Recently I completed work on a short term trading system based on holding a trade for a longer duration (approximately 4 hrs to 30 hrs holding time). Before this I held my trades anywhere between 5 mins to 6 hours, and was used to trading exclusively in the first halves of the Asian and European sessions. You can imagine how much havoc the longer holding period wreaked on my sanguine lifestyle.
I had to start accounting for volume peculiarities and changing behaviors on opened positions across 3 or 4 sessions (ie. Asia, Europe, US, Asia again). I had to develop a system for scouting entry and exit opportunities across 24 hours instead of only up to 6 hours previously.
Hence even when I was resting, eating, playing or sleeping, there was a burden to appraise the market for trade opportunities, position erosion, or profitability enhancement at critical timings and at key price zones. Done at stretches, this became debilitating and intruded into my family life.
As an opportunistic trader in equities, I am very comfortable holding positions in terms of days, weeks and months ( any equity held for more than a year generally means I am losing money on it….I am also terrible at holding intraday equity positions). But Forex “short term swing trading” is mentally exhaustive. I am not talking about the stress of losing money – that is an unhappy occurrence, but easily manageable. Rather it is the stress of keeping pace with the market, keeping apprised of changing market behaviors in different sessions, watching profits evaporate and return, making trade management decisions to add on or reduce position size, evaluating market movements for impact on later sessions etc . Even when I was not trading, I was thinking about the markets. How does such a trader truly rest? Particularly one infatuated with understanding how the market dances. I had to manage myself – otherwise it would be back to square one, when I first started trading – no day or night.
To cut the story short - the culprit is infatuation with the market – an obsessive passion for the market – regardless if the cause was addiction or as a replacement for something missing in one’s life. When a person’s other priorities are not as favored as trading the market – he is in trouble. It is as simple as that. When we do not have other compelling commitments to look forward to, we are not fully detached from the market, we have no time to heal. That means we cannot walk away with a quiet heart at the end of each trading day — there is no end to the trading day. We cannot leave the trading desk knowing we have something more pleasurable and important to attend to, and the trading result that day will not matter tomorrow. There is a risk we return to the trading desk rationally composed, but emotionally disquiet. Our emotions are likely to become more distorted, and we fall prey faster to the bad habits we have tried so hard to overcome previously – impulsiveness, the need to make up lost opportunities or losses, the need to jump on the wagon and increase our profits – because the music has not stopped we keep dancing. Once I realized I was seduced by my compulsive need to develop this new trading system, I put in safeguards, and completed the system with rules and principles I can live with – life back to normal.
Then it occurred to me why Livermore might have “failed”. Though he held membership in gentlemen’s clubs, enjoyed the opulent life, took vacations, had enviable companionships, he could never extract himself out of the market. His life was the market. He was one of the market’s greatest traders – and its infamous victim. But what else was he? Why did he pen “ … I was a failure…”? Here was a man, whose mind never stopped turning, (he believed one had to be intelligent to trade the markets), and ultimately he became emotionally attached to the trades that did him in. He took risks, but he was not a compulsive gambler. He was bipolar but his decision making framework was smart and simple, and he had made similar decisions to run up or close down trades successfully many times. But the latent emotional baggage would finally be too heavy one day, particularly after successive losses, and smothered his will to follow rationality. Seduced by whatever the market offered him, he could not shake free - too much of himself became entwined with the market. Perhaps Livermore’s failure was his singular dedication to the market. To him the market had become personal, but in truth the market never loves anyone back.