understanding why it is occurring. Once
you understand why the slump is occurring, you can then decide best what to
do about it. In my opinion, this is best handled over the course of at
least two days.
The first day can be used to
do an evaluation. There are typically two reasons why people slump:
1)
You are doing something different.
2)
The market is different.
First, look at the trades that
you’ve had during the slump. Then look at your trades during a successful
period prior to the slump. Are you doing anything differently now?
Look at trade management, entry techniques, exit techniques, position sizing,
risk amounts, etc. Make a determination as to what, if anything, you are
doing differently.
Next, look at the market.
Perhaps it simply has not been conducive to your trading style. Day trading
is easier when daily ranges are large. Short selling is easier when the
market is falling. Determine if the market’s characteristics are significantly
different than those in which you prospered. Spend your first day evaluating
both your trades and the market so that you may understand what is different
now than during a successful period.
Once you know what is different,
you can then decide what you are going to do about it. Day two can be
used doing something relaxing that will allow you to think about your results
a little bit. Go hiking, play golf, go sailing, or for a drive.
Doesn’t matter. Just do something that will allow you to think more clearly.
You must be away from your screens to accomplish this. It is nearly impossible
to evaluate your trading and decide what necessary steps must be taken to improve
it when you are trying to execute buy and sell decisions.
Certainly, this is no magic
formula. There is no guarantee you’ll come back to the trading desk and start
trading at your very best after two days. What it will help you to do is take a
step back and gain a better perspective on what needs to be done to get back in
the groove. If you don’t feel you can take two days away from the market to
accomplish this, do it over the weekend.
Best of luck with your trading,
and hopefully no one needs to use this slump-busting method anytime soon…
Rob Hanna