I looked through all my paper trades this week, pulling up each on a chart. I should do this every weekend. One thing I noticed this week, beyond my trading rules issues, is that I started paper trading low volume stocks a couple times – usually under 500K shares a day. As I have written before, there’s no point in making a 1,000 share paper trade of a stock when the highest average volume during a five-minute candle is like 500 shares, or even 3K of shares. These orders in real life are not going to be filled so it’s so unrealistic that it’s bordering on being a complete waste of time. So I’m going to be more diligent with only playing stocks with at least 500K shares volume.

More importantly, the big lesson from this week was dealing with my emotions and following my trading plan. This post from Dr. Brett’s TraderFeed blog really struck a cord with me, that maybe my recent challenges are:

…because the state of mind and body that we’re in when we’re executing or managing the trade is different from the state in which we formulated the trade idea.”

Why this is breaking news to me, I don’t know. I just wasn’t aware how rational and calm I am looking at the markets when trading is closed, versus how pumped up I get when even making paper trades during the middle of day. One reason for this is stated well in this part of the post:

What derails traders is that, at some point, we switch perceptual lenses and view the trade through the lens of profit/loss (P/L), not through the lens of probabilities, risks, and rewards.”

This is definitely true for me and that’s why I’m going to stop tracking my practice trading in a profit and loss table. Even though it was monopoly money, I was very focused on how much I was ahead or behind in every trade, and where my paper account was at – this will be more intense when using real money in April and then more when I start using bigger positions sizes (100 share trades at first for me). So I have to stop viewing trading through a framework of making or losing money. It will always be there, I’m not a Jedi, but I can prevent the profit / loss measuring stick from dictating my every move.

…If our P/L focus exceeds our plan focus, we will tend to act impulsively to allay our P/L concerns, thereby violating trading rules and plans. Under conditions of frustration and anxiety, our perception becomes tunnel-visioned: we act to reduce our distress, rather than to maximize our opportunity.”

This is exactly what’s happening with my bad habit of exiting trades way too soon, and not following my “rules”. Once I’m in a position, I become anxious and fearful being in the trade, whether it’s going for or against me. I stop being rational. I exit the trades to feel a sense of relief, not because of a technical indicator telling me the move I was trading has discontinued or reversed.

I used to have a similar problem entering trades. In the beginning of January, I was struggling with just pulling the trigger. I’m not hesitating nearly as much – still can’t get over doubts when a clear good set-up is in front of me, but it’s not nearly as bad. There’s still work to do in this arena but it corrected itself much just over time. For this exiting trades thing, I think I’m going to have to be a little more deliberate about changing my patterns.

The other big observation from this week can be illustrated by this axiom: “Don’t let the perfect get in the way of the good.” So while I have a long list of rules that are part of my trading plan, I’m not going to go from like a 5% compliance rate to 100% – I need the proverbial baby steps first. Since exiting trades is my biggest problem right now, my goal this week is to focus on following these – I am going to really hone in on how I exit trades. I’m still fine tuning my exit guidelines, to minimize losses and maximize profits, but they will be very similar to what I’ve put down on paper before.