Home Forums Main Forum Trading Slumps

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  • Curve Advisor
    Keymaster
    Post count: 612
    #1296 |

    A trading “slump” could be one or more of a few things: (1) you can’t think of good things to do, and/or (2) you have a bunch of underperformers recently and/or (3) you are making bad decisions.

    The most important thing is honest self-appraisal, because without that, you won’t know what is wrong and you can’t fix what you don’t know. Here are some suggestions for what the three items I mentioned above:

    YOU CAN’T THINK OF GOOD TRADES TO DO:

    (1a) sometimes, it could be (partly) the environment. I am finding that this is a tricky environment to take a strong macro view, because at the end of the day, there is a lot of event-risk, and we will probably be the last to know if something big breaks. This kind of stretch could last months, possibly a year, but you should constantly be trying to stay alert.

    (1b) you should always be looking at new ways of trading, and looking at new things. In the forum, I called it something like “constantly develop a new pipeline of trades.” If you are in a slump, you probably have more free time to look into some new things – like curvature trading! But if the market(s) you are currently specializing in is not very active, take a look at another STIR (or other market) that is. Don’t be a one trick pony. There are many different markets and many different ways to trade each of them. Find some ways of developing an edge.

    [to be continued]

  • Curve Advisor
    Keymaster
    Post count: 612

    YOUR TRADES ARE UNDERPERFORMING:

    (2a) revisit the under-performing (or losing) trades and determine if there was a bad judgement made, and if in retrospect there was anything differently you could have done. Sometimes, it could have been a reasonable trade, but some strange events occurred. If I say a trade is 75% to make money, that still means that things could develop 25% of the time for it to lose money. Sometimes you are going to get a bunch of 25% probabilities occur in a bunch…

    (2b) other times, your “75%” trade may have only been a “50%” trade, so getting a bunch of them would not have been as strange. This goes back to figuring out where your edge is in the trade. Yes – every trader is going to say they have exceptional judgement. But that “good judgement” may only account for a 60-40 edge (probably less on highly volatile trades like picking direction on equities or commodities). Be honest about assessing what your edge is – trading most futures is a zero-sum game. There is a disconnect if every trader actually has an edge in a zero sum game.

    (2c) you should constantly be assessing the effectiveness of the types of trading you do. So your P&L matrix should break out your P&L by product (oil, EDs, gold, equities, options, etc) as well as by trade type (technical, directional, slope, curvature, options, etc), and in the case of curvature, you can even break out by the front and back of the curve (as they trade differently). Sometimes, it can take over a year to tell, but you should have the data handy.

    (2d) the amount of capital you allocate to a trade should be a function of your “edge” in the trade. The higher the probability trade, the more you should allocate. Think about optimizing your portfolio allocation – you can sometimes outperform by sizing your winners much larger than your losers.

    [to be continued]

  • Curve Advisor
    Keymaster
    Post count: 612

    YOU ARE MAKING BAD DECISIONS:

    (3a) Take some time off – even if it is just the afternoon. Think of ways not to let any (personal) distractions interfere with your trading. Generally, you should take enough time off, until you feel like you can make good decisions again.

    (3b) Assuming the “making bad decisions” is not a chronic problem, review the factors that led to the bad decision. Everyone makes a bad decision once in a while. The key is to learn from your mistakes and not have a reoccurrence. In particular, see if adding some checks and balances makes sense.

    (3c) Make sure you do not confuse #2 for #3.

    IN CONCLUSION:
    Get second (and third) opinions. I think having a good network of colleagues and friends who are in the business, and who you can bounce ideas off of is always helpful. Unfortunately, the person who “should” probably the most helpful, your manager, may not the most approachable person to come to with some topics. This is especially the case if you feel like he/she is going to think you are some kind of idiot. So if you have any such questions, or want to review a trade that went bad, feel free to post in the Forum. I always post a reply, and since the Forum is anonymous, you can feel free to ask anything you want.

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