http://www.sanglucci.com/education/the-psychology-of-trading/#more-1358
Who cares if someone makes more than me on a trade? Who cares if I didn’t get the whole move? Who cares if I sold out and the stock ended up doing what I thought it was going to do? Who cares if I missed a banger? The answer to all these questions and anymore you can come up with is…
NOBODY CARES, ONLY YOU! The market is the market and there are opportunities every second. If we get a couple moves we’re closer to where we want to be. If we don’t WHO THE FUCK CARES, more are on their way.
Do yourself a favor and tell your ego to go screw itself tonight!
Showing posts with label Free Advice. Show all posts
Showing posts with label Free Advice. Show all posts
Tuesday, 21 December 2010
Thursday, 9 December 2010
Conquering Your Negative Trading Emotions
The trader has two emotions that must be controlled in order to become successful. I call them ‘the two sides of a coin’ and they are commonly known as FEAR & GREED.The beginning or new trader will first encounter FEAR. There are two types of FEAR. The fear of losing money and the fear of being wrong.
The fear of losing money usually derives from a trader risking money that should be used for the rent, food, children’s education etc. ‘Scared money’ will render one incapable of pulling the trigger when a trade setup comes along. The only way to overcome this paralysis is to be well capitalized with funds that you can risk.
The fear of being wrong is simply that part of all of us that feels that to make a wrong decision is reflective on our personal competency. The cure for this is to simply realize and accept that losses are part of this game. Think about this? A baseball player needs to hit the ball once for every three times at the plate and this will get him into the Hall Of Fame. Whenever you feel the fear of being wrong, just remind yourself that… "My approach for trading has both historically and real-time produced over (number)% winning trades." This will give you the confidence to step up to the plate and keep swinging. Also tell yourself that the only way to earn the big money is to get into the game. Have confidence in your trading system that when properly executed, it will make much more money than it loses.
So, why is GREED the flip side of fear?
Greed is caused by the fear of not making enough money. Traders who are greedy are often the exact opposite of the ones who are fearful. They have no fear and usually are very aggressive traders, which can get them into big trouble fast. Greed will usually lead to overtrading, failure to follow the trading rules, and not applying the system consistently. One of the biggest problems when greed sets in is the inability to know when to take profits. These traders are so bent on making a killing that they are never satisfied. If they have significant profits they don't even think about cashing out, as they want more. This often leads to the inability to see the trade turning against them and they will allow winning trades to turn into big losing ones.
One solution is to realize that making significant profits on a regular short time basis adds up quickly. This is best combated by developing or buying a sound system and executing the system flawlessly. Once you become confident in your system, you will no longer feel like "going for broke" because you know that there is always another good trade about to come along.
Nothing can sabotage your trading skills and profits like fear and greed. If they are a part of your “trading personality”, then you must address them immediately. Here are some of the traits that you need to identify and work to overcome:
Indecision: This includes the inability to make the trade or also known as “pulling the trigger”. Another area that indecision causes is the tendency to ponder too long on whether or not to make the trade. Often the trader will wait so long that they miss the trade completely or they will enter near the end of the move and end up in a losing situation.
Poor judgment: Fear can cause this problem because it can make you trade with your emotions, resulting in irrational decisions. This is the exact opposite state that you want to be in which is a calm and unemotionally attached one.
Inability to exit a bad trade: Fear can cause you to freeze up and not take action.
Inability to stick with a winning trade: Fearful traders will tend to exit the trade the minute they are up a few dollars. They are so concerned with being right or not losing that they figure that they are better off to take a small profit. Meanwhile this results in them missing the really big payoffs.
Exiting trades prematurely: In this instance the trader enters a position and then it starts to move slightly (notice I said slightly!) against them and they panic and exit the trade. The market then moves in their favor and they become angry and frustrated wondering what made them bail out of a good trade in the first place.
Stress: Trading is not easy as nothing is ever certain and risking money always adds to the stress levels. However, fear can amplify the stress many times, which in turn makes it hard to trade with a clear and focused mind. Ultimately it makes something that is already difficult even more so.
Lack of discipline: Fear will induce this state because it causes irrational and emotional decisions, which wreck havoc with the trader’s “game plan”.
Overtrading: In an attempt to get rich, some individuals will tend to trade way too often and buy more shares than proper money management would warrant.
Creating unrealistic profit outcomes: In this situation the trader never knows when to take profits because they are convinced the market will go their way forever. The reality of this scenario is that they end up giving back most of their profits as their greed blinds them to market reversals.
Throwing caution to the wind: In this case the trader fails to do their homework before they make the trade. Instead they go “with a hunch or hot tip”. Others will just see a stock that is on the run and jump in without thinking.
Tips for Overcoming Fear & Greed
1. Only trade with money that you can afford to lose.
2. Set realistic goals and realize that the tortoise wins the race. You will not turn $5000 into $1,000,000 in a year.
3. Work your plan. Practice being disciplined. Limit your loses, let your profits run.
4. Adhere to strict money management rules. Don’t risk too much on any single trade, you will encounter a string of losing trades and must have money to stay in the game.
5. Take periodic breaks from trading.
Friday, 19 November 2010
3 Keys to Flawless Execution
By Steve Ward | TradingMarkets.com | October 18, 2010 09:05 AM
“The proper execution of your trades is one of the most fundamental components of becoming a successful trader and probably the most difficult to learn. Most traders find it is much easier to identify something in the market that represents an opportunity, than it is to act upon it.” — Mark Douglas
The Two Keys To Successful Trading
If we consider that the two key variables to achieving trading profitability are having a trading strategy with edge and positive expectancy combined with the ability to consistently execute that strategy, then assuming a trader has the first one (and developing this is a primary concern) then it is the consistency of execution that becomes the key focus; and indeed the main challenge for many traders.
It is useful at this stage to reflect on where you are at with your trading in relation to these two variables. Take a look at the diagram below and see which quadrant you are in. If you are in 3 or 4 then your primary goal is the development of a trading system/strategy with an edge in the market. If you are in 1 then you should theoretically be returning profits over time and the challenge for you is sustaining this level of performance. If you are in quadrant 2 then the primary challenge is execution. Identifying where you are, is stage one; stage two is then setting some appropriate goals and targets to move you towards quadrant one.
Flawless Execution
In my work with traders I have seen many of them find this consistent execution challenging. One of the key aspects that seems to distract traders is excessive focus on P&L and the outcome and results of the trade. That is the trader is so distracted by thoughts around outcome and money to be made/lost that they do not have sufficient focus on the key components of executing their trade to achieve the best outcome. Likewise traders who are low in confidence fail to execute their trades and take opportunities when they arise losing valuable potential profits.
To help with the above two challenges I encourage the traders that I work with to focus on the flawless execution of their trading strategy as opposed to overly focusing on P&L and results.
In the trading process we have 5 core components:
- Monitor – watching the markets
- Spot – spotting a trading opportunity
- Enter – enter the market, place the trade
- Manage – management of the position
- Exit – close the position out
In flawless execution the trader focuses on the process of each of the 5 steps and aims to do each one as well as they possibly can. They evaluate their trading performance against the quality of their execution of the trade alongside it’s profitability.
Three key factors enable flawless execution – confidence, focus and discipline. Many traders inconsistent execution of their strategies can be linked back to factors that are encompassed under these three headings
By developing these three areas and shifting your mindset to that of ‘flawless execution’ you may find that the quality of your trading improves and you experience less high negative emotional states such as fear and anxiety. A focus on flawless execution is actually a preventative approach to many of the common challenges and barriers faced by the majority of traders.
Nine Practical Strategies To Enhance Flawless Execution
Below are the three areas of confidence, focus and discipline with some bullet point practical tips that you can take away and implement within your own trading to improve the execution of your trading strategy.
Confidence
- Profitable Trading Strategy With Edge In The Market (Positive Expectancy)
- Trade In Line With Your Current Ability Level – recognize where you are (beginner, novice, competent, expert, master) and trade an approach that is appropriate for your level of skill, knowledge and understanding. Anxiety and fear increase and confidence decreases when we are exposed to challenges that are too great for our perceived capabilities (See table below). The development of competence through ongoing education, coaching, mentoring and self-learning is absolutely critical in underpinning your confidence levels. Confidence is greatly underpinned by your competence!
- Trading In Line With Your Strengths, Interests and Best Potential For Profitability
Matching challenge and capability enables you to enter the flow state and trade at a higher level of performance. Where challenge exceeds capability anxiety, panic and worry are natural. Where challenge is too low for capability then boredom and apathy are usual.
Focus
- Process – focus on quality execution of each of the five stages of the trade model – what states and what actions
- Controllables – only aim to control what you can control!
- In The Present Moment – thoughts about the past and the future are not helpful in the moments of execution. Keep your attention in the now. Try this – get a ball or similar; throw it in the air; catch it. When the ball was in the air what were you focused on? Catching the ball hopefully! Not dropping it, or the shopping, or what you will be wearing tomorrow – your attention was in the moment.
- Take Appropriate Risk (Low Risk for most people!) – high risk (outside of your psychological and financial thresholds) creates high emotion and specifically fear and anxiety – it stops many traders from entering trades, and it stops others from executing their stop losses and also encourages the taking of profits early. Low risk trading in line with your own personal threshold and trading capital and personal wealth makes for a less emotional more confident trading experience. A large majority of beginner traders who come to me regarding experiencing anxiety and fear in trading are simply taking too much risk!
- Trade In Positive States – tiredness, anger, frustration, stress are all states that are limiting to you trading to your full potential. High negative states impact on your ability to think rationally, to make objective decisions and to apply your strategy as blood flow to the ‘smart brain’ is reduced during these ‘negative’ emotional responses and your ‘emotional’ brain starts to run the show! Aim to trade when you are at your best, or close too! Think about a 1-10 scale where 10 is your Ideal Trading State and 1 is ‘get me away from a trading screen now!’ – notice the levels at which you feel confident to trade at and also those scores which are a definite no trade zone.
- Reward good trading and not P&L. Many traders feel good when they make money, and this feeling is often greater than the feeling of executing well but losing money. The focus here is on the monetary reward and not on the execution. This may sound OK to you right? If our goal is to condition flawless execution then we need to reward flawless execution. It is possible to make money through poor execution, through random gambles in the market – should these be rewarded? We need to associate ‘pain’ to poor trading behaviors and ‘pleasure’ to positive trading behaviors regardless of financial outcome. This is a challenging concept for many people and requires a change of thinking and mindset – however consider this… the difference between the best traders and the rest is that the best traders think differently! (Mark Douglas, Disciplined Trader).
Conclusion
Flawless execution is an approach to trading – a philosophy. It is all about setting yourself up to be successful and to focusing on execution and not on P&L. This approach may not be for everyone, however from the work I have done in training and coaching traders I know that for the vast majority of people the impact on your trading is likely to be extremely positive!
Focus on ‘Flawless Execution’ and feel the difference.
Steve Ward is a trader performance and psychology coach at Trade With Precision. He has over 15 years of teaching, training and coaching experience and has worked with home, proprietary and institutional traders and groups across Europe, USA and Asia including consulting on trader recruitment, selection, assessment, training and development. He is an active FX trader and a regular trainer at the London Stock Exchange
Thursday, 4 November 2010
Trader's Oath
http://www.learntotradethemarket.com/forex-articles/a-successful-forex-traders-constitution-part-2/
by Nial Fuller
I am a proficient, disciplined and profitable trader. I enjoy trading to make a profit. I honour the responsibility I have to myself and to those who are watching and depending on me to be such a trader. I continue to educate myself on how the markets work and I also continue to educate myself on how the mind works so that I incur the necessary discipline to execute the right actions for my success. I know how to determine market direction and I have a simple trading methodology that has an entry and two exit strategies, one for profit, one for loss. My trading methodology feels comfortable to me, is easy to understand, obey and execute. I have a set of trading rules that make sense to me and I obey those trading rules. I always trade with a protective stop. When i find a trade, I create that trade and trade my plan. If my currency of choice does not fit my trading methodology, I look for another trade in another currency. If I cannot find a trade, I am patient until the market meets my criteria. Each trade either wins me pips or experience.
by Nial Fuller
I am a proficient, disciplined and profitable trader. I enjoy trading to make a profit. I honour the responsibility I have to myself and to those who are watching and depending on me to be such a trader. I continue to educate myself on how the markets work and I also continue to educate myself on how the mind works so that I incur the necessary discipline to execute the right actions for my success. I know how to determine market direction and I have a simple trading methodology that has an entry and two exit strategies, one for profit, one for loss. My trading methodology feels comfortable to me, is easy to understand, obey and execute. I have a set of trading rules that make sense to me and I obey those trading rules. I always trade with a protective stop. When i find a trade, I create that trade and trade my plan. If my currency of choice does not fit my trading methodology, I look for another trade in another currency. If I cannot find a trade, I am patient until the market meets my criteria. Each trade either wins me pips or experience.
Wednesday, 23 June 2010
If capital is 5000 , Weekly profit 300 will lead to...
| The Power Of Money Management | ||||||
| Starting Date | 07/01/10 | |||||
| “Delta” | $5,000.00 | i.e. increase # contracts after making | $5,000.00 | per contract | ||
| Initial Capital | $5,000.00 | |||||
| Weekly Goal | $300.00 | per contract | ||||
| Money Management | ||||||
| Every | 16.6666667 | weeks increase the number of contracts | ||||
| Phase | Phase Start Date | Contracts Traded | Profit/Week | Profit/Phase | Account Size (End of Phase) | Account Growth in % |
| 1 | 07/01/10 | 1 | $300.00 | $5,000.00 | $10,000.00 | 100.00% |
| 2 | 10/25/10 | 2 | $600.00 | $10,000.00 | $20,000.00 | 300.00% |
| 3 | 02/19/11 | 3 | $900.00 | $15,000.00 | $35,000.00 | 600.00% |
| 4 | 06/16/11 | 4 | $1,200.00 | $20,000.00 | $55,000.00 | 1000.00% |
| 5 | 10/10/11 | 5 | $1,500.00 | $25,000.00 | $80,000.00 | 1500.00% |
| 6 | 02/04/12 | 6 | $1,800.00 | $30,000.00 | $110,000.00 | 2100.00% |
| 7 | 05/31/12 | 7 | $2,100.00 | $35,000.00 | $145,000.00 | 2800.00% |
| 8 | 09/24/12 | 8 | $2,400.00 | $40,000.00 | $185,000.00 | 3600.00% |
Uncertain Trading Mind With Certain Trading Rules( UTMWCTR)
Today I get this lesson of trading: It came in flash to my mind... To be a successful trader I must have ""Uncertain Trading Mind With Certain Trading Rules( UTMWCTR)"".
In other words - don't have opinion, let market dictates, don't chase the market etc
Paradox is it ?
Quote from internet:
""Successful traders embrace uncertainty, they realize they don't need to know what will happen next. Basically they are rigid in their rules and flexible with their expectations.
One excellent article about this issue is written by Ziad , but of course you need a certain trading rules to begin. He wrote it to Michael Brenke. http://brenketrading.blogspot.com/
***********************
Hi Michael,
I've been reading your blog for quite a while now but haven't commented yet. However, I feel I need to comment now.
If you don't mind I'm going to be very straight forward, and blunt even, but I hope you'll take it from a spirit of sincerity and genuine desire to help. It's going to be a long comment, so I'm going to break it up into 2 or 3 comments.
Here's the situation as I see it: For the last few months, and possibly much longer, you've just been spinning your wheels while thinking that you are getting somewhere. The reason for this is that you are going about learning how to trade in the wrong way, in my opinion. I say this because I've been trading much less than you, a little over 2 years now, and yet because of the way I went about learning and what I focused on, last year I netted $150k while nearly quintupling my account, without a single losing month, and while only risking a very small portion of my account on any single trade. Now there could be many reasons for the difference in performance, but I think one of the main reasons has to do with what you are focusing on and how you are going about the learning process.
To try to put it as succinctly as possible, in my view traders that are focusing all their attention on "set-ups" and finding out which combinations of indicators work are never going to become profitable. They are trying to follow the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that 'work', and that can take the guess work out of trading. They want to be "disciplined" and have simple rules that guide all their actions. But there's a few problems with this. Namely, while psychology is HUGE, it's not everything. And while trading is all about simple principles, actually having an edge is NOT simple. It's a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That's a load of crap. It keeps the dream alive for wannabe traders who never realize what it's truly about. Well let me tell you what it's truly about...
Trading is about being okay with ambiguity. It's about tolerating confusion. It's about sitting with discomfort and being at peace with it. It's about not having an exact script of when to trade or not to trade, or what's really a high odds trade, and being okay with that. It's about exceptions to the rules. It's about contradiction. It's about uncertainty.
And yet traders left and right want to make it simple. They want to reduce it to a few simple set-ups to trade with discipline. And yet the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.
So what's the solution? Is the problem in the simple set-ups themselves? No, it's in how they're being used. The bottom line is, every trader needs to learn to READ the markets. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT. Once you can read the markets, and don't fool yourself it is a very complex process, then you can choose to employ "simple" set-ups to enter and exit. But the real work will be in interpreting the market to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you've identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.
Now I know you, and most traders do this to a certain extent, but your main focus is on the set-ups. It's not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it's waiting for some simple set-up to pop up and then taking it.
Now is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said 'easy' would make you money. If I've learned anything, it's that the market rewards what is hard to do. It's hard to have ambiguity surrounding your market reads. It's hard being uncertain. It's hard dealing with competing and sometimes conflicting signs. And yet, this is what it's all about. You have to stop trying to avoid this by needing things to be clear cut. And is it hard to be disciplined when there's so much uncertainty about what is the right trade to make? Of course. But instead of trying to avoid the uncertainty by looking for simple set-ups, or some straight-forward method, train your mind to be able to deal with the uncertainty.
As for the learning process of how you go about doing this, it's all about being constantly engaged with the markets, trying to figure things out and learn from experience. For me, for instance, what I did was each and every day take notes in a journal all about market action and what I think it means, and how I should trade, and what is working and what's not. I didn't write a journal describing the trades I took, or what my emotions were during the day. It was all about market action. And it was all my perception and interpretation. Day after day, week after week, making mistakes, wrong calls, being clueless as to what was going on, not knowing how I should trade, not knowing if my views made sense or not, and yet I continued taking notes and learning. Then I would view charts and combinations of historical intraday charts, and I'd note certain behavior. For example, I'd study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I'd study range days. Then I'd study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I'd do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.
As for set-ups, I didn't use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, is quite complicated and not straight forward. I started realizing that in some environments it's best to wait for pullbacks, in others I need to get in at market or I'll be left in the dust. In some markets I can buy low and sell high, in other markets the opposite is in order. And so on.
I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had all the technical background. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was mostly in opposition to what the general wisdom says about simple set-ups and exact rules.
Now of course you might say that everyone has their own style, some discretionary and some not. Absolutely. But even the purely mechanical traders are very adept at reading markets, and are aware of all of the complexity and ambiguity inherent in it. Their system might end up being simple, but it will come about through a very deep and complex understanding of markets. And usually this system will take the market environment (i.e. context) into account. It wont just be simple mindless set-ups.
In the end, all of what I am saying is meaningless unless you come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you'll be a consistently profitable trader? Why would the world's top institutions spend millions and billions on R&D when a few simple set-ups could make them all of the money. This doesn't mean that to make money you need extremely complex mathematical models. Far from it. What it does mean is that you need extremely complex mental maps that take time and experience to develop, and that will never develop if you spend the whole trading day simply waiting for set-ups to materialize. That just won't cut it.
Right now your learning curve is stagnant because you're not truly studying the markets. Your day is wasted in waiting mode. It's not in observing and absorbing mode. Also, because you fear loss, you aren't willing to experiment. This means that you aren't making mistakes and failing regularly, which is what you need to do to learn quickly.
So to conclude, based on all of the above, my advice to you would be to stop trading and make a mental shift. Realize what you need to do to become successful, and it's definitely not staying on this endlessly unfruitful path being supported by the hope of future profits. You're just running in your place unless you change your focus and your learning method. And if you thought the journey was tough so far, you haven't seen anything yet. Get ready for uncertainty and ambiguity like you've never seen it before. But this shouldn't be scary. It should be exciting, because this is what trading is all about. This is why it's called an ART. And it truly becomes one when you change your focus and your learning process. Then everything, including success, becomes possible. And until then, it'll be a distant dream that keeps appearing to be so close and yet stays so far away.
So you need to re-align with a new thought system and then get on the simulator and trade. Take losses. Make mistakes. Be clueless. Don't be afraid of it. It's okay, that's the only way you'll progress. And trust me, progress you will.
Best of luck to you, and I wish you much success.
Ziad
In other words - don't have opinion, let market dictates, don't chase the market etc
Paradox is it ?
Quote from internet:
""Successful traders embrace uncertainty, they realize they don't need to know what will happen next. Basically they are rigid in their rules and flexible with their expectations.
One excellent article about this issue is written by Ziad , but of course you need a certain trading rules to begin. He wrote it to Michael Brenke. http://brenketrading.blogspot.com/
***********************
Hi Michael,
I've been reading your blog for quite a while now but haven't commented yet. However, I feel I need to comment now.
If you don't mind I'm going to be very straight forward, and blunt even, but I hope you'll take it from a spirit of sincerity and genuine desire to help. It's going to be a long comment, so I'm going to break it up into 2 or 3 comments.
Here's the situation as I see it: For the last few months, and possibly much longer, you've just been spinning your wheels while thinking that you are getting somewhere. The reason for this is that you are going about learning how to trade in the wrong way, in my opinion. I say this because I've been trading much less than you, a little over 2 years now, and yet because of the way I went about learning and what I focused on, last year I netted $150k while nearly quintupling my account, without a single losing month, and while only risking a very small portion of my account on any single trade. Now there could be many reasons for the difference in performance, but I think one of the main reasons has to do with what you are focusing on and how you are going about the learning process.
To try to put it as succinctly as possible, in my view traders that are focusing all their attention on "set-ups" and finding out which combinations of indicators work are never going to become profitable. They are trying to follow the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that 'work', and that can take the guess work out of trading. They want to be "disciplined" and have simple rules that guide all their actions. But there's a few problems with this. Namely, while psychology is HUGE, it's not everything. And while trading is all about simple principles, actually having an edge is NOT simple. It's a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That's a load of crap. It keeps the dream alive for wannabe traders who never realize what it's truly about. Well let me tell you what it's truly about...
Trading is about being okay with ambiguity. It's about tolerating confusion. It's about sitting with discomfort and being at peace with it. It's about not having an exact script of when to trade or not to trade, or what's really a high odds trade, and being okay with that. It's about exceptions to the rules. It's about contradiction. It's about uncertainty.
And yet traders left and right want to make it simple. They want to reduce it to a few simple set-ups to trade with discipline. And yet the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.
So what's the solution? Is the problem in the simple set-ups themselves? No, it's in how they're being used. The bottom line is, every trader needs to learn to READ the markets. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT. Once you can read the markets, and don't fool yourself it is a very complex process, then you can choose to employ "simple" set-ups to enter and exit. But the real work will be in interpreting the market to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you've identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.
Now I know you, and most traders do this to a certain extent, but your main focus is on the set-ups. It's not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it's waiting for some simple set-up to pop up and then taking it.
Now is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said 'easy' would make you money. If I've learned anything, it's that the market rewards what is hard to do. It's hard to have ambiguity surrounding your market reads. It's hard being uncertain. It's hard dealing with competing and sometimes conflicting signs. And yet, this is what it's all about. You have to stop trying to avoid this by needing things to be clear cut. And is it hard to be disciplined when there's so much uncertainty about what is the right trade to make? Of course. But instead of trying to avoid the uncertainty by looking for simple set-ups, or some straight-forward method, train your mind to be able to deal with the uncertainty.
As for the learning process of how you go about doing this, it's all about being constantly engaged with the markets, trying to figure things out and learn from experience. For me, for instance, what I did was each and every day take notes in a journal all about market action and what I think it means, and how I should trade, and what is working and what's not. I didn't write a journal describing the trades I took, or what my emotions were during the day. It was all about market action. And it was all my perception and interpretation. Day after day, week after week, making mistakes, wrong calls, being clueless as to what was going on, not knowing how I should trade, not knowing if my views made sense or not, and yet I continued taking notes and learning. Then I would view charts and combinations of historical intraday charts, and I'd note certain behavior. For example, I'd study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I'd study range days. Then I'd study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I'd do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.
As for set-ups, I didn't use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, is quite complicated and not straight forward. I started realizing that in some environments it's best to wait for pullbacks, in others I need to get in at market or I'll be left in the dust. In some markets I can buy low and sell high, in other markets the opposite is in order. And so on.
I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had all the technical background. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was mostly in opposition to what the general wisdom says about simple set-ups and exact rules.
Now of course you might say that everyone has their own style, some discretionary and some not. Absolutely. But even the purely mechanical traders are very adept at reading markets, and are aware of all of the complexity and ambiguity inherent in it. Their system might end up being simple, but it will come about through a very deep and complex understanding of markets. And usually this system will take the market environment (i.e. context) into account. It wont just be simple mindless set-ups.
In the end, all of what I am saying is meaningless unless you come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you'll be a consistently profitable trader? Why would the world's top institutions spend millions and billions on R&D when a few simple set-ups could make them all of the money. This doesn't mean that to make money you need extremely complex mathematical models. Far from it. What it does mean is that you need extremely complex mental maps that take time and experience to develop, and that will never develop if you spend the whole trading day simply waiting for set-ups to materialize. That just won't cut it.
Right now your learning curve is stagnant because you're not truly studying the markets. Your day is wasted in waiting mode. It's not in observing and absorbing mode. Also, because you fear loss, you aren't willing to experiment. This means that you aren't making mistakes and failing regularly, which is what you need to do to learn quickly.
So to conclude, based on all of the above, my advice to you would be to stop trading and make a mental shift. Realize what you need to do to become successful, and it's definitely not staying on this endlessly unfruitful path being supported by the hope of future profits. You're just running in your place unless you change your focus and your learning method. And if you thought the journey was tough so far, you haven't seen anything yet. Get ready for uncertainty and ambiguity like you've never seen it before. But this shouldn't be scary. It should be exciting, because this is what trading is all about. This is why it's called an ART. And it truly becomes one when you change your focus and your learning process. Then everything, including success, becomes possible. And until then, it'll be a distant dream that keeps appearing to be so close and yet stays so far away.
So you need to re-align with a new thought system and then get on the simulator and trade. Take losses. Make mistakes. Be clueless. Don't be afraid of it. It's okay, that's the only way you'll progress. And trust me, progress you will.
Best of luck to you, and I wish you much success.
Ziad
Tuesday, 22 June 2010
the 3 M: Market structure, Me and Money
| http://www.forexfactory.com/showthread.php?t=57639 member |
Technical Analysis Fallacy Apologies
-no mentor, or course, or literiture can give anyone the holy grail to the secrets of success in trading in the markets.
-"and no one, sells the goose that lays golden eggs, probably the eggs, but never the goose"
Nevertheless, I will humbly attempt.
Since the late 70s and into the millinium.
Many "engineers" have made public, their inventions of reading probabilities into Technical Indicators. Many Technical Analysis Gurus came to the forefront to sell their research findings. To name a few,
The Grand daddy being Charles Dow and his Dow theory which later lead to the creation of the Dow Jones Indexes.
Rene Descarte who introduced the Spiral studies.
Leonardo Da vincci who fostered the fabonacci principles,
W.D. Gann, who introduced Cyclic Studies of Squaring time and price.
R.N.Elliot, who introduced the Elliot Wave Studies
W.Wilders.Who introduced the mathematics of calculating overbought and oversold markets by his introduction of the DI+,DI-, ADX lines and the Relative Strength Index.
The Stocastics, MACDs, ……………………………...etc
If one was to impliment all these studies onto their charts. What you will see is a beautiful piece of art, displaying very impressive hog wash, that do nothing but dazzle the uninitiated. If anything else it 'll confuse you even more.
Then you have the charting specialist who have introduced many ways to chart eg,
Linear Charts, HiLoClose Bar Charts, Japanese candlestick charts, Point & Figuring, John Hill's Bar Chart congestion & reversal patterns, reverse point waves, pivots, fractuals, ………..etc
Today, we find lots of originally and mutated techniques and methodologies available to the Chartist or Technicians.
What many fail to realise, is that all these studies, basically are statistical tables plotted in graphic form to present a "picture" to assist traders in their decision process. The maxim being, that a picture tells a thousand words.
"It is not theirs (the charts) to reason why,
But to signal Sell or Buy,
For the traders to do or die,
Hoping that the signal does not lie,
I would, from my many years of studies, go so far as to say, that they all work, some more than others but they all do serve a purpose. (to give traders, the "guts" to do or die)
If I may borrow from the quotes of Sir Winston Chirchill.
"That you can lie to some people all the time, all people some of the time, but not to all people, all the time."
Similarly, theses studies can work in some market conditions all the time, all market conditions some of the time, but not all market conditions all of the time."
Think about what I've just quoted very carefully.
The problem with some people and some professional Technical Analyst today ( being a certified Technical Analyst myself ) is that they use the Technical studies as if, it were the "Holy Grail" of trading & their pathway to the millions.
How far that is from the truth.
Any person with a good brain on their shoulders, will ultimate come to the realisation that these are just tools. Tools that are built on historical and lagging databases. Moreover the rigidity of the parameters used in the studies imposes rigid responses to changing market conditions. Have we forgotten that the market is a live beast that learns and adapts to trader behaviours? Many have forgotten that the market is the sum total of the behaviour of the participants engaged in the market place. These tools are used for measuring the markets health, not so unlike the thermometer to a doctor, or the measuring tape to a carpenter, just a tool.
Then how is it possible that these studies themselves can be considered the "Holy Grail"?
It may be due to ignorance (being new and uniniatiated), lazyness, or just plain stubborness ( a little knowledge is a dangerous thing). Of course it is not nice for me, to tell you about those who have "a little knowledge", trying to scam those who know less than them. That's another story.
Some do so, because of a very new disease discovered recently, the sickness of "the chance".
If you use the Technical studies as your "Holy Grail", I have only one word for you, GAMBLER.
I put it to you, that, to consider your Technical Studies to be more than what they are is a "fallacy" in trading the markets, not so unlike martingale gamblers' fallacy. It can lead you to a very dark place.
What many traders do not know, or may fail to recognise, is that your success in taming the markets, is comprised of a mix of ingredients. Not so unlike in baking cakes.
I suggest three very important ingredients. One is " Market Structure ", the other is "YOU", then Capitalisation. Of course there are many more components, for the moment these seems of dominant importance, in my humble opinion.
I hope you will think about what I've said very carefully.
I shall try to push these doors ajar for you slowly to show you the light at the end of the tunnel (please hope its no on-coming train), God willing.
regards
-no mentor, or course, or literiture can give anyone the holy grail to the secrets of success in trading in the markets.
-"and no one, sells the goose that lays golden eggs, probably the eggs, but never the goose"
Nevertheless, I will humbly attempt.
Since the late 70s and into the millinium.
Many "engineers" have made public, their inventions of reading probabilities into Technical Indicators. Many Technical Analysis Gurus came to the forefront to sell their research findings. To name a few,
The Grand daddy being Charles Dow and his Dow theory which later lead to the creation of the Dow Jones Indexes.
Rene Descarte who introduced the Spiral studies.
Leonardo Da vincci who fostered the fabonacci principles,
W.D. Gann, who introduced Cyclic Studies of Squaring time and price.
R.N.Elliot, who introduced the Elliot Wave Studies
W.Wilders.Who introduced the mathematics of calculating overbought and oversold markets by his introduction of the DI+,DI-, ADX lines and the Relative Strength Index.
The Stocastics, MACDs, ……………………………...etc
If one was to impliment all these studies onto their charts. What you will see is a beautiful piece of art, displaying very impressive hog wash, that do nothing but dazzle the uninitiated. If anything else it 'll confuse you even more.
Then you have the charting specialist who have introduced many ways to chart eg,
Linear Charts, HiLoClose Bar Charts, Japanese candlestick charts, Point & Figuring, John Hill's Bar Chart congestion & reversal patterns, reverse point waves, pivots, fractuals, ………..etc
Today, we find lots of originally and mutated techniques and methodologies available to the Chartist or Technicians.
What many fail to realise, is that all these studies, basically are statistical tables plotted in graphic form to present a "picture" to assist traders in their decision process. The maxim being, that a picture tells a thousand words.
"It is not theirs (the charts) to reason why,
But to signal Sell or Buy,
For the traders to do or die,
Hoping that the signal does not lie,
I would, from my many years of studies, go so far as to say, that they all work, some more than others but they all do serve a purpose. (to give traders, the "guts" to do or die)
If I may borrow from the quotes of Sir Winston Chirchill.
"That you can lie to some people all the time, all people some of the time, but not to all people, all the time."
Similarly, theses studies can work in some market conditions all the time, all market conditions some of the time, but not all market conditions all of the time."
Think about what I've just quoted very carefully.
The problem with some people and some professional Technical Analyst today ( being a certified Technical Analyst myself ) is that they use the Technical studies as if, it were the "Holy Grail" of trading & their pathway to the millions.
How far that is from the truth.
Any person with a good brain on their shoulders, will ultimate come to the realisation that these are just tools. Tools that are built on historical and lagging databases. Moreover the rigidity of the parameters used in the studies imposes rigid responses to changing market conditions. Have we forgotten that the market is a live beast that learns and adapts to trader behaviours? Many have forgotten that the market is the sum total of the behaviour of the participants engaged in the market place. These tools are used for measuring the markets health, not so unlike the thermometer to a doctor, or the measuring tape to a carpenter, just a tool.
Then how is it possible that these studies themselves can be considered the "Holy Grail"?
It may be due to ignorance (being new and uniniatiated), lazyness, or just plain stubborness ( a little knowledge is a dangerous thing). Of course it is not nice for me, to tell you about those who have "a little knowledge", trying to scam those who know less than them. That's another story.
Some do so, because of a very new disease discovered recently, the sickness of "the chance".
If you use the Technical studies as your "Holy Grail", I have only one word for you, GAMBLER.
I put it to you, that, to consider your Technical Studies to be more than what they are is a "fallacy" in trading the markets, not so unlike martingale gamblers' fallacy. It can lead you to a very dark place.
What many traders do not know, or may fail to recognise, is that your success in taming the markets, is comprised of a mix of ingredients. Not so unlike in baking cakes.
I suggest three very important ingredients. One is " Market Structure ", the other is "YOU", then Capitalisation. Of course there are many more components, for the moment these seems of dominant importance, in my humble opinion.
I hope you will think about what I've said very carefully.
I shall try to push these doors ajar for you slowly to show you the light at the end of the tunnel (please hope its no on-coming train), God willing.
regards
Last edited by fti, Jun 20, 2010 4:43pm (31 hr ago
Sunday, 13 June 2010
STRATEGY is what will dictate what your account size
Taken from BM forum for my reference:
http://www.bigmiketrading.com/psychology-money-management/3649-primary-source-income-how-many-have-made-5.html
Account Size "The Magic Number"
http://www.bigmiketrading.com/psychology-money-management/3649-primary-source-income-how-many-have-made-5.html
Account Size "The Magic Number"
I do and DONT understand the fixation on account size. At the end it all boils down to "profitability/drawdown/trade opportunity/risk/money management".
For example:
Starting Account Size $5,000
Average trades per day = 10 to keep it simple
70% wins 30% losses
Average Loser 8 ticks
Average Winner 6 ticks.
Statistically on average the results would be as follows
1. Win 5
2. Win 6
3. Lose 8
4. Win 4
5. Lose 8
6. Win 6
7. Win 5
8. Lose 8
9. Win 6
10. Win 4
Thats a net win on average of 12 ticks per 10 trades.
Lets say half a tick ($5) of commission per trade and you have:
GROSS PROFIT: 12 Ticks
COMMISSIONS: 1/2tick x 10 trades = 5 ticks
NET PROFIT: 7 ticks
$70 net profit on an account of $5000 is 1.4% per day !
MORAL OF THE STORY:
Account size protects against the risk of ruin, and effects the number of contracts traded but has NOTHING to do with the Expectancy/Profitability of the strategy.
Your STRATEGY is what will dictate what your account size can be.
Obviously the sample size of 10 is very very small and does not represent the real life scenario of say 8 losers in a row.
So a drawdown of (8 x $80) = $640 is likely. But even in that case the drawdown on a $5,000 account is only 12.8% ( $640/$5000)
If you are netting on average 0.7 ticks per trade it would take you about 92 trades ($640 drawdown/ $7 per trade average win) to get back to even.
If the system generates 10 trades a day its about 2 weeks (10 trading days) to get back to even.
ACCOUNT SIZE MATTERS, don't get me wrong.
But telling people they need a $50,000 account is as crazy as telling someone they need one of those fire fighting helicopters with the giant bucket of water to fill a swimming pool.
A garden hose will do just fine. It just takes a bit longer
My 2 cents!
Jungian
For example:
Starting Account Size $5,000
Average trades per day = 10 to keep it simple
70% wins 30% losses
Average Loser 8 ticks
Average Winner 6 ticks.
Statistically on average the results would be as follows
1. Win 5
2. Win 6
3. Lose 8
4. Win 4
5. Lose 8
6. Win 6
7. Win 5
8. Lose 8
9. Win 6
10. Win 4
Thats a net win on average of 12 ticks per 10 trades.
Lets say half a tick ($5) of commission per trade and you have:
GROSS PROFIT: 12 Ticks
COMMISSIONS: 1/2tick x 10 trades = 5 ticks
NET PROFIT: 7 ticks
$70 net profit on an account of $5000 is 1.4% per day !
MORAL OF THE STORY:
Account size protects against the risk of ruin, and effects the number of contracts traded but has NOTHING to do with the Expectancy/Profitability of the strategy.
Your STRATEGY is what will dictate what your account size can be.
Obviously the sample size of 10 is very very small and does not represent the real life scenario of say 8 losers in a row.
So a drawdown of (8 x $80) = $640 is likely. But even in that case the drawdown on a $5,000 account is only 12.8% ( $640/$5000)
If you are netting on average 0.7 ticks per trade it would take you about 92 trades ($640 drawdown/ $7 per trade average win) to get back to even.
If the system generates 10 trades a day its about 2 weeks (10 trading days) to get back to even.
ACCOUNT SIZE MATTERS, don't get me wrong.
But telling people they need a $50,000 account is as crazy as telling someone they need one of those fire fighting helicopters with the giant bucket of water to fill a swimming pool.
A garden hose will do just fine. It just takes a bit longer
My 2 cents!
Jungian
Tuesday, 25 May 2010
Does the Holy Grail to Trading Exist?
I got this from my mailbox...
I throw away WMA > the last of the 'Mohicans'
Now only candle, lines,and volume
We will see if that a good decision...
I throw away WMA > the last of the 'Mohicans'
Now only candle, lines,and volume
We will see if that a good decision...
***********************
Does the Holy Grail to Trading Exist?
The short answer to this question obviously is NO.
The medium term answer is MAYBE.
The long term answer is YES it does!
This goes back to the biblical example of the soils ... in this parable only one type of soil produced the proper the bountiful abundance.
All other soil failed.
In our example of the Holy Grail, if you place a short term view to your trading, then you will burn out on the first obstacle that is thrown into your path.
If you place a medium term view to trading, then you have a better chance of success, but still will fail more than win.
So this leaves us with the Long Term view to trading, and the one that produces the abundance so many traders are searching for ...
We talk about Discipline, Patience, and Self Control as key attributes to a successful trading future, but it definitely takes more than that.
When things are not going your way, taking a break could be an answer to the traders dilemna.
Another is to go back to the simulator and work on your entries and exits without the pressure of a real money account.
With all this being said, the long term answer to becoming a successful trader is to throw out all the bad stuff, and replace it with good.
Your good soil will produce the abundance that so many search for, but never seem to obtain.
You will have setbacks, drawbacks, and drawdowns on your account.
You will question your strategy when things are not going the way you thought they would.
You will wonder what am I doing wrong ... over and over you will place doubt in your trading ability, if you let this trait takeover.
I believe by having a positive attitude through all things you can work your way through most problems.
No this doesn't mean to blow out your account no matter how small it is ... you need to take time to rest.
Never feel pressured to trade for a living. If you feel pressure, then this will set off all kinds of bad things or the soil that you are not grounded on properly.
To obtain the bountiful harvest that you are looking for then study, test, and test some more.
Do not allow outside influences to lead you astray. Stick to your trading method that you have statisically proved to yourself that it will work.
If you stop the insanity of taking on bad trades, and trading just to take on a trade, then I believe with all my heart, you can become a disciplined, patient, self-controlled trader that will WIN more than lose.
Is trading easy? No, if it was then everyone would do it. This is the toughest job/career that you will ever pursue as a trader. You are trading against the best minds in the world.
If you can in the end find an edge that statisically wins more than loses, then you will become the casino, and start taking other people's money instead of them taking your money.
- Tiger Knight
Monday, 26 April 2010
Trading is a Path to Freedom
FROM DR BRETT"S ENHANCING TRADER PERFORMANCE
http://traderfeed.blogspot.com/2010/01/what-it-means-to-be-free.html
"Let us not forget what it means to be a trader. It means that I am free to own property: shares of a private company or contracts in a commodity. I can take delivery of my property and dispose of it as I wish, or I can trade it to others. My decisions are mine to make; I need not follow the dictates of those who would put other interests--those of gods, governments, or guns--above my own. If I lose, it is my loss. If I profit, the gain is mine.
Freedom means that I have a voice. If I like an investment, I can tout it in online bulletin boards and blogs. If I don't like the way the government is managing the economy, I can vote my conscience, not only at the ballot box, but in the marketplace by investing or withdrawing my funds.
But freedom is even more than that. Freedom is the ability to make one's living by one's judgment, and not being limited to subsistence through the toil of his or her hands. Freedom is the ability of a single individual sitting right here, right now, at a personal computer, to write words that can be read years later, in faraway lands. Freedom is downloading reams of market data and conducting research that, just years ago, would have taken weeks to complete. Freedom is the ability to see who is bidding, offering, buying, and selling in global marketplaces. It is the unfettered opportunity to participate in the economic vigor of developing nations.
Without freedom, there is no trading. Trading is a celebration of economic and political freedom. Slaves are traded; they do not trade.
All this freedom, however, is for naught if we, ourselves, are not free. It is the deepest of ironies that we experience greater freedom--far broader potentials--than those who came before us. And yet, in our lives, in our abilities to master ourselves, we are no freer. Amid opportunity, we remain partial; tethered to our conditioning.
What it means to be free is to be able to choose, to live with intention. The free life is one that we guide: a life lived with purpose, direction, and meaning.
Trading, like all great performance activities, is an opportunity to cultivate the intentional life. Pursued properly, it is a path to freedom."
p. 253-254
http://traderfeed.blogspot.com/2010/01/what-it-means-to-be-free.html
"Let us not forget what it means to be a trader. It means that I am free to own property: shares of a private company or contracts in a commodity. I can take delivery of my property and dispose of it as I wish, or I can trade it to others. My decisions are mine to make; I need not follow the dictates of those who would put other interests--those of gods, governments, or guns--above my own. If I lose, it is my loss. If I profit, the gain is mine.
Freedom means that I have a voice. If I like an investment, I can tout it in online bulletin boards and blogs. If I don't like the way the government is managing the economy, I can vote my conscience, not only at the ballot box, but in the marketplace by investing or withdrawing my funds.
But freedom is even more than that. Freedom is the ability to make one's living by one's judgment, and not being limited to subsistence through the toil of his or her hands. Freedom is the ability of a single individual sitting right here, right now, at a personal computer, to write words that can be read years later, in faraway lands. Freedom is downloading reams of market data and conducting research that, just years ago, would have taken weeks to complete. Freedom is the ability to see who is bidding, offering, buying, and selling in global marketplaces. It is the unfettered opportunity to participate in the economic vigor of developing nations.
Without freedom, there is no trading. Trading is a celebration of economic and political freedom. Slaves are traded; they do not trade.
All this freedom, however, is for naught if we, ourselves, are not free. It is the deepest of ironies that we experience greater freedom--far broader potentials--than those who came before us. And yet, in our lives, in our abilities to master ourselves, we are no freer. Amid opportunity, we remain partial; tethered to our conditioning.
What it means to be free is to be able to choose, to live with intention. The free life is one that we guide: a life lived with purpose, direction, and meaning.
Trading, like all great performance activities, is an opportunity to cultivate the intentional life. Pursued properly, it is a path to freedom."
p. 253-254
Saturday, 20 February 2010
Focus on being profitable for the week
My mental set-up : checked
My trading set-up: checked
My trading goal: checked
It seems more practical if I'm focus on being profitable for the week
Accordingly, the weekly PnL in this blog will be up updated weekly. The official monthly PnL is as usual.
*************
Another Dr Brett's note:
http://traderfeed.blogspot.com/2006/12/three-pieces-of-trading-wisdom.html
Focus on being profitable for the week - Individual trades may go against you and individual trading days can offer little opportunity. As a senior trader once explained to me, for the active trader, however, there are enough fresh opportunities in a week to make it reasonable to set a goal of being profitable for the week. You won't reach your goal every single week, but the mere act of setting the goal keeps you focused. For example, you don't want to lose so much money in a single day that you can't make it back during the other days of the week. You also don't want to lose so much money on a single trade that you can't come back during the remainder of the day. When you really push yourself to be profitable every week, you don't let individual days get away from you. And when you don't let individual days get away from you, you start managing each trade carefully to ensure that your largest loss won't exceed your largest gain. Time and again I've seen a consistent sign of progress among developing traders: they stop digging themselves into holes.
My trading set-up: checked
My trading goal: checked
It seems more practical if I'm focus on being profitable for the week
Accordingly, the weekly PnL in this blog will be up updated weekly. The official monthly PnL is as usual.
*************
Another Dr Brett's note:
http://traderfeed.blogspot.com/2006/12/three-pieces-of-trading-wisdom.html
Focus on being profitable for the week - Individual trades may go against you and individual trading days can offer little opportunity. As a senior trader once explained to me, for the active trader, however, there are enough fresh opportunities in a week to make it reasonable to set a goal of being profitable for the week. You won't reach your goal every single week, but the mere act of setting the goal keeps you focused. For example, you don't want to lose so much money in a single day that you can't make it back during the other days of the week. You also don't want to lose so much money on a single trade that you can't come back during the remainder of the day. When you really push yourself to be profitable every week, you don't let individual days get away from you. And when you don't let individual days get away from you, you start managing each trade carefully to ensure that your largest loss won't exceed your largest gain. Time and again I've seen a consistent sign of progress among developing traders: they stop digging themselves into holes.
Wednesday, 17 February 2010
2 Rules from Phantom of the Pits
Among the simple set of rules, but a powerful one. I have used these mental rules during FKLI days...I forgot this rules until CL reminding me to bring back this 2 rules from my trading library...
************
1. In a losing game such as trading, we shall start against the majority and assume we are wrong until
proven correct! (We do not assume we are correct until proven wrong.) Positions established must be reduced
and removed until or unless the market proves the position correct! (We allow the market to verify correct
positions, we don't allow market to verify wrong positions.)
2. Press your winners correctly without exception. Being right (Rule 1) does not, in
itself, make the most amount of profit.
In trading most of you have a greater chance of being wrong than right! Trade
accordingly . . . which means expect the limit (being wrong more likely) in your trading.
How can you come out ahead? In the short run, you can only with luck. But in the long run, luck tends to even back the other way. You must trade in the long run!
So what is a trader to do in a losing game? You must trade in the long run! How can you trade in the long run? Only way I know is that you must keep your losses small and take more small losses than small winners to come out ahead. This often means washing a position for the sake of being able to keep in the game.
The theorem now is to assume your position is wrong until the market proves what you positioned is correct. Keep your losses quick and small. Don't ever let the market tell you you're wrong. Always let the market tell you when your position is correct. It is your job to know you are wrong and not the market's job.
The other side of the coin is that you will get positions that are correct. You must be bigger at that time. This will require a Rule Number 2, which is designed around adding to winners in an unfavorable game to come out ahead in the long run. When you are correct, you must continue to use Rule 1 to keep losses small. It's okay to be wrong small but never okay to be wrong big if you expect to trade in the long run.
Trading is not easy. Most traders just let the market do its thing. The correct way is that you do your thing and control your positioning. You control your positions by using rules that keep you in the game.
Rule 1 is the most important rule in any trade plan. Rule 2 will be the other side of the coin, which must be dealt with if you are expecting to remain in the game in the long run.
(POP)
************
1. In a losing game such as trading, we shall start against the majority and assume we are wrong until
proven correct! (We do not assume we are correct until proven wrong.) Positions established must be reduced
and removed until or unless the market proves the position correct! (We allow the market to verify correct
positions, we don't allow market to verify wrong positions.)
2. Press your winners correctly without exception. Being right (Rule 1) does not, in
itself, make the most amount of profit.
In trading most of you have a greater chance of being wrong than right! Trade
accordingly . . . which means expect the limit (being wrong more likely) in your trading.
How can you come out ahead? In the short run, you can only with luck. But in the long run, luck tends to even back the other way. You must trade in the long run!
So what is a trader to do in a losing game? You must trade in the long run! How can you trade in the long run? Only way I know is that you must keep your losses small and take more small losses than small winners to come out ahead. This often means washing a position for the sake of being able to keep in the game.
The theorem now is to assume your position is wrong until the market proves what you positioned is correct. Keep your losses quick and small. Don't ever let the market tell you you're wrong. Always let the market tell you when your position is correct. It is your job to know you are wrong and not the market's job.
The other side of the coin is that you will get positions that are correct. You must be bigger at that time. This will require a Rule Number 2, which is designed around adding to winners in an unfavorable game to come out ahead in the long run. When you are correct, you must continue to use Rule 1 to keep losses small. It's okay to be wrong small but never okay to be wrong big if you expect to trade in the long run.
Trading is not easy. Most traders just let the market do its thing. The correct way is that you do your thing and control your positioning. You control your positions by using rules that keep you in the game.
Rule 1 is the most important rule in any trade plan. Rule 2 will be the other side of the coin, which must be dealt with if you are expecting to remain in the game in the long run.
(POP)
Wednesday, 27 January 2010
Lessons of Losses
http://traderfeed.blogspot.com/2006/08/why-its-so-easy-to-lose-money-in.html
1) Trading affects psychology as much as psychology affects trading – This was really the motivating factor behind my writing the new book. Many traders experience stress and frustration because they are trading poorly and lack a true edge in the marketplace. Working on your emotions will be of limited help if you are putting your money at risk and don’t truly have an edge.
2) Emotional disruption is present even among the most successful traders – A trading method that produces 60% winners will experience four consecutive losses 2-3% of the time and as much time in flat performance as in an uptrending P/L curve. Strings of events (including losers) occur more often by chance than traders are prepared for.
3) Winning disrupts the trader’s emotions as much as losing – We are disrupted when we experience events outside our expectation. The method that is 60% accurate will experience four consecutive winners about 13% of the time. Traders are just as susceptible to overconfidence during profitable runs as underconfidence during strings of losers.
4) Size kills – The surest path toward emotional damage is to trade size that is too large for one’s portfolio. We experience P/L in relation to our portfolio value. When we trade too large, we create exaggerated swings of winning and losing, which in turn create exaggerated emotional swings.
5) Training is the path to expertise – Think of every performance field out there—sports, music, chess, acting—and you will find that practice builds skills. Trading, in some ways, is harder than other performance fields because there are no college teams or minor leagues for development. From day one, we’re up against the pros. Without training and practice, we will lack the skills to survive such competition.
6) Successful traders possess rich mental maps - All successful trading boils down to pattern recognition and the development of mental maps that help us translate our perceptions of patterns into concrete trading behaviors. Without such mental maps, traders become lost in complexity.
7) Markets change – Patterns of volatility and trending are always shifting, and they change across multiple time frames. Because of this, no single trading method will be successful across the board for a given market. The successful trader not only masters markets, but masters the changes in those markets.
8) Even the best traders have periods of drawdown – As markets change, the best traders go through a process of relearning. The ones who succeed are the ones who save their money during the good times so that they can financially survive the lean periods.
9) The market you’re in counts as much toward performance as your trading method – Some markets are more volatile and trendy than others; some have more distinct patterns than others. Finding the right fit between trader, trading method, and market is key.
10) Execution and trade management count – A surprising degree of long-term trading success comes from getting good prices on entry and exit. The single best predictor of trading failure is when the average P/L of losing trades exceeds the average P/L of winners.
Well, let's look at a few reasons:
1) The stocks and indices most familiar to traders have provided the worst returns.
2) The time frame most comfortable for short-term traders (daytrading) has provided the worst returns.
3) The growth of stock index and ETFs has created automated arbitrage strategies that have greatly diminished market trending.
4) Markets tend to confound human nature by refusing to do in the next time period what they have done in the previous one.
5) Because of the above, following normal human sentiment makes people lose money in the markets, almost as if the game is rigged.
6) Because markets change their trending and volatility over time, we'll always tend to be most confident just as things are turning--and overconfidence is deadly.
7) There's no minor league for trading: once you place your order, you're up against the pros, who have a lot of tools at their disposal.
I've learned many things from traders, but this perhaps is most important: The most successful traders and trading organizations I've had the pleasure of getting to know are constantly adapting to changing market conditions. They don't rely on a single trading model; they are always modeling. They do not scalp the midday hours the same as they approach the early morning. They know the difference between a market with active institutional participation and one dominated by locals--and trade accordingly.
People are comfortable with the known, and that keeps them static. It is so easy to lose money in the markets, because markets are dynamic.
(Dr Brett)
1) Trading affects psychology as much as psychology affects trading – This was really the motivating factor behind my writing the new book. Many traders experience stress and frustration because they are trading poorly and lack a true edge in the marketplace. Working on your emotions will be of limited help if you are putting your money at risk and don’t truly have an edge.
2) Emotional disruption is present even among the most successful traders – A trading method that produces 60% winners will experience four consecutive losses 2-3% of the time and as much time in flat performance as in an uptrending P/L curve. Strings of events (including losers) occur more often by chance than traders are prepared for.
3) Winning disrupts the trader’s emotions as much as losing – We are disrupted when we experience events outside our expectation. The method that is 60% accurate will experience four consecutive winners about 13% of the time. Traders are just as susceptible to overconfidence during profitable runs as underconfidence during strings of losers.
4) Size kills – The surest path toward emotional damage is to trade size that is too large for one’s portfolio. We experience P/L in relation to our portfolio value. When we trade too large, we create exaggerated swings of winning and losing, which in turn create exaggerated emotional swings.
5) Training is the path to expertise – Think of every performance field out there—sports, music, chess, acting—and you will find that practice builds skills. Trading, in some ways, is harder than other performance fields because there are no college teams or minor leagues for development. From day one, we’re up against the pros. Without training and practice, we will lack the skills to survive such competition.
6) Successful traders possess rich mental maps - All successful trading boils down to pattern recognition and the development of mental maps that help us translate our perceptions of patterns into concrete trading behaviors. Without such mental maps, traders become lost in complexity.
7) Markets change – Patterns of volatility and trending are always shifting, and they change across multiple time frames. Because of this, no single trading method will be successful across the board for a given market. The successful trader not only masters markets, but masters the changes in those markets.
8) Even the best traders have periods of drawdown – As markets change, the best traders go through a process of relearning. The ones who succeed are the ones who save their money during the good times so that they can financially survive the lean periods.
9) The market you’re in counts as much toward performance as your trading method – Some markets are more volatile and trendy than others; some have more distinct patterns than others. Finding the right fit between trader, trading method, and market is key.
10) Execution and trade management count – A surprising degree of long-term trading success comes from getting good prices on entry and exit. The single best predictor of trading failure is when the average P/L of losing trades exceeds the average P/L of winners.
Thursday, August 17, 2006
Why It's So Easy to Lose Money in the Markets
A reader recently emailed me a deceptively simple question: "Why is it so much easier to lose money in the markets than to make money?"Well, let's look at a few reasons:
1) The stocks and indices most familiar to traders have provided the worst returns.
2) The time frame most comfortable for short-term traders (daytrading) has provided the worst returns.
3) The growth of stock index and ETFs has created automated arbitrage strategies that have greatly diminished market trending.
4) Markets tend to confound human nature by refusing to do in the next time period what they have done in the previous one.
5) Because of the above, following normal human sentiment makes people lose money in the markets, almost as if the game is rigged.
6) Because markets change their trending and volatility over time, we'll always tend to be most confident just as things are turning--and overconfidence is deadly.
7) There's no minor league for trading: once you place your order, you're up against the pros, who have a lot of tools at their disposal.
I've learned many things from traders, but this perhaps is most important: The most successful traders and trading organizations I've had the pleasure of getting to know are constantly adapting to changing market conditions. They don't rely on a single trading model; they are always modeling. They do not scalp the midday hours the same as they approach the early morning. They know the difference between a market with active institutional participation and one dominated by locals--and trade accordingly.
People are comfortable with the known, and that keeps them static. It is so easy to lose money in the markets, because markets are dynamic.
(Dr Brett)
Thursday, 12 November 2009
The most important post by Dr Brett :-)
"Managing Your Energy as a Trader"
http://traderfeed.blogspot.com/2009/11/managing-your-energy-as-trader.html
If you lived in a cold climate, you'd never think of leaving your windows open in winter. If your walls had cracks in them, you'd have them sealed; if insulation were missing, you'd have it installed. Why spend money heating your home if the heat is simply going to be dissipated into the cold outdoors? From an energy vantage point, it is inefficient--and expensive.
At a psychological level, energy is one of four components of emotional well-being. The other three are happiness (or joy); contentment (or satisfaction); and affection. (See this post for a more detailed description of well-being; the entire Chapter 3 of The Daily Trading Coach is devoted to well-being and strategies for enhancing well-being).
Without energy, it is difficult to sustain positive emotion. Because much of positive feeling is based upon what we do with our lives, we constrict our potential positive experience when low energy levels rob us of initiative.
Psychologically, we can be like the drafty house with cracks in the windows. We leak energy and lose efficiency. Negative thinking and catastrophizing? A huge energy leak. Lack of physical fitness? Poor diet? More energy out the window. Perfectionism, beating up on ourselves, pressuring ourselves: still more energy lost.
Take a moment to review the post on the laws of psychological energy. People are productive when they are immersed in activities--including ways of thinking and behaving--that *give* energy. When we spend significant time in activities that rob us of energy, we pay a price every bit as dear as that leaky house in winter.
Think about how you coach yourself: how you approach markets, how you reflect on your own trading? Do you energize yourself? Do you sap yourself of energy? Do your life activities outside of markets energize you for your work? Does trading truly energize you?
Or are you a battery that slowly loses its charge, trying to muster the energy to act and wondering why your efforts end unfinished, delayed by procrastination?
So many people live their lives going through the motions, doing the minimum necessary to get by. Their low energy activity doesn't stimulate energy, and so they remain stuck in a low energy state. Others are brimming with initiative: one trader recently told me of grueling days at work, but he was headed for the gym for a brisk workout. He hardly lacked well-being despite a pace that others would find fraught with burnout.
That trader understands one of those psychological laws: expending energy doing the right activities generates energy and sustains well-being.
.
(Dr Brett)
http://traderfeed.blogspot.com/2009/11/managing-your-energy-as-trader.html
If you lived in a cold climate, you'd never think of leaving your windows open in winter. If your walls had cracks in them, you'd have them sealed; if insulation were missing, you'd have it installed. Why spend money heating your home if the heat is simply going to be dissipated into the cold outdoors? From an energy vantage point, it is inefficient--and expensive.
At a psychological level, energy is one of four components of emotional well-being. The other three are happiness (or joy); contentment (or satisfaction); and affection. (See this post for a more detailed description of well-being; the entire Chapter 3 of The Daily Trading Coach is devoted to well-being and strategies for enhancing well-being).
Without energy, it is difficult to sustain positive emotion. Because much of positive feeling is based upon what we do with our lives, we constrict our potential positive experience when low energy levels rob us of initiative.
Psychologically, we can be like the drafty house with cracks in the windows. We leak energy and lose efficiency. Negative thinking and catastrophizing? A huge energy leak. Lack of physical fitness? Poor diet? More energy out the window. Perfectionism, beating up on ourselves, pressuring ourselves: still more energy lost.
Take a moment to review the post on the laws of psychological energy. People are productive when they are immersed in activities--including ways of thinking and behaving--that *give* energy. When we spend significant time in activities that rob us of energy, we pay a price every bit as dear as that leaky house in winter.
Think about how you coach yourself: how you approach markets, how you reflect on your own trading? Do you energize yourself? Do you sap yourself of energy? Do your life activities outside of markets energize you for your work? Does trading truly energize you?
Or are you a battery that slowly loses its charge, trying to muster the energy to act and wondering why your efforts end unfinished, delayed by procrastination?
So many people live their lives going through the motions, doing the minimum necessary to get by. Their low energy activity doesn't stimulate energy, and so they remain stuck in a low energy state. Others are brimming with initiative: one trader recently told me of grueling days at work, but he was headed for the gym for a brisk workout. He hardly lacked well-being despite a pace that others would find fraught with burnout.
That trader understands one of those psychological laws: expending energy doing the right activities generates energy and sustains well-being.
.
(Dr Brett)
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