As a discretionary, technical day trader I have experienced my share of trading funks.  Each one has been a little different, but with experience I have learned to recognize the signs and develop solutions for pulling myself out.  Trading funks are dangerous.  Improperly managed the funk can lure a trader into revenge trades and excessive risk, potentially turning a small draw down into a spiral that blows up their account.  I will walk you through my most recent funk - how it started, where it went, and how I pulled myself out. 

Funks usually start the same for me - imposing my beliefs on the market.  I develop a thesis and ignore the technicals until they show the first sign of confirming my thesis.  Once I see those signs I enter trades, which inevitably go against me because I am not reading the technicals with an open mind.  I am already certain in my thesis, and therefore will take any signal as confirmation.  Often those are not real technical signals but instead intraday blips I am interpreting incorrectly.  This is a subtle, but critical point. There is an enormous difference between reading technicals then developing a thesis, compared to developing a thesis then reading technicals.

Once I am on this dangerous road, I start looking at my P/L each day and do not like what I am seeing.  This is the point where the funk can go any number of directions, including a spiral into a big drawn down.  Once I feel frustration set in with my trading and P/L, I immediately go into a defense mode.  Defense mode can include some or all of the following:

Reduce Size

This is probably the most important thing you can do to relieve trading stress and avoid pressing when you are trading your worst.  I will often go down to 5-10% of my normal trade size.

Reduce activity

Less trading and more watching.  I take more notes in my journal about not just the market itself, but how I am perceiving it.  I look for signs of how my bias is effecting my technical reads.

Time Off

Sometimes I will take a couple of days off completely from the market, remove all recency bias and let my mind rest.  The market is open above 250 days per year.  Missing two days will do no harm.

Reduce/eliminate outside influences

The less I know about current business news, the better I trade.  Some traders can marry the news with technicals trading, I cannot.

Once I enter defense mode it is time to get back to basics.  If you have lasted more than a year as a trader, chances are there is something that has gotten you this far - a type of trade, a technical pattern, even a specific market/security that you know so well you can trade it alone. Get back to doing what you do well to quickly rebuild confidence in your trading. 

During my most recent trading funk I discovered something that has changed me as a trader.  By going back to basics I realized I was trying to cover too much of the market.  I was following hundreds of securities, over twenty ETF’s, and a dozen commodities markets.  My knowledge was a mile wide and an inch deep, without a doubt leading to underperformance.  I am thankful for my most recent funk because I have emerged more focused on specific markets, and my trading of those markets has improved as a result.

As trades start to work again and confidence returns, the temptation to move back to full size and move beyond the basics will come just as quickly.  Resist that temptation.  There is no faster way to not only re-enter the funk, but have it feel worse than before due to a couple losing trades due to the vagaries of the market at full size.  Gradually ease yourself back over time as you demonstrate consistency.

Finally, I recommend developing relationships with other traders you respect.  You may find these traders at Meetup’s in your town, on StockTwits, or in a community such as Tickerville.  By having a network of other traders that know you as a person and how you trade, you will be amazed how they can help talk you through your funk and offer input to get you back on track.  Trading does not have to be a lonely business.

At some point every trader will go through a funk.  If you are able to recognize the signs and have a process in place to limit the damage, it can be an experience that brings you back stronger than before.  If you do not, the funk can add your name to the long list of trader casualties.