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Common sense trading decisions
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Created: by Eric j Attachments:0

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Common sense trading decisions

  #11 (permalink)
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Eric,

I think this is the most interesting thread on the forum in quite a while.

Thanks for posting. I will be following along with you as you muse about your journey and what you've learned from it.

I am finding I am on a similar path and am pleased to find someone else with better writing skills than I detailing the journey.

In the end, I think this trading gig is all mental and emotional.

Keep it up.

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  #12 (permalink)
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@Eric j, really enjoying your posts. I appreciate you speaking from the heart.

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  #13 (permalink)
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I'm enjoying this thread immensely. Please keep up the good work.

I have to say that I sort of come from the other end of the spectrum in relation to decision making. I tend to make the correct decisions in life, I see myself as an informed person. When I see a trade go against my way, it puts serious doubt into my mind. Controlling that doubt is a big hurdle for me. It's no easier when you are used to be right and you find yourself 50% of the time wrong.

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  #14 (permalink)
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Thanks @Eric j for sharing. One of the most difficult things for me (and I imagine others) is disconnecting the connection between the outcome of a trade and the quality of a decision. I like the way you confined trading to simply making decisions and not "bullshitting" yourself that you're a good decision maker when you are not.

I get caught up in equating each trading decision I make with making a prediction about market direction that is either right or wrong - in other words, mistakenly understanding what I'm doing as predicting future market events (i.e., the direction price will move). This has been a damaging way to understand what I'm doing when trading. I'm working now on understanding that what I'm doing is "betting" on future direction only. Each time I place a trade I'm making a bet, that is all. When I look at it in this way I re-define my decision making - I re-define what I'm trying to accomplish.

Now I'm just trying to understand where a good bet can be made and in this way I re-define right and wrong. Now right and wrong simply means, "was that a good place to make a bet" rather than "did the market go in the direction I expected". For me, the distinction is subtle and I don't always come at it with the right mindset - but (again, for me) this is an important distinction. "Placing a good bet" acknowledges the risk so you can look at it directly and control it appropriately rather than ignoring it because you are counting on "being right". "Placing a good bet" also helps to control how wrapped up you get in the outcome and focuses your thinking on what you can control (where/when you bet and how much you risk).

The idea is not to coddle yourself by dismissing losses as "oh, things just didn't work out on that bet" - but to appropriately focus yourself on making good decisions about the things you can control. The danger is that you use this mindset to absolve yourself of responsibility rather than to accept responsibility. That you use this way of thinking to remove your own accountability to make good decisions rather than to define exactly what you are responsible for (controlling risk and making prudent decisions) and exactly what you are not responsible for (what the market does after you place a bet).

Again, thanks for the topic - it is a very important one for me at this stage of my trading development (and I'd imagine others as well).

Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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  #15 (permalink)
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Thanks for the encouragement . Its strange how each individual interprets risk . I think all the time how in our everyday life we can accept risks that can get us killed easily or do serious harm but we dont give it a second thought .

Where I live theres a lot of commuting each day and traffic is wild on the parkways all day and even at night . On any given day Ill see people pulling their cars across 2 lanes of oncoming traffic to turn left or motorcycles weaving in and out of traffic etc. Recently I saw a man driving in the center lane of 3 lanes while 2 bikers (not the weekend bikers if you know what I mean , career bikers) were in the right lane all going 60 mph . The man , without signalling , turned abruptly in front of the bikers and one of the bikes swerved and nearly collided with the car and the other bike . Needless to say the bikers werent pleased and the car turned off onto the exit he was headed for when he cut off the bikers . I was behind them the whole time and followed watching while the bikers turned off the exit as well to , lets say , greet the guy in the car with some friendly kicking out the headlights and various other greetings .

Point is that it seems we dont consider the risks of all our actions the same . Risking a few dollars on a trade can paralyze some but getting in their car and driving 80 mph is no risk at all . I for one value my hide more than a few dollars and very carefully consider driving extremely dangerous but before I do it I prepare and consider the implications then go ahead and drive accepting the risk just the same as risking a few dollars in the market .

Now , the probabilities of being wrong in a trading bet is higher than the probabilties of being wrong in an everyday driving bet . We may drive back and forth over the same path for many years safely but the stakes are much higher when its your life on the line . Being prepared and accepting the risks of driving increases your odds of surviving . Ignoring the risks and driving impusively increases your odds of getting killed or having 2 bikers bash your car apart . Being prepared and accepting the risks of trading increases your odds of your account growing . Ignoring the risks of trading impulsively increases the odds of the market bashing your account apart .


Last edited by Eric j; October 7th, 2011 at 05:12 AM.
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  #16 (permalink)
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Good Point

I just love your posts! Great work and so much more value in them than even the best indicator or all the other gizmos out there!

I never thought about that, but you are absolutely right!
Doesn't that mean that many people don't interpret risk at all?
In my view people only seem to evaluate probability, not the risk, which would be stake*probability of failing or being wrong. If you only evaluate the probability of an event it gets obvious why it might be easier to drive too fast than entering the market at a sweet spot where the probability is perhaps only 1/3 but your stop is tiny and your target is huge....(btw these are the trades I just love, regardless the (individual) outcome).


vvhg

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vvhg View Post
I just love your posts! Great work and so much more value in them than even the best indicator or all the other gizmos out there!

I never thought about that, but you are absolutely right!
Doesn't that mean that many people don't interpret risk at all?
In my view people only seem to evaluate probability, not the risk, which would be stake*probability of failing or being wrong. If you only evaluate the probability of an event it gets obvious why it might be easier to drive too fast than entering the market at a sweet spot where the probability is perhaps only 1/3 but your stop is tiny and your target is huge....(btw these are the trades I just love, regardless the (individual) outcome).


vvhg

Trading requires we risk more than money . Thats what I failed to consider at first and I bet most fail to consider this . Just one other thing we risk is the most valuable , irreplaceable asset we have - time . Considering how I spend my time is part of the overall strategy since I value it above anything .

The time I commit to worrying or repeating mistakes or looking for a "better way" to trade is the time I could spend with family or friends so I use it wisely . Once my time is over its too late to do it over , just like a trade . once you get in its too late to do it over so choose wisely .

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  #18 (permalink)
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The age old debate about indicators

If you google " trading indicators " you get 20,900,000 results in .19 seconds . Thats a lot of information to sort through on any given day . Browsing through a few trading forums and looking at a sampling of the price charts posted you'll see endless technical indicators adhered to them .

This forum is no exception and the creativity put in these tools is impressive to say the least . Ive used indicators to help me make trades and found that they are helpful as a tool to get my job done but not helpful in telling me what job I should do . If you are building a house you dont use every tool you own until you find the one you need , you have a specific tool for the job at hand .

Thats my finding but of course your mileage may vary , wildly . Theres many that declare that "indicators dont work" and "all you need is price" or "I trade price action only" etc. Truth is that as a tool indicators help us as much as a tool can help us , tools dont build a house alone . BM gives good advice every time you see his profile box when he tells us to "stop changing everything" among other valuable info but for some reason its so hard to take sound advice .

Give someone that has a preconceived notion or who is seeking confirmation of their own ideas good advice and you'll mostly be ignored . Tell them what they want to hear and you're a genius . Of course , the seekers own experiences and findings will help them the most but its still worthwhile to reach out to the ones reaching out with an open mind seeking guidance .

Back to the indis vs. PA debate . Have you ever felt kind of hypnotized by watching an oscillator ? I sure have and its because something dynamic intrigues us due to the fact we dont know whats going to happen next . So watching and indicator or oscillator has this affect on most of us and its safe to assume thats the reason new traders want to watch them . Applying the role of forecaster to the indis mostly locks the new trader out of some responsibilities like common sense . Not that new traders dont have common sense but trusting something thats displaying the sum of an equation isnt good enough to succeed . It can only help us succeed , like a ruler or hammer , and the rest is our management skills and perception .

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  #19 (permalink)
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The plan

Ive read a lot of trading books during the course of my trading career so far . Ive sat down and heard/seen many webinars about trading as well . I enjoy what others have to teach on the subject but very rarely do I use their ideas in my own personal trading regime . Reason is that Ive become a rule follower and have a strict course of action that I follow . I know what you are thinking - "this guy is as diciplined as they get" , not exactly .

The reason I follow rules is because I learned that if I approach the market without knowing what I need to see I will bobble the ball once I make a trade . Although I have strict rules they dont always get me what I want either . I like to see a pattern that tells me a new direction is being favored and then get in on the first opportunity in the new direction . Kind of like being one of the first guys at the party but we all know its nice to be fashionably late as well . So to spite me the market will always throw in a little curve for example , price will produce a trigger bar that perfectly gets me long into a major resistance level or something that makes me think twice . This is a flaw I work on , I havent conquered it , and thinking twice is minimized by having my variables to lean on - the rules .

I stress here to be very careful forming rules . Too rigid and you're locked out of good trades and too liberal gets you shook out or whipsawed too often to recover . You need rules not to have something to blame for the losers but to have a course of action that guides you into the most highly likely to win setups . Thats a minor part of it all too , the setup and entry . Without exiting you wont have a winner or profits . Too aggressive of a target and you'll see prices come back to your entry absorbing your paper profits and too stingy you'll be taking more heat than you get back in profits so one loser will knock off a couple winners or worse .

Knowing yourself , your tolerances and feelings comes directly into play here . I , for one do better at trading and feel much better when I wait (and wait and wait) for my variablea to stroll on by and then enter . I like to either let my target or stop get hit and move on to the next trade without thinking about the trade much after I enter except for making sure my orders are where they should be . Others have different tolerences and they trade differently , I respect that .

Its a function of what works for you and theres only one way to find out - get in there and practice while being totally honest with yourself . Consider all the possible implications all of your trading actions might have .

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Eric,

Good posts! I know I have seen a distinct change in your posts also over the last year. Almost like you are a completely different person from that person a year ago. It seems you have really evolved and it shows in your trading journal.

Thanks for sharing and keep inspiring others!


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