I had to learn to take a break from trading.

For a long time I’d continue to trade even when I was in some form of tilt. And for a long time I would come out unscathed, with more money than I had before.

Then, last year I found myself in a period where my profitable weeks didn’t outearn my drawdowns. And in an attempt to “fix things” via trading more, I started to dig my hole deeper.

Once I recognized that my old pattern of “trading my way out” was no longer serving me, I had to put on the brakes. There was A LOT that went into learning to stop trading, including the work I did with Hannah Westphal, mentioned here in this edition of TTR: Are You Addicted to Trading.

I had to learn about the addictive loop of trading, the underlying reasons I wanted to continue to trade, and why stopping felt so wrong. It felt soooo wrong y’all, like every fiber of my being was fighting against it…and that was because, in taking a break from trading, I was no longer in the game, and my mind thought that if I was out of the game, I was losing my chance to make it back up.

But stopping and slowing down is what helped me not only get back on track, but gave me the room to objectively look at my patterns, and to recognize what needed resolving.

I got help, and then used my skills from my time as a Director of Operations, to come up with a contingency plan. I created a Drawdown Playbook, a document that detailed what to do when I hit a certain level of drawdown, and when I could resume “trading as usual”.

I encourage you to create your own plan and really take the time to think deeply about what causes your triggers and what would really help you reset. Don’t think in terms of punishment and you “must redeem yourself”, but think of it as a performance improvement plan (PIP) and what will really get you back on track, and beyond.

For example, I have three phases in mine, and at each phase I must show competency before I move to the next phase. My Phase 0, I trade with a fraction of my usual exposure, I am allowed just 1 idea at a time, and I only need to have three green days in a row to move into Phase 1. I then stay in Phase 1 until I have recovered 25% of my drawdown.

When you come up with your contingency plan, here are the things you want to think through:

• When it starts
  A specific trigger, dollar, percentage, or repeated rule-breaking
  

• How risk gets reduced
  Reduced exposure, reduced number of trades, smaller loss caps
  

• What changes in execution
  Only certain setups, no early entries, whether overnight holds are allowed or not, whether multiple positions are allowed or not, whether discretion is reduced or removed
  

• How phases work
  Each phase should be clearly defined and include:

  • what puts you into that phase

  • what allows you to move forward

  • what drops you back into a previous phase

  • what forces a full stop from trading entirely
    

• What a full stop looks like
  How long you are out of the market, and what conditions must be met before you come back
  

• When normal trading resumes
  At what point have you shown through your data a real change in behavior, improved execution, and more consistent profitability.

There is very little we can control in this arena, but planning ahead for periods of drawdown not only normalizes losses as part of trading, but also gives you something tangible to lean on that has already been thought all the way through. In trading, you want to eliminate as much decision-making as possible up front so you can keep your head clear in order to operate to the best of your ability, one trade at a time.

SPX Review and Outlook

We made it down to 6,500, which is a prior breakout level and also lines up near the weekly 50 SMA. After two strong weeks of selling, this is a spot where I am anticipating a bounce or some form of digestion.

In the last hour on Friday we saw buyers stepping in, so coming into the week I’m watching to see if we will hold this area and start building a small base.

Levels and notes:

• If 6,500 holds, I’m looking for a shelf to build on the hourly to give a base that I can define risk and trade from.

• 6,550 is the first area I want to see reclaimed. If we can get back above that, then that likely opens up another 100 points or so to the upside.

• From there, 6,760 to 6,800 is the zone I’m watching for a rollover if the broader bear market remains in place. This is the zone where we’ve seen rejections in October, November, and again recently in March.

I do think we’re extended, so I don’t see high probability of continued selling from here without at least some digestion first, either sideways or as a bounce. If for some reason we do continue lower from here and put in another strong red bar without much pause, then the next downside area I’d have in mind is around 6,350 to 6,300.

I’ll be live tomorrow morning at 9 a.m. EST for my Morning Market Review. This session is free to my community and you can join the community here and head to the Events tab to register for the live session.

Hit reply, say hello, tell me how things are going for you or feel free to share anything even non-trading related! I always love to hear from you all! ✨