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Common sense trading decisions
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Common sense trading decisions

  #1 (permalink)
Big game hunter
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Common sense trading decisions

This thread is a detailed account , a memoir , of my own path in real money trading . What should make it significant is that others here at futures.io (formerly BMT) encounter the same things that I do , and have , in their trading endeavors . What I aim to accomplish is to help others avoid some pain and suffering that I encountered at the hands of the market and even my own psyche .

One thing that might set me apart is that Ive managed to trade my account for over a year without blowing it up . I prefer not to discuss numbers but prefer to describe the feelings I have about trading and dispell some myths Ive found about trading . My experiences form my opinions so whatever I say here is first hand knowledge and if I dont have first hand knowledge I dont have an opinion .

So I figurred I should describe why I was attracted to trading in the first place . My first experience with trading , actually investing , was taking advice from a fellow employee and buying shares in mutual funds , technology funds , from 1997 - 1999 . Needless to say I was high like a junkie on my parabolic account balance . Not only were the funds soaring but the money market accounts were making money hand over fist . Pure luck due to a total lack of knowledge got me out at the top when I wanted to buy my house so I paid the freight and was able to get in my house , pay the closing and fees for a couple thousand dollars , my initial investment . That was in april and by october those funds were crumbling but I was convinced that investing or playing the market was as simple as wiring my money wherever it neede to go and - kaching !

I still put money away in mutual funds that I still have to this day in an IRA but that initial experience lead me to believe some really bad things about money and the markets . I wasnt a little kid and I had saved money all my life but the big tech rally left an impression that theres opportunities for those that are willing to risk some loot . Problem was I didnt understand truly and deep deep down what risk was all about or how I tolerate actual risk when its time to pay the market . I didnt understand myself in other words .

In 2005 I began to gain interest in online trading . I had risk capital so I opened an account with ameritrade to trade stocks . I had read a few books by the likes of Toni turner to get myself started . The trades I executed were not once based on a plan or any method but just impulses like someone else was pulling the trigger . I didnt realize where price had been or where its been heading I just bought what was "looking good" , like I even knew what good looked like . Incredibly I saved myself by just losing interest in trading so 1/2 of my initial account was spared at least temporarily . Looking back at that period I can say that when I was looking at static charts things were somewhat clear but once the tape was rolling I became blind to what any charts said . The hard right edge was a riddle that I had no solution to .

I then began to gain interest again around 2007 and waded in slowly reading a few books , reading blogs , reading forums and sim trading with the myriad freebies available to me . Some of my experiences thereafter are documented in my journals here but the psychological aspects are where Ill focus in this thread .

Its been a long tiring weekend and I need a nap and Ill be laying out some things here shortly . Theres a lot of important things about trading that I dont see addressed often and when I do I think most folks ignore whats being addressed . Thats why I put this thread in this section - "This forum is where successful traders spend most of their time and where struggling traders never visit" - thats what it says on the heading because its the truth and the truth hurts . "What doesnt kill us makes us stronger" or "no pain no gain" and other cliches apply to trading like no other place I can think of since trading is arguably the most difficult thing any of us can succeed at .

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  #3 (permalink)
Big game hunter
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OK , so I was gaining an interest in trading again . Why the interest over and over again ? Good question that deserves a good answer I guess . I have a belief that if one can trade successfully then its a matter of leveraging to attain giant size gains so the answer to the above question is I would like some giant size gains . " If one can trade successfully " is so simple to say but so elusive it can drive you up the wall .

Now here comes a few things I had to learn first hand before being able to keep from blowing up my account . Dont think I began trading again and took my past lessons to heart , because I didnt .

The big lessons like overleveraging and cutting winners short were learned over and over and over again to the point of coming close to blowing up , but not totally .

Those two things - overleveraging and cutting winners short are the two things that if you do them you will not succeed as a trader . I repeat , you will not succeed if you do these things . If you dont overleverage or cut winners short you have an immediate advantage over your competition and the market . Remember this is all stuff learned the hard way and not something " a trader friend " or a seminar or IBD told me .

So , saying "dont" doesnt help anyone thats learning just like telling a baby " dont cry " . Its natural to want to leverage up beyong your safety zone and its natural to want to take money off the table . Letting winners run is even a paradox since the common cliche' is "dont let a winner become a loser" .

Now , heres why you dont pull the plug early or stick your head out far enough to get your head cut off . Both of these things are habits that dont apply any statistical edge. No edge calls for entering with enough that your account can be damaged if you're wrong or exiting because you want any gain available . I learned , over time , that my (and yours) analysis is correct most of the time if I let the trade play out . That is , either my stop is hit or my targets are hit and thats all , one or the other . If my targets are hit that will erase several losers and if I stop out it just affords me the chance to try again . If I screw with my stop my edge is contaminated and I start to slide backwards , period . If I risk more than 3% on any trade ever and it stops out I need to gain back exponentially more just to climb back to square one . Think about it , if you're always busy recovering from losses when will it be time to build your account ?

Heres how I do it - I always risk just 2 or 3 % of my account on each trade depending on how many waves have transpired in this particular trend (I follow the trend , always ) . The first wave I risk maximum 3% and thereafter less and less , it gets me in a little heavier when a big move is likely with a bigger target and lighter when a reversal is due . My account isnt that big so sometimes I trade a one or two lotter or have one target which is fine by me . Then I always visualize where price is likely to go before I get in and I target that area , period . Those targets are never ever less than what I need to risk , usually >3/1 RR , to be proven wrong and my stop is place in such a way that the trend is shot if the stop is hit so I was "proven wrong" that the trend would make another wave up or down .

Practicing these things was killing me when I sat and watched the screen . My head was pounding , eyes were aching and I felt like Mike Tyson was here beating my ass all day . My solution was to trade an hourly chart , set up my trades and go away , just go away from the PC . Ive got the best computer I could buy , tons of backup battery gizmos , committed cable modem , an ECN platform (not an add on ) etc. so theres a minimized chance something will go wrong . In addition to that I only leave enough dough in my account that if the bookkeeper runs off with the safe or they get indicted for fraud or whatever Im only out a smallish amount , not my life savings .

The result is impressive . Sometimes I stop out and sometimes I get my target and after a very short while I began to just look for setups , place my bets and come back later without any stress whatsoever . Like buying a scratchoff ticket so should your trading be .

This is all leading somewhere but if I help someone protect themself from themself that would be very satisfying .

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I really liked this passage of yours where you wrote:
"The hard right edge was a riddle that I had no solution to."

I still think it is a riddle at times (in fact very often - lol) . Our biggest chanllenge is to learn to live with the ambiguity and the contradictions we see in the markets.

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Big game hunter
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trendisyourfriend View Post
I really liked this passage of yours where you wrote:
"The hard right edge was a riddle that I had no solution to."

I still think it is a riddle at times (in fact very often - lol) . Our biggest chanllenge is to learn to live with the ambiguity and the contradictions we see in the markets.

Agreed . Its a riddle without a solution , thats what I came to accept . If we look for a way to define everything about trading we lose the benefit of ambiguity . By that I mean if we all defined what a high or low price was the same way there wouldnt be a market to trade since we all agree price is at the perfect spot .

You're right about accepting what we see too . Accept it and keep moving forward taking calculated steps (having variables to define our trades) while controlling the few things we have the luxury of controlling, like cherry picking the best setups or how much we risk .

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Nice work @Eric j, good post.

Over the years I've seen two different kinds of strategies when it comes to traders who are long term successful:

- I've seen the "base hit" strategy, lots of small gains, very very few home runs, and also very very few big losses.
- I've seen the "home run" strategy, majority of trades are break even/wash (no score...), but maybe 5 to 10% of trades are home runs with huge gains. Losses are very tiny as risks are very small.

It's interesting to see both work, but I think it is a matter of personality.

Mike

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Big game hunter
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Protecting your trading account is the only thing you need to accomplish to succeed in trading . Thats something I read in every book about trading Ive ever read and agree with 100% . But , to me its a hollow suggestion since to put on a trade Im handing over my risk capital to the market and trusting it to do me right . I prefer to think "protecting my capital" means not making dangerous decisions for my trading account . Dangerous emcompasses the aforementioned overleveraging and cutting winners short but includes putting on a trade when you're distracted , upset or sick and other compromising activities .

So to protect the capital we need to make lucid decisions . Thats where a lot of the problems begin for a trader . Trading itself is one thing only - a series of decisions over and over again . We make a decision to put on a trade , decide to enter the market , decide to exit the market and repeat . If you are undercapitalized or let a loser run wild your broker will decide to close your position at a margin call but these are all decisions and nothing more . So trade = decision .

How many of us considered our decision making skills before we ever traded anything ? I sure didnt and only after I got a lesson from the market about WHY I need to make lucid decisions did I consider that maybe I am not such a good decision maker . Notice I said "lucid" decisions and not "correct" decisions . Theres no reason to be concerned with being right , just being aware of what we're doing at all times .

I started to notice that in my past in a non trading capacity I tended to lets say "bullshit" a lot - I admit that . That is , I used my skills as an "influencer" in business mostly to lead people as a retail manager and in other capacities . Most of my adult life so far was spent in the retail game in management so it was a good practice to do and say whatever employees wanted or needed to hear to collectively get the job done .

It turns out that I was employing the same tactic on myself , bullshitting myself , to adapt to situations and to do things I didnt necessarily want to do . So the point is that I had to realize that I tended to make decisions in the same way , almost like I was in my own world so to speak .

Needless to say this decision making process didnt hold up in the market since you dont have a bit of influence on the market - not a bit . So my suggestion to a struggling trader is to analyze your trading decisions - are they lucid ? Do you make good decisions in your everyday life ? are you being honest with yourself that you can make lucid trading decisions ? Being honest with yourself is a very liberating event and is an easy way to gain an edge in the market btw .

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Excelent stuff, thank you very much!
In my view this is the holy grail!

Only one thing I don't agree with:

Eric j View Post
Like buying a scratchoff ticket so should your trading be .

No matter how I buy or scratch them, in the long run I always lose money with them...

I think one thing many traders struggle with is their ego...the need to be right or to risk a lot or to make a million in a month etc.
This might be the reason why many traders blow up the first few accounts in so many cases...depending on the sum they need to loose to destroy their ego until they don't care anymore about being right and all the other ego stuff. At that point they start looking after their account as the ego is not anymore bigger than their account!?


vvhg

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Last edited by vvhg; October 5th, 2011 at 06:35 AM.
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vvhg View Post
Excelent stuff, thank you very much!
In my view this is the holy grail!

Only one thing I don't agree with:


No matter how I buy or scratch them, in the long run I always lose money with them...

I think one thing many traders struggle with is their ego...the need to be right or to risk a lot or to make a million in a month etc.
This might be the reason why many traders blow up the first few accounts in so many cases...depending on the sum they need to loose to destroy their ego until they don't care anymore about being right and all the other ego stuff. At that point they start looking after their account as the ego is not anymore bigger than their account!?


vvhg

Nice fish . The ego can ruin an otherwise capable trader . I learned not to be flashy or even talk about money with anyone but the tellers at the bank . I dont need much and have all I need - a chick that has my back when things are difficult . My kids are just about old enough to take care of themselves and help out with their own expenses so thats a hurdle Ive made it over . Raising kids by myself was a monumental ta$k , good thing they grow up fast LOL .

The scratchoff analogy refers to how carefree a trade should be (you knew that ). Few people get all sweaty when they buy a scratch off ticket .

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Big game hunter
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Noticing that I had a history of poor decision making opened up a can of worms for me in regards to my trading activities and pretty much every other aspect of my life . This was a good thing since I was open to becoming aware of my habits so I could fix the ones that didnt serve me well . I couldnt just fix them all but I did identify bad tendencies and good tendencies so it was easier to for me to be careful in situations where in the past I unravelled and made bad situations worse .

So I now know my strengths and my weakesses . My strengths are many and my weaknesses are also many but I work on making the strengths stronger and weaknesses weaker almost neuralizing them . When Im faced with a decision I can now make the best one possible .

If when trading I see prices and Im confused where they're going I dont pick a direction , just wait around . If prices are looking bullish Im a buyer , if they're looking bearish Im a seller . I dont always go the right way but I dont blame my decision making skills because I made the best decision with the information I had just before the first tick occurs after I put on that trade . I have no way of knowing whats going to happen after the trade is made . I only have the information available to me .

The energy one exerts to feel bad about their actions would be better used towards building their strengths thereby disabling the weaknesses by default . Positive affirmations are something few of us practice but we owe it to ourselves for all the crapola we have to tolerate each and every day , right ?

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