Understanding Expectation in Intr-day Trading
|February 11th, 2012, 05:17 PM||#1 (permalink)|
NY + NY/USA
Futures Experience: Advanced
Broker/Data: Optimus Futures- Rithmic
Favorite Futures: CL, 6E
Posts: 236 since Nov 2009
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Understanding Expectation in Intr-day Trading
When we first saw the profit potential of trading futures we were enticed into the market. Low margins, inexpensive trade fees, electronic charting and order entry software at low cost, and lots of role models of supposedly successful traders making millions easily. We were lured further into this world by indicator vendors selling us the potential and the dream of success and profits using secret magic software, strategy's, and systems that would take us from rags to riches in just a few months or by brokers offering us low margin risk and small trading fees that made it possible for many of us to take the venture with very little risk capital.
Well, after a while reality set in and we saw a totally different picture. As this pretty picture dissolved along with our risk capital, we somehow forgot to adjust our expectation to be in line with our skill level. As a matter of fact, forget the skill level. We failed to adjust our expectation to be in line with our results regardless of our skill level.
Most traders expect a lot from the market. We expect the market to cooperate. We expect our strategies to work all or most of the time. We expect to be able to remain dispassionate from our trading. We expect to make money on a consistent basis. We expect to make lots of money if we trade many contracts, and we expect to be able to withstand account draw downs. We expected to be a certain type of trader, maybe like the one we were reading about and we expect to trade just like them. We expect to not become part of the losing 90%.
Let's face it. We, as unseasoned traders, expected to survive and prosper in the market. And we expected it to happen within the first year or two.
Unfortunately, our expectations had more to do with wishful hopeful desires than with reality. And for most of us, if we survived our first few years, were finally realizing, along with a great many other things, that our expectations were way out of sync with our abilities and the realities of intraday futures trading.
If we were lucky to wake up, we made the adjustment. We resigned ourselves to learn to trade the same charts and stop looking for the holy grail. We stopped asking other people how to trade and started finding out for ourselves. We concentrated more on our mental state and reaction to our trading than on indicators and magic systems. We re-aligned our expectation to be in keeping with what we could do, not what we hoped for or wanted the market to do for us.
For me, the hardest expectation adjustment I had to make was to change the expectation of price doing what I wanted it to do for as long as I wanted it to do, to what it was actually doing and accept how long it was doing it. In other words, I accepted the fact that the highest expectation of my trading strategies was at the entry tick, and that with every tick, the expectation of price doing what I wanted got lower and lower. I finally reached my most realistic understanding of the potential and expectation of my strategies, and became the next bar king. That means, I knew the highest potential was the very next bar completing in the direction of my trade entry, and it went down from there. This was a big eye opener and it was very difficult for me to come to terms with. It defined me as the kind of trader that most believe is a dirty word. I was a scalper. I got bloody, mean, and merciless. I took names and counted winners. Today I don't bother with theoretical trends, or turn winners into losers trading for the large mega point trades. I get 4 tick winners, ten times in a row or enough to be able to go for larger trades without losing, and walk away making my daily goal almost every day. I am still fundamentally a scalper, but a scalper always on the lookout for the larger trade. My expectation was to be right long enough on the next bar to make money, and move on to the next trade opportunity. I finally realized what was meant by finding out what kind of trader you are. Accepting the reality of what kind of trader you are requires adjusting our expectation all the way down the line. It requires accepting what you can do most often profitably and not insisting on being the kind of trader that you imagine yourself to be if that trader continues to lose money. What happens is that many of us continue to try to emulate the traders we admire incurring continual monetary loss, and along the way we lose sight of the kind of traders we are able to be if we would just focus on the results of our own efforts based on our own strategies and trading behavior. It may come to pass that we cannot trade. This is not a bad thing. Unlike most any other endeavor, while there may be an endless supply of energy and desire, there is not an endless supply of money; at least not for most of us. So, adjusting our expectation also involves adjusting the time and effort we should realistically apply to this activity. This may go against all the brokers and gurus who tell you winners never quit and quitters never win, but this is futures trading not basketball or the Olympics. In this game there must be a cultivated stream of players supplied for the market makers and large traders to profit. There must be inventory. So, the marketing of the market is a business unto itself and it does not have your best interests in mind. The industry simply needs players. Adjusting your expectation of loss and gain to something realistic and in keeping with your own financial survival is crucial. I have known quite a few traders who make large profits from Monday to Thursday, and blow them away on Friday on a habitual basis because they expect to continue winning.
Part of learning is knowing where and how to go about learning something. Watching realistic consistent trading is so foreign to many traders because they have unrealistic expectations and are blind to what daily goal oriented, disciplined trading looks like. They are unable to accept someone else loosing in front of them but they believe when they see someone win all the time in front of them. The trader who they watch losing trades sometimes 3 times in a row, or 1 or 2 days out of 5, or 1 week out of 7, or 2 months out of 10, is the kind of trader they do not want to know. Most traders only want to know about the trader who trades 10 contracts in sim, and says they can do the same thing in cash, and so can you if only you study with them and buy their indicators. Understanding expectation is an important element in recognizing your trading patterns.