Ebb & Flow Management

BarroMetrics Views: Ebb & Flow Management

The past two months have been great for my bottom line. In my personal trading and fund management, I had a good return in April and May is the best month in 30-years of trading. Yet on Wednesday, I cut all my open positions, even though I believed the positions would probably continue in my favour.

Why? The answer lies in how I manage my Ebb and Flow.

There is no question I am in a Flow state. Most of my decisions are correct in the sense that I correctly interpreted what the market would do; and even when incorrect, I exited positions with minimum loss. Let me give you an example of what I mean:

  • My win rate for May was 80%
  • My Expectancy return per trade was: US$5,500.00
  • Since I expect about 300 trades  pa, my return would be: US$1.6M
  • My Target outcome for 2010 was: US$250,000

Given the above, many of my friends are saying I should press on – but for me, I know it is time to stop.

I am seeing the little signs that warn of a ‘buttock-slapping loss-lesson’ around the corner:

  1. I am catching the thought: “God, I’m good!” (rather than the usual: ‘I am reading the market well’)
  2. I find myself tired and starting not to enjoy the process of trading, and finally
  3. I am starting to get sloppy with my record keeping –

Normally I follow a set pre-entry post-entry process:

  • a) Enter the risk
  • b) assess the reward to risk
  • c) assess the first 1/3 exit.

In the last few trades, I have skipped the written process for a mental one.

Not good – all signs that I need to take a break.

Remember that even when trading at optimum effectiveness, when the flow state starts to ebb, the first loss will be on maximum exposure (I increase position size in Flow State). So if I am trading below minimum effectiveness, that first loss will be a beauty – that I have learnt through experience. So what I do know is watch for signs that my Psychological Capital (to use Denise Shull’s term) is on the wane and I take a well-deserved break.

There is a cost, of course. Sticking with it through will power may sustain the Flow State  longer and when I return to trading, who knows where I’ll be in the spectrum of Flow to Ebb State?  But I am happy to trade that for taking a break.

9 thoughts on “Ebb & Flow Management”

  1. funtastic,

    understand but why cut all and not gradually?

    wouldn’t you stand a chance of missing something? or your fear of winning, which is very true in lots of cases, appears?

    anyway congratulation!

  2. Hi

    Thanks for the comment and kind wishes – much appreciated.

    Turning to your question….

    I don’t see the point of cutting gradually.

    I am cutting not because I have insuffcient time time but because my Psyche Capital is so low that I am likely to make to bad mistake.

    This holds true whether I have 1 or 5 open positions.

    I see gradual cutting as an exhibition of the fear of being afraid to leave money on table.

    I overcame that eons ago.

  3. thanks for the reply

    i guess the fundamental didn’t change, when we win we push, when lost (or start losing) we cut.

    one thing i notice is that my results seem to be reverse from yours.

    april and most likely may is my worst results so far this year.

    enjoy your “holiday”

  4. Well done Ray, it is an education following your ebb and flow states and the way you stick to your plan when things aren’t going so well.

    Enjoy your well earned break.

  5. Hi Ray, i can understand the infuence of TV shows on Barrometric names ie Star Trek we get Ray Wave,Death Zone: 6 million dollar man,we get bionic man,the hip replacement the ear gizmo, all good family shows. But ‘buttock slapping’ what shows are you watching now? lol cheers baz

  6. @Baz

    American Idol, with some who could not take criticism, slapping their butts at Simon Cowell, who has his last show yesterday.

    Ag Moderator

  7. Thanks Joe

    But let’s not get too carried away.

    Last year I was unable to buy consecutive decent wins at any price.

    As the saying goes: “This too shall pass”. The great thing is I can say the same thing when I am struggling.

Leave a Reply

Your email address will not be published. Required fields are marked *