I wire out my trading profits monthly, so my balance of profit/losses on the first day of month is on 0. I could say that every month I start from the beginning. But that is far from truth. I will just tell about them today and also how important is good risk reward ratio and day trading losses in your trading.
It has its good and bad sides. Permanent, monthly pay is important in my trading. But this affects other evaluation of incurred losses in different times of the month.
My curves of day trading profit and losses
Over the years my curves of monthly profit/loss were very similar; Quite stable, comparable daily profits and few days on minus. With stable results I built my result in the scale of month. While appeared small minuses, but without great hesitations of result. Below two examples of graphs, and in the scale of given month increase in profits.
The last period of changes caused that this graph a little bit changed. It is an effect of implementing changes in played strategies. It isn’t yet perfect, because there are still old habits. But I can see progress. Note how this affects the change in my curves. More firmly I use sessions, on which my signals are more effective. During sessions, which are full of small number of signals – there is a small profit or small loss. Generally I trade less, and at the same time I use better signals with greater probability of success.
Generally as you can see, each month ends up with the profit, which is built by the entire month. It is not an effect of one-time shot, but consistent using the strategy.
Fear of loss
Now I will direct your attention to certain fragment from these graphs – namely, the first and last days of month, and its middle.
For the first 6 years in daytrading, it didn’t happen to me to finish the first day of month or first week of month on minus. When 1.5 year ago it happened I was slightly paralyzed. How it’s possible? Could I burn out? How I will get up now.
Such thoughts crossed my mind.
When 5 years ago (or no matter what period) in the middle of month I finished a few sessions on minus or the week on minus, not to say when I ranked the biggest loss (a day before Christmas, it was a bit sad ;)) no thoughts crossed my mind. Well simply loss, such days sometimes come up.
Did you notice the ridiculous of this situation? Why I perceived the loss of first day of the month or the week in a completely different way than losses, which come up in the middle of month?
A negative stimulus is such, which we remember well the last transactions. Particularly the ones negative, and in the habit we have too fast descent from extreme to extreme.
It changes along with change of self-confidence.
On the following graph, you can see an example of the month, in which I began with series of 5 sessions on minus. Minus, which as you can see was commensurate to profits, which I generate, as well as to how it proceeded.
However, the beginning of month on minus can strongly affect the change in aversion to risk. Actually it is only fragment of the month. These 5 sessions as well may appear in the middle or at the end of month.
As you see, in the final settlement these minuses didn’t really matter. As well the negative session could come up at the beginning or at the end of month, because on the given day signals were just poor, positions cut out from stop loss or I simply took bigger single loss, which I didn’t trade longer.
Here minuses appeared in the middle of month. Zero impact on my trading, because the result was already built.
Look at your risk reward ratio
Did it happen to you? This question above all regards traders, who pay out their profits regularly at a specific time (e.g. as I monthly).
I think that the loss in first period simply undercuts us in some way. In the head is awareness that I must make up the loss. This is a total misunderstanding, because what’s a loss, since the past months or years I built a big profit on a regular basis, which I paid out regularly.
The loss doesn’t matter – risk reward matter
I try totally different to perceive losses for some time. A change in strategies requires it. With number of 1-3 days on minus, this number currently jumped to 4-8 on minus or near-zero per month. I think, …??
It didn’t affect my results negatively. Just opposite, it pushes me forward.
It is an effect of two things:
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Adequacy of daily stop loss level up to generated profits
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I use more firmly the potential of good sessions
Therefore, increased number of days on minus doesn’t reflect in generated profit. Automatically number of profitable days decreased, but there are a greater number of better used days.
I still need to work on it. Actually in my case the key is FURTHER LEARNING OF NOT TO TRADE :). Not to trade in the moment when there is a lack of strong signals on longer moves. Still I had tendency to enter, including scalping, when on the market there is lack of greater changeability.
For 8 years I was a very active trader. My brain learnt that during the session I play a lot and I provide a lot of adrenaline. Day by day I’m not able to make the cut. But I’m able to change this process in a longer time. I try to change stimuli, which have pushed me to scalping. I recommend here a book “The Power of Habit” by Charles Duhhig.
Here one more time I will mark: Scalping isn’t bad. If you have good strategies, it is very profitable. However, I don’t longer want to trade so actively. Remember that when scalping risk reward ratio is not to high.
Here’s an example of calmer transaction and effective using of the move:
Here’s a more extensive scalping strategy, but also profitable:
As you can see, the number of transactions, time of reaction to the move in both cases much differs.
Summing up
Loss is a normal part of trading. But the key is to carry it out on a healthy level relative to generated profits. So adequate risk reward ratio is very important.
What’s interesting, the truth is that the beginning of month doesn’t have the lowest significance in final settlement. Here are two examples of bad starts in the month and finishing them, as you noted on presented profit/losses graphs.
Is there a sensible solution to look differently at losses from the beginning of month compared to next periods? There is no solution 🙂 haha. The truth is that whenever you want to pay out profits regularly to will return to zero balance in your trading account. Again you hold the deposit, from which you build the result. However, it is worthwhile to take into account that a period, in which you settle the account, it is a component of few days. In my case it is usually 20-22 trading sessions. Among them there are usually a few on minus.
So it doesn’t have a difference whether it will just come out in the first days of month, whether in 3 week or every weekday after one day on minus.
This builds in me a sense of confidence in played strategy. I know that even the bad beginning doesn’t matter, because what I play is repetitive, and on the market we have cyclicality. There are better and worse periods up to every strategy.
How do you perceive the loss? Does it affect you in what period they come up? Do you constantly pay out your generated profits? What is your risk reward ratio?
