Are you QID'ing me? Excerpts of a Mad Man.

It seems like just yesterday because- well- it was yesterday and those are the worst seems likes of all. I'm still not 100% certain how I arrived at the conclusion I did, but I recall allowing myself to be influenced upon reading a tweet of another trader who was going long QID and this made sense to me considering the NASDAQ was up 7 straight sessions. Crunching the numbers quickly I saw for a nominal risk of .25% I could have some downside protection in case the index did indeed pull back.

Up until this moment I had for the most part traded per plan even if not as well as I thought myself capable. This decision however was going against everything I had prepared myself for. After two months of review, study, and tweaking my rule plan to be in better accordance with the metrics of my trading style while waiting patiently, for the most part, until there was an upside breadth thrust to implement this new plan of action, taking this trade amounted to a crushing body blow followed by a fist to the jaw of everything I put effort into.

Immediately upon taking this trade I was aware that I was not abiding by my plan and I jotted a few notes down:

“Now I'm gambling- took a spin on the QID. .25 risk- what is my edge on this hedge? Granted the market is up 7 days in a row and a pause is plausible- but really, what is my edge? Silly silly- this is a gambling mentality- there is no edge there!” Strike 1.


I was aware from the get go that what I was doing was poor, undisciplined behavior and yet I continued and made no attempt to correct this by selling the position. Strike 2.


For my game plan the next day I noted:
“will be alert to any shift in the index over the evening- this is due to having an open QID position- any downside gap or morning sell off will assist this position-” The first thing that stands out to me is that there is no consideration what-so-ever for a gap up. While I believe it fine to keep a positive attitude and believe every trade will work out, my thoughts amounted to pure hubris. I furthered the insult by being so biased to market direction that it did not even occur to me to plan for the possibility of a large morning gap, after all the market was already up 7 days! Strike 3 and I'm out.


Further into the morning I jotted down:
“I noted yesterday and will go through this carefully as to not repeat this error- I took a hedge- index up 7 days and expecting a pull back- hedging my longs- well, the market gapped major on the open and never looked back- the QID however did, and I could have escaped the positions with a lighter loss, but ended up talking about pull backs, and over extension and things that had nothing to do with the trade nor the trade thesis- I let my ego get in the way- should have cut early- “


The main point I take from this is that any trade that is not in accordance with the plan results in a bad out come.


First, it shows a lack of discipline and breaking of form which are both extremely detrimental. Once this occurs, the as strict as possible abiding by the plan begins to lax and once the trigger for entry loosens the defined edge is gone.


Secondly, once an entry rule is broken, none of the other rules apply any longer, such as my keeping the risk. I could have alleviated the loss at .5%, but since I still had .5 to go before risking the standard 1% of account size, I allowed myself to use this “extra” time to let the position play out until it moved in my favor, which it never did.


Third, it results in being in uncharted territory and the lack of continuity to the trading plan may result in poor decision making processes thereafter. When trading in sync, the multiple effects of experience will result in an understanding of price action at any given time and a greater understanding of what is or is not normal and what should or should not be done. The possibility of introducing negative feedback into trade management will also prove to be detrimental over the long haul. The trust one develops in themselves to do what needs to be done may not be there when one needs it most.


I have no delusions that I can trade mistake free, but I can trade error free. The things the mind does while in a trade will never cease to amaze me. I'm convinced I could be haggled into buying a bridge over a desert while in the middle of a trade. This trade turned out to be a grave mistake from the get go, but it would be graver if simply shoveled over and forgotten.