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How to tell your position size is too large

Hot flushes, tingles, tears, discarding of clothes … anyway enough about my trading day. Trading is stressful. It can bring on feelings you haven’t felt since you asked that girl out to the Year 12 formal (or prom for those on that side of the world).

Rules are only rules

Construct as elaborate a set of trading rules as you like, but rules are only rules if they are followed, and stress has a funny way of stopping you doing that.

Last week I wrote about a day that was my worst in execution, yet good on numbers alone.

I have 4 trading rules, I broke them all, it’s not like 4 is a lot. What I didn’t recognise were my signs of stress when these rules were being broken.

Trading stress

Stress is a physical response to something that we feel uncomfortable doing.

One of the biggest stress inducers in trading comes from holding a position that is beyond your comfort limits.

Stops are moved, profits are taken early and accounts are blown, all because the position was too large, less to do with the trading system itself.

I have been trading for over 16 years, but it took a good 7 of those years before I started making any kind of money, and another 1 or 2 before I started making consistent money.

Am I especially dense that it took me that time? Maybe, but it took me that long to realise that my issue was not trading style, it was recognising physical signs of my emotional weaknesses when it came to taking the plunge.

Why am I walking away?

It first hit me when I recognised that each time I tested a method I had developed that seemed to work, I would immediately leave the screen for a break.

I did this for years, like I was scared of coming to the end of my system development path. On reflection, this was a sign of fear.

A fear of actually trusting a system and trading it. A fear of putting myself out there for the market to test the system itself. Only once I recognised the physical movement of leaving the screen could I reflect on the deeper meaning.

Size matters

The same goes with position size. If I open a trade too large, I get tightness in the neck, I get fidgety and check and recheck my position size percentage. I’ll move a stop 1 pip up, than back, than up … you get the picture.

This can happen on positions that are only 2% of my account, but if I recognise those physical attributes, I know either my position is too large for the volatility of the instrument, or my initial stop was too tight when working out my risk parameters.

Symptoms

These are just my symptoms, some others could be:

  • Concentration problems
  • A feeling of things being too hard
  • Memory problems
  • Chest pain
  • Nausea
  • Extreme mood swings
  • Biting nails, pacing the floor, pick your nervous habit

If you want to take your trading to the next level, take time each day to recognise your physical signs of stress. We all have them, but can you recognize them?

Self reflection is a hard thing for us all to do in most aspects of life, let alone when money is involved.

Further reading

Dr Brett Steenbarger, a renowned expert on the psychology of trading gives further insight and solutions that might help you in his article creating change through mirrors and corrective emotional experiences.

Happy trading.