This past week has been a volatile for traders. Day traders will confirm this week was intense relative to past weeks in the Summer period.
This past week SPY traded in a range of 332 to 319 and it moved between this range twice in a week! So for traders who position themselves on long or short could have been trapped in their trades based on how SPY traded. What occurred to me two weeks ago was that SPY appear to have some sort of weakness and I went short. That week the markets ramped up three days and I closed at a significant loss. What happened next was what I had anticipated and if I had held my short position I would have at minimum broke even. What a mess I got myself in.
Mental Conditioning
The position I put on had to had a conviction and I should have been aware of where I should put in a stop loss even if I knew I was right. Instead I let the trade go against me significantly before I closed it only to be back filled due to the markets high volatility. On top of the money loss my faith in reading charts were broken and I was unable to return into a short when it was bears had the strength to pull prices down in Friday and the following Monday.
It takes a quick flip of the switch in order to refocus as the markets will not wait for my recovery. Often in a big loss I tend to get more emotional on the next trade as many who have gone through this would say it is "revenge trading". I blow up accounts countless of times with this, but I had to refocus and not let emotion get the best of me. As this week pass by I was able to recover some of the loss and able to control my emotions. Yet it was very difficult when I re-enter into the markets the day after I took the significant loss.
This is apart of trading and I have to stay level headed when I am down. Try to avoid trading large when I do a comeback and build on the next win streak.
Stop Loss
I rarely use an actual stop loss in my trades but after this last setback I have to rethink. In all my trades I always think of where to exit, but when things do not go to plan I rarely think through about where to close a losing trading. The only way around this is that I would set a stop loss.
Yet current trading environment is volatile so stop loss set at a wider price range is necessary. Or trade with a small position than usual when volatility is high.
Position Sizing
With a certain amount of cash in my trading account it is always easy to over trade or use my entire capital to work, but I should not ignore the volatility that is currently in the markets. The higher the volatility the less size of position I should be trading because the risk versus rewards are higher. Note current volatility is almost twice as high as when the year started.
Plan on specific number of shares or cash amount to be traded and avoid using too much leverage in trades. Avoid margin or going heavy on contracts as things can turn on a dime. Easy to say but I am currently in a hole so will have to adjust accordingly. Scalping a little off of contracts may not be ideal right now as that is my strength, but have to be watchful of the market at hand and likely leg into the trade if it is large rather than all at once in.