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(Good) Trading happens outside your comfort zone.

After writing about why good trading usually is quite boring last week, I’ll continue down that road today and write about another similar topic. 

And again it’s more of a rant that many of you maybe don’t want to read about. But I believe it really can be an eye-opener to those of you who’re really serious about trading and these are the traders that I care for the most. Actually I wish I had read this myself years ago, I had to pay a lot of money to the markets to finally really get this.

Another way in which trading is often misunderstood. And that is trying to make your trading into something that feels good, that feels comfortable, that you feel in harmony with.

And like trading for excitement there’s nothing inherently wrong with trading to feel comfortable. Go ahead, but then be ready to pay the price and don’t expect to make any money trading. Because in my experience good trading often doesn’t feel good, it happens outside your comfort zone.

Now what exactly do I mean by that? There’s a common theme going round and round in the world of trading, and you’ll especially often hear it from all kind of gurus as the answer to all kinds of questions: „Do what you feel comfortable with.“. 

Here are some examples of such questions and answers.

Q: „Okay I understand the entry setup, now where should I place my stop, here or here?“

A: „If you like trading this setup with a tight stop, place your stop here. But if you prefer to give it more room, simply place your stop here.“

Q: „When should I trade profits?“

A: „You can take off part of the position early if you want to, or when you got the same as your initial risk. Or you leave it all on until you’re stopped out, it really depends on what you feel comfortable with.“

Q: „In which markets should I trade this?“

A: „Whatever markets work for your daily schedule and account size.“

Q: „Should I take all the setups or just the best?“

A: „That depends on you and your comfort zone, some traders are more picky, others tend to simply take all the setups.“

Q: „What time of the day should I trade this market?“

A: „Pick a time of the day that fits into your daily schedule, it’s open 24 hours!“

First of all I have to admit that I thought the same way for a long time. And it’s hard to not too. Just look around a bit on the internet. Everyone seems to have joined the „do what feels comfortable“ cult. And often you’ll also find the same people in the „you just need the right mindset“ cult. These two seem to fit well together providing plenty of answers to all kinds of questions.

Now unfortunately trading is not a picnic. And if you’re one of the few traders out there who actually found an edge in the market you know that very well. You know how hard it is to find anything at all that works. So once you do, you’re just happy about it and don’t make any supplementary requirements. The luxury to be picky simply isn’t there in trading.

And whatever edge it is that you’ve found, it won’t work in every market, on every timeframe with any kind of stop loss, profit targets and risk management. There are limitations everywhere that simply can’t be overcome. Doesn’t matter if you’re into high frequency trading or long term trend following.

You for example can’t day trade all markets, all the time successfully. And some markets are almost impossible to be day traded successfully at all due to their low liquidity and very high trading costs in relationship to their intraday price moves.

You can’t use whatever stop-loss you feel comfortable with, if you use a too tight or too wide stop, your method will simply stop being profitable.

That’s even more true of taking profits. Getting out of trades too early with tiny profits very often is a sure road to bankruptcy. Sure it feels good to take some off the table right away…but it’s hardly ever successful in the long run.

The same is true for how good a specific trade setup has to be/look. What exactly does that even mean? Either certain conditions are met or not. Everything else is just an excuse to try to foolishly cherry pick trades in the hope to look into the future and know if that single trade is more or less likely to work out. That’s just insane.

If at all, in my experience, the opposite is true. I’d say that most of the best trades don’t feel/look too good when you look at the chart before you take them. Which is one of the reasons I hardly do that anymore but that’s another topic.

I found some of my best trading setups while trying out certain popular setups and then realizing that not only they don’t work, but that with a small change I can turn them into a profitable method doing the exact opposite. Ambush is an example of this, I’m still thankful that one of the methods I read about in a book totally didn’t work even though it had a really good sounding logic backing it up. Our intuitions about the markets are often just plain wrong.

Now my point is that that to most trading questions there are clear answers. Or at least clear limits. It just takes a lot of time and effort to figure them out. And not respecting these facts, you might feel comfortable while putting on your next trade, but you won’t feel too comfortable in the long run.

Of course there are some points in your trading you need to feel comfortable with. You simply might not be able to trade certain methods or markets because they’re too far away from your comfort zone. Maybe you’ve found an edge in selling naked options but thinking about the unlimited risk of that strategy, you couldn’t sleep at night. Or you found a method that works nicely but you’d have to get up at 2 AM each day to trade it.

And of course risk management. What kind of drawdown can you make it through? That’s where your comfort zone definitely needs to be considered.

But going any further will keep you from being successful in the markets and make you feel pretty uncomfortable in the long run. That’s why I suggest you find that comfort somewhere else in your life and accept trading for what it is. A highly competitive business that offers little room for comfort.

Nowadays my actual trading just feels neutral, it’s something I just do, a job. I place my orders and walk away. And that makes me a happy trader most of the time. I don’t expect anything from trading except profits in the long run.

What I love about trading is the ongoing challenge and it makes me happy to know that I’m competing against some of the brightest minds on earth in the markets. They do what works. The challenge is doing the research, finding new edges and of course doing the best to stay on top of my game all the time. Knowing very well that whoever is on the other side of my trade is probably doing the same and if they’re successful they also probably don’t invest too much energy into getting good feeling out of their trading. Instead they’re sitting there like me thinking about ways to get more of the (my) cake.

And sure enough, it does make a difference whether I’m just making new equity highs on my accounts or keep on digging deeper and deeper into a drawdown. But I learned how to deal with this mentally, keeping my focus on the long run. Having really understood that trading is a numbers game is a helping a lot here. Which might be a topic for another article!

Happy Trading!


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Tuesday, 25 June 2024

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