The Overtrade

How I process losses and poor performance

When it sucks:

The lows can feel so low in this game. I am an extremely competitive person and days like this eat me up as I know I’m so much better. I talk a good game but the reality is here I am losing $20k+ in the last few days in needless trades to give back a big chunk of my month. I am pretty comfortable taking losses in good trades that just become bad beats. These never really work me up as I just accept the probabilities and know these trades in the long term will play out for me just fine (Annie Duke for the win). Through experience, I know what these setups are and they sit there in my Evernote as a reminder.

What really eats me up is the “Overtrade”. Those trades you look back on and you really can’t believe how you strayed from your sweet spot. Those trades that you are IN real-time and you instantly know you should not be there but you freeze for whatever reason. If you start searching for more news or an additional fundamental view to back up your losing position,  you are truly dead. There is nothing harder than writing after red losing days but this is EXACTLY the time to intervene and cut the problem patterns. For me, I need to do it to face up to the situation, make solutions, and then jog the fk on. No P/L shots are needed so just take my word for it. Normally it is easier with a crowd of one but I wanted to show the journey so here it is. Thus, I thought it would make for a good post and a nice real-time experiment to illustrate how I deal with periods of underperformance.

To be clear, this isn’t about edge. As per my previous post, I have built strong playbooks with strong rules and a lot of reps. I think most overtrading comes because Traders do not actually have a pre-defined plan. It is also absolutely not good to say its a “tough market” as none of my recent trades have fallen victim to a demise in the market or sentiment or strategy. This is all about me simply not applying myself across the board and applying those edges. These losses have come about because I have strayed outside of my lane and I have resorted to overtrading.

Lots of the elements that I griped about in my last post: yeah I did that. I reacted to moves in ADH short, WTC short, and EML long rather than being front foot and planned. I didn’t apply my key criteria and didn't do the work. I got involved in trying to pick a bigger picture turn in Lithium markets and got carried out in PLS. I saw strength strength in the spec and junior Lithium players and decided to position into a small name for multi days post a strong cap raise. All these are lower quality, made up on the fly and I just leaked. What makes things worse is that I often size these trades small as I know they are C grade yet because they are "only small", I get too loose vs accepting the price action. So the loss blows out needlessly! None of these trades fit my criteria for how to build a playbook as per my previous post.

The textbooks will say that these problems stem from lack of patience and poor discipline. That is certainly part of it but I think you have to go deeper. My mentor said to me, "where i think people struggle with overtrading is because it isn’t just one simple answer or one simple type of overtrading for most people. What are the patterns of when you tend to overtrade? What are the commonalities? What are the triggers?"  Ultimately, what is the problem that needs to be fixed. Only then can we come up with solutions.

Confronting the losses and owning them:

The first thing I like to do before anything else is stare at my losses and dissect them. Are these losses a signal my strategy is not working and I need to reign it in? Or am I just breaking the rules and making errors? As per above, my recent trades fell into the latter category. It’s a painful process but I like to make notes on my Tradervue stats journal and internalize everything. From here there are some good quick fixes I can action the next day e.g. auto load stops or avoid entry in a drive post 10.20am etc etc.

It is no doubt hindsight but I tag anything as an "Overtrade" if it was non-planned, a non-playbook trade or any stops I missed vs my system. I pay particular attention to any trades I have entered in no man’s land i.e. inside the range of the high and the low of the day. I find this the most problematic area for overtrading and initiating new positions vs going with the break and with the flow. As you can see, these losses can stack up:

(note Tradervue doesnt accept numbers. WCEI = WC8).

Here are some war story charts…..

AGL:

ADH:

WTC:

However, the bigger issues remain, why are my rules breaking down in real time and what is the underlying problem I need to fix?

The Problem I am trying to fix:

This post is targeted at my recent patterns and my problem areas. You may see some commonalities but everyone's triggers are likely to be different so it is important to sit on them. For me I can highlight:

1. Not being fully prepared pre-open and thus reacting: I have been wasting time and not fully prioritising my key prep slot. My best trades come from being planned and going thru my checks. Instead, I saw moves that I was not across and then reacted LATE. I got pinged on chatrooms and followed vs doing the work.

2. Complacency after some recent good trades and a few better months: this leads to overconfidence and trying to be involved across too many names. In particular, I saw some of the junior specs fire up. Which leads to....

3. Too many positions and a feeling of loss of control: managing overnight positions take up some mental capacity and distracts me from capitalising on my intraday sweet spot. I can use automation to cut alot of these quickly but I still get too preoccupied. Wasted emotional capital vs the new opportunity set.

Based on this, what are the possible solutions?

-Solutions via the DRC:

The report card is my tool I use to set goals and target very specific solutions. I work on this intensely and get the habit down before I move onto another goal. I have been doing this for years to this day. I actually gave a talk about this with SMB on Youtube which I will link at the bottom.

Here is my new template that I will use going forth:

Current Goal:

• Cut Overtrading. Increase Trade selection to focus on my Playbooks and the very best catalysts only

Reminders:

• I want to trend towards increased selectivity, increased quality and increased size.

• What would Lance do? Notice the pause between trigger and action

• Price action is the ultimate truth

Solutions:

• Fill out my trade planner template in full pre-open. This is important to identify the size of the opportunity and risk that needs to be allocated to my strategy. CLOSE THE CHAIN from prep to order entry.

• Vizualise the no of shares I want to trade pre-open. Recite my current report card goal

• Max 3 tickers per time bucket. I might miss a few ok trades BUT keep in mind all the money saved by avoiding mediocre losses

• Max $5k loss in a ticker until account back up to highs

• AVOID NO MANS LAND.

• Say NO! Be happy to pass unless truly A catalyst for my system.

• Cut back all overnight strategies until I have put up 3 consecutive > $5k trades

• Check in at 11am pop up to go through my variables.

Live experiment into year end:

Coming into year-end it is very likely that news events will get quiet and the market will become slow. It is even more important for me in this environment to focus on my new Trade selection goal. Hold myself to the highest standards to chip my way back and earn the right to put on risk. I have gone through these cycles of poor performance many times and invariably it always requires me to step back, process it all, then double down on good habits once more.

The joys of the game.

It never ends.

SMB interview with Austin about the Daily Report Card