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The Trader Ego
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The Trader Ego

  #11 (permalink)
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I deal with stress and doubt by trading rule-based strategies that I don't allow myself to alter during the trading day. If you know your methodology is robust, it reduces anxiety considerably. It does not remove anxiety completely (it's a chronic condition), but can allow an emotional, manual trader, the ability to sit back and let the day unfold, without sweating bullets.

Not everyone is meant to trade discretionarily, and I place myself in that category. Of course one can become better, but there is an innate predisposition to the best discretionary traders that most do not, and will never share. If you struggle greatly with doubt, fear, stress, anxiety, or any combination, give some consideration to the idea of automation, or at minimum, rule-based trading.

The good news is, one can develop rule-based methodolgies that are extremely rewarding.

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  #12 (permalink)
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@zer0 - thanks for pointing out that the stress of the trade never entirely goes away. I completely agree. Whether automated or discretionary once a trade is on our body reacts. Our heart races and are minds become frantic. We go from being completely rational (what psychologists call the state of being offline) to being online. In other words the you who is in a trade is inherently different than the you who is not. This explains why we will sometimes make completely irrational decisions (like pulling stops, taking early profits) while in the trade and later we examine these actions with complete disbelief.

There is one other bias that affects us as human beings and is hugely influential. We have severe loss aversion. Losing $100 is approximately twice as painful to us as winning $100. Think about that.

The big thing that I've been working on for my own trading is how do I deal with the Dr. Jekyll that I turn into while trading? No amount of contemporizing or rationalizing while in my offline state will change what happens when I place a trade. This is where my suggestion of mantras and mental exercises comes in handy. Try to break the chain of your destructive mindset while trading by distancing yourself from your thoughts.

These tools are excellent long-term catalysts for trading change. However, since trades can and do happen quickly it is important to have a tool to quickly adjust your mindset. Try some belly breathing exercises while you are experiencing stress in your trade (perhaps you are thinking you are not good enough or you are about to pull your stops). These are the same exercises recommended for people who are experiencing a panic attack and from my own experience I would say they are highly effective.

Loss Aversion article:

Loss Aversion: Why Do We Hang on to Things for No Reason? | Psychology Today

Belly Breathing:

davecarbonell's Channel - YouTube

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  #13 (permalink)
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zer0 View Post
I
Not everyone is meant to trade discretionarily, and I place myself in that category. Of course one can become better, but there is an innate predisposition to the best discretionary traders that most do not, and will never share. If you struggle greatly with doubt, fear, stress, anxiety, or any combination, give some consideration to the idea of automation, or at minimum, rule-based trading.
.

Where innate predisposition ends, learned behavior can begin.

I wrote in another thread how I would/still do catch myself worrying about the trade (in both directions).
You can only beat yourself up so much until you learn to catch what you are doing wrong and put
a stop to it immediately. Some people write notes (Paul Tudor Jones - 'Losers average losers') and
others use a vocal command response (VCR) which originated in Navy Seals training although
it was probably already in use and people didn't even realize it. Other ideas are to put $1 into a
jar every time you catch yourself overly thinking when you should be letting your system do the work.
Rubberband on the wrist is another one. Personally, I catch myself and simply say in my head, "Stop, let
the system do the work". Oddly enough, my brain understands and it works.
The brain should work before the trade and after, but never during IMO.
Of course this isn't easy, but it can be minimized.
I don't think there are any secrets, but I'm just an average dude.

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  #14 (permalink)
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Yes, one can certainly improve, and change is undoubtedly a worthwhile pursuit; so long as expectations are managed as well. Some are naturals, but others must work for it. I know myself, and this forced me to work within my own limits. I do not have the genetic makeup to perform as a calm and collected discretionary trader. I have, however, learned to control my emotions well enough to follow explicit sets of rules of which I have assembled. Knowing that my methodology is robust affords me discipline. That too, however, can still be challenging at times. Anyway, I would encourage anyone to do whatever they must to grasp control. In the end, it is a requirement for anyone at the helm.


Massive l View Post
Where innate predisposition ends, learned behavior can begin.

I wrote in another thread how I would/still do catch myself worrying about the trade (in both directions).
You can only beat yourself up so much until you learn to catch what you are doing wrong and put
a stop to it immediately. Some people write notes (Paul Tudor Jones - 'Losers average losers') and
others use a vocal command response (VCR) which originated in Navy Seals training although
it was probably already in use and people didn't even realize it. Other ideas are to put $1 into a
jar every time you catch yourself overly thinking when you should be letting your system do the work.
Rubberband on the wrist is another one. Personally, I catch myself and simply say in my head, "Stop, let
the system do the work". Oddly enough, my brain understands and it works.
The brain should work before the trade and after, but never during IMO.
Of course this isn't easy, but it can be minimized.
I don't think there are any secrets, but I'm just an average dude.


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  #15 (permalink)
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zer0 View Post
Yes, one can certainly improve, and change is undoubtedly a worthwhile pursuit; so long as expectations are managed as well. Some are naturals, but others must work for it. I know myself, and this forced me to work within my own limits. I do not have the genetic makeup to perform as a calm and collected discretionary trader. I have, however, learned to control my emotions well enough to follow explicit sets of rules of which I have assembled. Knowing that my methodology is robust affords me discipline. That too, however, can still be challenging at times. Anyway, I would encourage anyone to do whatever they must to grasp control. In the end, it is a requirement for anyone at the helm.

My personal belief is that no one is born with the genetic makeup to perform as a calm and collected trader of any kind. The market moves because our natural genetic (and it isn't just humans monkeys do this too) impulse is to trade irrationally. Trading intentionally and doing what is emotionally most difficult is they only way to win as a trader.

If you believe that mechanical trading is the best for you then that's great. But don't tell yourself that you are a mechanical trader because you are a weak person who isn't good enough for discretionary trading. That is a negative mindset that will not advance your trading in any fashion. Tell yourself that you are mechanical trader because you have the discipline to test your systems thoroughly and the trust to let those systems operate without your intervention. And when ultimately that system needs retesting or reoptimizing you do that too - but not out of frustration but because that is what you know makes you a successful trader.

Actually I would say that we ultimately have no control over the markets. The markets do what they want. The only thing we can control is how we react to what the markets are telling us. When I put on a trade as a discretionary trader it is no different than as a mechanical trader. My methodology tells me that this is where I enter. And then from there the market does what it wants to. My methodology tells me when to exit the trade as a winner, my methodology tells me when to exit the trade as a loser. My only intention when putting on a trade is to follow my methodology. Not my ego. Not what I think the market wants to do. Not what I fear. No - only what I have tested and I know has an edge over a series of many trades. There is no mystical difference between discretionary and mechanical trading. As a discretionary trader I push the buttons based on what my system tells me. As a mechanical trader you let the computer push the buttons based on what the system tells you.

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  #16 (permalink)
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See my comments below in blue:


eudamonia View Post
My personal belief is that no one is born with the genetic makeup to perform as a calm and collected trader of any kind. The market moves because our natural genetic (and it isn't just humans monkeys do this too) impulse is to trade irrationally. Trading intentionally and doing what is emotionally most difficult is they only way to win as a trader.

Do you believe some are naturally more emotional than others? Do you believe that some are naturally more risk averse than others? The answer to both questions must be yes. It logically follows then, that some are naturally better suited to discretionary trading than others. That is and was always the point. This does not, however, imply that those who do not have an innately optimal trading disposition cannot be successful. No, it does not.

If you believe that mechanical trading is the best for you then that's great. But don't tell yourself that you are a mechanical trader because you are a weak person who isn't good enough for discretionary trading. That is a negative mindset that will not advance your trading in any fashion.

There is a profound difference between acknowledgment of facts and a 'negative mindset'. If you read a sampling of my posts, it should become rather clear, very quickly, how confident I am about myself and my methodology. Also, my goal is not to be a discretionary trader. I am a rule-based, manual trader. This is what I prefer

Tell yourself that you are mechanical trader because you have the discipline to test your systems thoroughly and the trust to let those systems operate without your intervention. And when ultimately that system needs retesting or reoptimizing you do that too - but not out of frustration but because that is what you know makes you a successful trader.

I tell myself I am a rule-based, manual trader, because that is what I am. I do not aim to be anything other than that. My methodology is based on deductive logic (something very few can say). I derive my confidence from that fact.

Actually I would say that we ultimately have no control over the markets. The markets do what they want. The only thing we can control is how we react to what the markets are telling us. When I put on a trade as a discretionary trader it is no different than as a mechanical trader. My methodology tells me that this is where I enter. And then from there the market does what it wants to. My methodology tells me when to exit the trade as a winner, my methodology tells me when to exit the trade as a loser. My only intention when putting on a trade is to follow my methodology. Not my ego. Not what I think the market wants to do. Not what I fear. No - only what I have tested and I know has an edge over a series of many trades. There is no mystical difference between discretionary and mechanical trading. As a discretionary trader I push the buttons based on what my system tells me. As a mechanical trader you let the computer push the buttons based on what the system tells you.

There is a huge difference (for most) between making critical decisions on the fly versus following predefined rules. It's not even comparable. This should be self-evident. Anyway, the good news is, this doesn't in any consequential way, affect one's trading success. That is, if they sufficiently know what they are doing.


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zer0 View Post
Do you believe some are naturally more emotional than others? Do you believe that some are naturally more risk averse than others? The answer to both questions must be yes. It logically follows then, that some are naturally better suited to discretionary trading than others. That is and was always the point. This does not, however, imply that those who do not have an innately optimal trading disposition cannot be successful. No, it does not.

I'm not sure I agree with this assertion. Are some people born with more predisposition for emotion than others? Or does the environment we are raised in have some influence on our emotional state? Based on the research done regarding nature vs. nurture and my own personal observations I would say that emotions are something everyone experiences. How intensely they choose to feel these emotions and how they manage these emotions is largely based on our environment and how we've learned to process these emotions. The key to successful trading isn't to be an unemotional risk taker but to be someone who can feel those emotions and risk and still remain objective while in the trade.


zer0 View Post
I tell myself I am a rule-based, manual trader, because that is what I am. I do not aim to be anything other than that. My methodology is based on deductive logic (something very few can say). I derive my confidence from that fact.

I'm glad to hear you've found what works for you.


zer0 View Post
There is a huge difference (for most) between making critical decisions on the fly versus following predefined rules. It's not even comparable. This should be self-evident. Anyway, the good news is, this doesn't in any consequential way, affect one's trading success. That is, if they sufficiently know what they are doing.

What exactly though is this "huge difference" between making decisions on the fly vs. having a computer take the trades? How is it self-evident?

A mechanical trader might develop their system to make decisions based on a repeated historical event. They might then run this through a heuristic process to optimize decision making based on a set of criteria (a fitness function). They would then test this process on out of sample data to ensure that it is non random. Having created and tested the system it is turned on live. The mechanical system then makes real time decisions automatically based on the criteria previously developed.

As a discretionary trader I develop a system through making thousands of observations based on historic or real time data. I run these observations through my own heuristic process to see if I can identify a common pattern in a way that will meet my own trading criteria (essentially a fitness function). Then I test this process in real time (on out of sample data) to ensure that it is non random. Having created and tested the system I go live. I then trade my discretionary system making real time decisions automatically based on the criteria I previously developed.

This is not to say there aren't different skill sets required by these approaches. One requires the ability to understand math, statistics, and programming while the other requires the ability to make quick observations, understand patterns, and execute reflexively.

In any event I totally agree that both approaches are equally legitimate ways to trade assuming you know what you are doing.

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  #18 (permalink)
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Hello again. See below:


eudamonia View Post
I'm not sure I agree with this assertion. Are some people born with more predisposition for emotion than others?

Luckily for us, the answer to this question doesn't matter. We aren't discussing the origin of sensitivity to emotion, we are simply interested in whether some are more emotional that others. The answer to that question is, necessarily, 'yes'.

Or does the environment we are raised in have some influence on our emotional state?

I don't doubt one bit that there is an influence from the 'nurture' side. In fact, I presume it is a strong influence.

Based on the research done regarding nature vs. nurture and my own personal observations I would say that emotions are something everyone experiences. How intensely they choose to feel these emotions and how they manage these emotions is largely based on our environment and how we've learned to process these emotions.

Putting the origin of emotional sensitivity aside, there are some that handle stress (of varying types) differently than others. Some are more apt to handling well, the highs and lows of trading, as some are more inclined to jump out of aircraft. Some are thrill seekers, some are not. Some disassociate from monetary gain and loss more easily, others cannot. All in spite of where these restraints/constraints emerge.

The key to successful trading isn't to be an unemotional risk taker but to be someone who can feel those emotions and risk and still remain objective while in the trade.

The key to successful trading is knowing what you are doing, regardless of your emotional state. It won't matter if you are ice cold, or a perfect mix of feel and function, if you have no clue at all as to what you are doing.

I'm glad to hear you've found what works for you.

Thank you, and to you as well.

What exactly though is this "huge difference" between making decisions on the fly vs. having a computer take the trades? How is it self-evident?

Quoting you from a prior post:

"My personal belief is that no one is born with the genetic makeup to perform as a calm and collected trader of any kind. The market moves because our natural genetic (and it isn't just humans monkeys do this too) impulse is to trade irrationally. Trading intentionally and doing what is emotionally most difficult is they only way to win as a trader."

I believe you've answered your own question...


A mechanical trader might develop their system to make decisions based on a repeated historical event. They might then run this through a heuristic process to optimize decision making based on a set of criteria (a fitness function). They would then test this process on out of sample data to ensure that it is non random. Having created and tested the system it is turned on live. The mechanical system then makes real time decisions automatically based on the criteria previously developed.

They might, but I don't. I don't backtest. I develop deductively-derived systems that capture 'market character' from the start. That paradigm seems to be uncharted territory in trading forums. Specifically, some concepts are so fundamental, that they must work. Back-checking is used to reject ideas, not confirm them. But yes, most mechanical traders take a path similar to what you've described above.

As a discretionary trader I develop a system through making thousands of observations based on historic or real time data. I run these observations through my own heuristic process to see if I can identify a common pattern in a way that will meet my own trading criteria (essentially a fitness function). Then I test this process in real time (on out of sample data) to ensure that it is non random. Having created and tested the system I go live. I then trade my discretionary system making real time decisions automatically based on the criteria I previously developed.

This is not to say there aren't different skill sets required by these approaches. One requires the ability to understand math, statistics, and programming while the other requires the ability to make quick observations, understand patterns, and execute reflexively.

Indeed, each path does require different skills and thus it is rare that one is equally talented at both. Again, precisely my point. Not everyone is suited to trading discretionarily, nor is everyone well suited to develop systems. It logically follows that the best traders would exhibit characteristics from both camps. Again, luckily, success does not rely on one having both sets of skills.

In any event I totally agree that both approaches are equally legitimate ways to trade assuming you know what you are doing.

Great, I'm glad to see we agree on that.


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