Webinar: FuturesTrader71 (FT71) on Risk, Sizing, Scaling and Trade Management - futures io
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Webinar: FuturesTrader71 (FT71) on Risk, Sizing, Scaling and Trade Management


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Webinar: FuturesTrader71 (FT71) on Risk, Sizing, Scaling and Trade Management

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Hi guys,

I am pleased to have FuturesTrader71 back (FT71) for another webinar presentation on Thursday, March 22nd @ 4:30 PM Eastern US.

FuturesTrader71 is very well known in the trading community.

His twitter:
https://twitter.com/

His website:
FuturesTrader71 | Simplicity in Trading

FuturesTrader71 has been a professional futures trader for over 10 years. You can get details on him here:
About Me | FuturesTrader71

The webinar outline for Thursday, March 22nd:
- Risk: The great humbler
-- The cost of confirmation
-- Which type of risk do professionals prefer
-- How big a risk are we talking about?
- Taking Losses: Every Trader's Krpytonite
-- Meet your monkey
-- Show me the money!
- Trade setup? What is that?
-- Probabilities and urban legends
-- Toss that coin!
- Trade Management
-- All in / All out vs Scaling in / Scaling out
-- Throw a dart, you will do just as well
- The biggest loser (not the show...)

Presentation will be roughly 1 hour, plus a Q&A at the end.

Mike

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Registrations are now open:

Trading Webinars, Trading Videos - Big Mike Trading Forum

Very important: Register early, and join the room early. Our room capacity is 500 people, and last time FT71 presented some people could not get in (room full).

I will open the room 30 minutes early on Thursday, I would suggest joining early.

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Mike, if you are registered are you guaranteed to have a spot in the webinar, or is it still first come first serve on the day of the webinar?

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Wojo View Post
Mike, if you are registered are you guaranteed to have a spot in the webinar, or is it still first come first serve on the day of the webinar?

First come first served based on the time you join the room.

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looking forward to the replay! got family stuff to do at that time

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Hello Big Mike,

Will you have a recording available for today's webinar : Futurestrader71 as the schedule will not permit me to see it as it take place......thanks in any case.

Regards,

nicosxm

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Hi everyone,

I've opened the webinar room.

There are over 100 people already. I encourage you to join early to ensure you can get in.

If you are unable to get in, the recording will be posted sometime tomorrow.

Mike

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Some points I am taking away from this webinar:

Price Risk vs Information Risk

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Don't look to be right. Trade the better probability.

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Most important: Have the right attitude to trade.

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Learn how to take losses.

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Your "monkey" will try to get you out of stressful situations, just like your survival instincts take over when you step in front of a car, or when a grizzly bear is chasing you. It's an instinctive response much beyond your control.

Most people are raised placing a big significance on being right. The very next trade, despite the most perfect conditions, has a 50/50 chance of being right vs being wrong.

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In trading, Losing is not Bad. Losing is the best way to prepare yourself for the next trade.

Don't sit and hope. Take the loss, move on to next trade.

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Prior market action does not represent future market action.

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Setups don't make money. Probabilities and confidence make money.

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- Don't look to be right. Trade the better probability.
- The very next trade, despite the most perfect conditions, has a 50/50 chance of being right vs being wrong.

50/50 + 50/50 + 50/50 + ...= 50%

How do you define better probability if all of your trades taken individually have a 50% chance to work? Does not make sense to me. If the possible outcomes of every trade is always 50% then good luck on taking the next trade. If you don't know when your edge kicks in (probability to win > 50%) then what's the deal? Why not play roulette instead?

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Very. Next. Trade.

Not a string or series of trades (ie "edge").

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Love the random trade analysis with 5-tick stop/target, 5-tick stop/10-tick target, and 2-lot 5-tick stop/5-tick target + 5-tick stop/10-tick target...

Absolutely awesome....

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Love the random trade analysis

Would like to see the analysis over a larger sample of trades.. any Excel guys want to do it?

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Very insightful using his real live risk screen from live traders, and their habits being demonstrated openly.

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"I would rather go out and pay for a P90X and put it on my shelf, than exercise."

Love it. Relates to buying trading advice from vendors.

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And another great webinar!

I will post the recording sometime tomorrow most likely.

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Very. Next. Trade.

Not a string or series of trades (ie "edge").

Mike

I still think the 50/50 right/wrong ratio is not appropriate. Maybe it's a question of semantic but if your edge is greater than 50% then the very next trade has an implied chance to be right equal to your edge (+/-) otherwise why would you risk placing a trade. The way it is formulated here implies that all of your trades are independent but it is not the case. However, it is safe to say you are not sure at 100% if the very next trade will fall within your overall cumulative winning % so far.

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I still think the 50/50 right/wrong ratio is not appropriate. Maybe it's a question of semantic but if your edge is greater than 50% then the very next trade has an implied chance to be right equal to your edge (+/-) otherwise why would you risk placing a trade. The way it is formulated here implies that all of your trades are independent but it is not the case. However, it is safe to say you are not sure at 100% if the very next trade will fall within your overall cumulative winning % so far.

Since you believe you can predict the odds of the very next trade, why do you take losing trades? Just skip those.....

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trendisyourfriend View Post
I still think the 50/50 right/wrong ratio is not appropriate. Maybe it's a question of semantic but if your edge is greater than 50% then the very next trade has an implied chance to be right equal to your edge (+/-) otherwise why would you risk placing a trade. The way it is formulated here implies that all of your trades are independent but it is not the case. However, it is safe to say you are not sure at 100% if the very next trade will fall within your overall cumulative winning % so far.

its is more like 33/33/33 most of the time and 50/50 during the opening swings (CL anyway). Generally speaking of course.

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I still think the 50/50 right/wrong ratio is not appropriate. Maybe it's a question of semantic but if your edge is greater than 50% then the very next trade has an implied chance to be right equal to your edge (+/-) otherwise why would you risk placing a trade. The way it is formulated here implies that all of your trades are independent but it is not the case. However, it is safe to say you are not sure at 100% if the very next trade will fall within your overall cumulative winning % so far.

I don't understand either; if every trade is 50/50 how can a string of trades be any better than 50/50?
The only way it can work if winners are greater than losers

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Since you believe you can predict the odds of the very next trade, why do you take losing trades? Just skip those.....

Mike

I agree you can't predict at 100% the outcomes of a trade. But seeing each trade as a 50/50 proposition is not exact either. Don't read me wrong, i know what you mean but you are not using the right words.

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There are two outcomes to the next trade.

Win
Lose

Scratch = loss, commissions/time

Two outcomes = 50/50

We are talking only about the very next trade. Not a string of trades.

If you could predict the future, and you knew the next trade was a loser, why take it?

If you could predict the future, and you knew the next trade was a winner, why not trade 1,000 lots?

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trendisyourfriend View Post
I agree you can't predict at 100% the outcomes of a trade. But seeing each trade as a 50/50 proposition is not exact either. Don't read me wrong, i know what you mean but you are not using the right words.

Did you watch this and the last FT71 webinar?

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Big Mike View Post
There are two outcomes to the next trade.

Win
Lose

Scratch = loss, commissions/time

Two outcomes = 50/50

We are talking only about the very next trade. Not a string of trades.

If you could predict the future, and you knew the next trade was a loser, why take it?

If you could predict the future, and you knew the next trade was a winner, why not trade 1,000 lots?

Mike

Mike, with all due respect this is a highly flawed argument, and is just plain wrong.

Following your logic, we can say:

There are 2 outcomes to playing the lottery:

Win
Lose

Doesn't mean I've got a 50% chance of winning it does it?

It doesn't matter that we're talking about just a singular trade, you could use the same argument and pick any percentage and it makes just as much sense. People are just thinking 2 outcomes, 1/2 = 50%.

I can say that the next roll of a (fair 6 sided etc) dice has a sixth of a chance of being a 1, that's not the same as "predicting" it's not going to be a 1.

It would be funny if it wasn't so sad.

I understand what FT71 is trying to convey, but it's a very poor way of putting it, and I don't think he realises just how bad his mistake is.

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I will bow out of the "50/50 next trade" line of debate, as we've already been through this on the last thread. It would be nice to talk about something else instead of focusing on this. So many good things discussed in the webinar, yet no one can get past the fact they can't predict the outcome of the very next trade.

The last thing I will say is that no one knows if the next trade will be a winner or a loser. There are two outcomes. You either are a winner or a loser. Call it what you want, but those are the choices of the very next trade.

I suggest you do the coin flip test.

Mike

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Mike, with all due respect this is a highly flawed argument, and is just plain wrong.

Following your logic, we can say:

There are 2 outcomes to playing the lottery:

Win
Lose

Doesn't mean I've got a 50% chance of winning it does it?

It doesn't matter that we're talking about just a singular trade, you could use the same argument and pick any percentage and it makes just as much sense. People are just thinking 2 outcomes, 1/2 = 50%.

I can say that the next roll of a (fair 6 sided etc) dice has a sixth of a chance of being a 1, that's not the same as "predicting" it's not going to be a 1.

It would be funny if it wasn't so sad.

I understand what FT71 is trying to convey, but it's a very poor way of putting it, and I don't think he realises just how bad his mistake is.

Look, the folks who actually understand formal mathematics, statistics & probability are relatively few. No reason to fight it since this forum and thread are dedicated to trading and not helping people understand mathematics. FT71 is using a simple, basic, and flawed argument to support a simple, basic and correct point... your next trade will either win or lose. That has nothing to do with the probability that your next trade will be successful. If the last 30 consecutive spins of a roulette wheel have come up Red, the odds the next spin will be Red is exactly 50/50 (if you ignore the zeroes.) But I'm sure no one thinks the probability of rolling 31 consecutive Reds is 50/50. It is what it is.

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trendisyourfriend View Post
I agree you can't predict at 100% the outcomes of a trade. But seeing each trade as a 50/50 proposition is not exact either. Don't read me wrong, i know what you mean but you are not using the right words.

Like mike said, the PROBABILITY of a future trade is 50/50, two outcomes, win or lose. The outcomes of a string of previous trades is a STATISTIC that represents your historical performance.

There is no way to know the distribution of losses against wins, you might have a 90% historical win rate, but the outcome of the next trade is unknown.

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Mike, with all due respect this is a highly flawed argument, and is just plain wrong.

Following your logic, we can say:

There are 2 outcomes to playing the lottery:

Win
Lose

Doesn't mean I've got a 50% chance of winning it does it?

It doesn't matter that we're talking about just a singular trade, you could use the same argument and pick any percentage and it makes just as much sense. People are just thinking 2 outcomes, 1/2 = 50%.

I can say that the next roll of a (fair 6 sided etc) dice has a sixth of a chance of being a 1, that's not the same as "predicting" it's not going to be a 1.

It would be funny if it wasn't so sad.

I understand what FT71 is trying to convey, but it's a very poor way of putting it, and I don't think he realises just how bad his mistake is.

6-sided dice have 6 outcomes...how many outcomes can a trade have?

How many possible prices or variables does the market generate?

The market is not a drawer of socks where you can compute the probability of pulling out a white pair of socks. It is an endless stream of variables.

The very next outcome of the trade is not 50% of a winning trade. It is a trade that either pays you for your edge or it doesn't. That's all.

This is where the intellect and need to be right is in conflict with the facts in front of us. This is where one wait for all things to line up to take the trade and then when the trade doesn't go the right way, we hesitate to take the loss because "dammit, everything lines up." Wrong! You can be the Michael Jordan of trading...your very next trade has an equal chance of having a winning as it does having a losing outcome.

You take the trade on a 60% edge because you have a better chance of winning over the series (which is dynamically changing by the way as far as that xx% edge). However, you can't have a 60% winner and a 40% loser on the next trade...can you?

Not sure why this is confusing. It is in front of us every day. It is a simple fact.

Mike stated it correctly. If you knew which of the 60% trades were winners, then mortgage your house and put 1,000 contracts on those and skip the rest. Oh...so you don't know where the 60% will come in?...so what do we do then?

That's my point, you wait for your edge where one activity has a higher probability over another as a series and you take the trade KNOWING that it has a 50/50 chance. You manage the risk and let the edge take care of itself over time.

Am I still confusing everyone? I'm probably not explaining in a simple way.

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timefreedom View Post
Look, the folks who actually understand formal mathematics, statistics & probability are relatively few. No reason to fight it since this forum and thread are dedicated to trading and not helping people understand mathematics. FT71 is using a simple, basic, and flawed argument to support a simple, basic and correct point... your next trade will either win or lose. That has nothing to do with the probability that your next trade will be successful. If the last 30 consecutive spins of a roulette wheel have come up Red, the odds the next spin will be Red is exactly 50/50 (if you ignore the zeroes.) But I'm sure no one thinks the probability of rolling 31 consecutive Reds is 50/50. It is what it is.

Well put.

Now, with that being said...I would love to learn about the complexities the "not flawed" argument so to speak. I would like to know what other way to look at this. We also work on trader-based automated systems and maybe this is knowledge I can apply there.

As always, past performance is NOT indicative of future results....for a reason.

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@addchild

2 outa three ain't bad

outcome of the next trade is unknown: correct
2 outcomes: correct
50/50: false

@timefreedom

Formal mathematics? This is basic stuff. I'll agree the forum is about trading, but mathematics is included in that, otherwise we might as well throw out discussion on psychology and half the content on here. Understanding basic mathematics will quite likely help you be a better trader (see the Risk of Ruin thread).

If his point is "your next trade will win or lose", then he should just say that. "Teaching" people things that are patently false and then such mistakes being dismissed leads to this sort of nonsense:

Coin flip probabilities and relevance [Archive] - Physics Forums

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Tip


The recording of the webinar has been posted:

Webinar: FuturesTrader FT71 on Risk, Sizing, Scaling and Trading Probabilities




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Hotch View Post
@addchild

2 outa three ain't bad

outcome of the next trade is unknown: correct
2 outcomes: correct
50/50: false

If his point is "your next trade will win or lose", then he should just say that. "Teaching" people things that are patently false and then such mistakes being dismissed leads to this sort of nonsense:

Coin flip probabilities and relevance [Archive] - Physics Forums


Wow, thanks for showing me how to beat a coin toss!

-----------------------------------

I rarely discuss mathematics, as, for some strange reason, it always leads to heated debates.

If I place a trade with a 1 tick stop and a 100 tick target, would you still think that it had a 50% chance of success?

As stated several times before: the number of outcomes does not dictate the probabilities.

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Thank you FT71 for this incredible webinar. You webinar series helped me a lot. Iīm sure others would charge a lot for it, or split the sessions and charge us twice.

I donīt understand why the 50/50 % statement is generating such a discusssion. You cannot predict the outcome of the next trade! To accept that helps you to accept the losing trades and to prevent you from " wanting to be right" as well as "doing impulsive trades"! Of course you can have an edge with your risk and money management and manage the trade to your favour. But thatīs not the point here. Your next trader will be a loser or a winner. You cannot predict with a certain probability what the outcome will be. Or do you know in advance what other traders will do after you entered the market? So: 50/50!

By the way if someone has this crystal ball, PLEASE write me a PM!

Best regards,

Malvolio

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Malvolio View Post
I donīt understand why the 50/50 % statement is generating such a discusssion. You cannot predict the outcome of the next trade! To accept that helps you to accept the losing trades and to prevent you from " wanting to be right" as well as "doing impulsive trades"! Of course you can have an edge with your risk and money management and manage the trade to your favour. But thatīs not the point here. Your next trader will be a loser or a winner. You cannot predict with a certain probability what the outcome will be. Or do you know in advance what other traders will do after you entered the market? So: 50/50!

Malvolio, take the example of a fair, six sided die. On the next roll, we have:

1/6 chance of being a 1
1/6 chance of being a 2
1/6 chance of being a 3
1/6 chance of being a 4
1/6 chance of being a 5
1/6 chance of being a 6

Now we all agree, we don't know what the next roll of the die will be (because we can't predict), but I hope everyone on this forum can work out what the chance of the next roll being less than 3 (aka a 1 or a 2).

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All these examples of roulette wheels, dice etc are missing the fact that those analogies don't apply to the markets, because the markets constantly evolve. Yesterday's dice had numbers 1-6, but today's may have 2-7, tomorrow's 3-8. Maybe it'll go back to 1-6 the day after, but maybe not. And two years from now, who knows what dice will be used?

That's why even purely mechanical ATS's have to be tweaked constantly, and eventually (often abruptly) replaced.

To get an accurate idea of a method's probability, you'd have to know both its probability based on the sample you have, and the probability of that sample accurately representing the next 1,000 or 10,000 or 100,000 trades. Your estimate of that probability is in turn based on a more limited sample of how abruptly and frequently the market changes - and so on. And all of these probabilities will overestimate stability.

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futuretrader View Post
All these examples of roulette wheels, dice etc are missing the fact that those analogies don't apply to the markets, because the markets constantly evolve. Yesterday's dice had numbers 1-6, but today's may have 2-7, tomorrow's 3-8. Maybe it'll go back to 1-6 the day after, but maybe not. And two years from now, who knows what dice will be used?

That's why even purely mechanical ATS's have to be tweaked constantly, and eventually (often abruptly) replaced.

To get an accurate idea of a method's probability, you'd have to know both its probability based on the sample you have, and the probability of that sample accurately representing the next 1,000 or 10,000 or 100,000 trades. Your estimate of that probability is in turn based on a more limited sample of how abruptly and frequently the market changes - and so on. And all of these probabilities will overestimate stability.

Not noticed this myself, any papers on it?

It's obvious that the market isn't fixed odds like a roulette wheel, but it doesn't mean the analogies aren't useful for explaining things, nor does it mean that statistics aren't useful to traders. There'd be a lot less people employed in statistics if we only used it for fixed odds propositions!

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Hotch View Post
Malvolio, take the example of a fair, six sided die. On the next roll, we have:

1/6 chance of being a 1
1/6 chance of being a 2
1/6 chance of being a 3
1/6 chance of being a 4
1/6 chance of being a 5
1/6 chance of being a 6

Now we all agree, we don't know what the next roll of the die will be (because we can't predict), but I hope everyone on this forum can work out what the chance of the next roll being less than 3 (aka a 1 or a 2).

Yes, thatīs clear, but when you are trading you cannot know what other traders will do. So for me trading has to deal more with emotions of the market participants than with mathematical probability. Your are not playing lottery. Trading is people making trading decisions. You cannot calcluate the probability of the next trade. How you could? How you would calculate the probability that a support will hold or a trend will continue?
Of course you know what the expectancy of a series of trades is or will be. But every time a setup you have can fail.

Best regards,

Malvolio

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Malvolio View Post
Yes, thatīs clear, but when you are trading you cannot know what other traders will do. So for me trading has to deal more with emotions of the market participants than with mathematical probability. Your are not playing lottery. Trading is people making trading decisions. You cannot calcluate the probability of the next trade. How you could? How you would calculate the probability that a support will hold or a trend will continue?
Of course you know what the expectancy of a series of trades is or will be. But every time a setup you have can fail.

Best regards,

Malvolio

You can't predict the outcome of the die roll will be a 3-6, but you can say the probability of the roll being a 3-6 is 2/3. That's the point.

Trading is people making decisions. People make the same decision when presented with the same question time and time again, that is how you predict what they will do. If you're saying that the market doesn't repeat, then fine, but you ought to throw away 90% of your T.A. books, and I'm really intrigued as to how you make money trading knowing that the market doesn't repeat.

Calculating the probability of a trade being profitable and knowing the future are two different things, I don't see how that's a difficult concept to comprehend.

There IS a chance that any trade will fail, hell, there IS s a chance that all future trades will fail, that doesn't make the chance 50/50.

Please explain how the expectancy of a series of trades (with wins the same size of losses), can be anything but 0, with the chance of every one of those trades being a winner being 50%, after you've posted that here, go collect your noble prize and retire.

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Hotch View Post
Please explain how the expectancy of a series of trades (with wins the same size of losses), can be anything but 0, with the chance of every one of those trades being a winner being 50%, after you've posted that here, go collect your noble prize and retire.

I said "Of course you know what the expectancy of a series of trades is or will be" and not that the expectancy of this series of trades is 50%.

I think in general you are confusing the expectancy of a series of trades with the probability of the next trade, which is not the same.

I know the expectancy of a series of trades because of writing a Journal and assuming that the next series of trades will behave in the same manner.

Since you are claiming that the very next trade has not a 50/50 chance, how do you calculate the probability of the next trade? Could you give us an example please?

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Malvolio View Post
Since you are claiming that the very next trade has not a 50/50 chance, how do you calculate the probability of the next trade? Could you give us an example please?

You can assume it is the same as the histoical expecancy. That does not say that you know the outcome.

if you have a 2% edge, i.e. I expect 52% of the trades to win, then I also expect the next trade to win with 52% probability OR the edge to deteriorate (or become better).

That still is not knowing whether I win. The argument is mathematically flawed BUT it serves a good point (i.e. make the trade "insecure" about the next outcome). There are strats (Scalping) with a very high win ratio, and your monkey so to say tries to make that a certainity mentally - which is BAD. From a psychological point it is likely advantegous to ASSUME the next trade has a 50% probability.

I really have to try out those coin flip strats. And try to run them through a backtest & optimizer

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I said "Of course you know what the expectancy of a series of trades is or will be" and not that the expectancy of this series of trades is 50%.

I think in general you are confusing the expectancy of a series of trades with the probability of the next trade, which is not the same.

I know the expectancy of a series of trades because of writing a Journal and assuming that the next series of trades will behave in the same manner.

Since you are claiming that the very next trade has not a 50/50 chance, how do you calculate the probability of the next trade? Could you give us an example please?

You're claiming that individually, all your trades had a 50% win rate, but over time you expect to have more than 50% of them win, do you not see how absurd that is?

2 outcomes != 50% chance


Assume that the win rate stays the same, independance etc. The last 100 trades have a 60% win rate, you expect the next 100 trades to have a 60% win rate. Correct?

Then each of those 100 trades individually must have a 60% chance of winning. If they each had a 50% chance of winning then half of them would of won, half of them would of lost, and your win rate over those 100 would be 50%.

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futuretrader View Post
All these examples of roulette wheels, dice etc are missing the fact that those analogies don't apply to the markets, because the markets constantly evolve. Yesterday's dice had numbers 1-6, but today's may have 2-7, tomorrow's 3-8. Maybe it'll go back to 1-6 the day after, but maybe not. And two years from now, who knows what dice will be used?

That's why even purely mechanical ATS's have to be tweaked constantly, and eventually (often abruptly) replaced.

To get an accurate idea of a method's probability, you'd have to know both its probability based on the sample you have, and the probability of that sample accurately representing the next 1,000 or 10,000 or 100,000 trades. Your estimate of that probability is in turn based on a more limited sample of how abruptly and frequently the market changes - and so on. And all of these probabilities will overestimate stability.


A well designed mechanical AT that takes the right factors into consideration does not have to be tweaked constantly nor replaced abruptly. Market conditions do change but a good AT will stay out of the market when conditions are not favorable to the setups of the AT. Meaning equity curve will stay flat until conditions come back that are favorable. Nothing wrong with flat for awhile just don't want to lose big while waiting for right conditions to return. This can be designed into a system.

As mentioned above while market conditions do change in most cases they return and have cyclical nature about them to a large degree. Key is not to design a system that only works well when market is trading in some outlying fringe condition. But design for the way a market typically trades. That way can have reasonable assurance of system performance over time. The market typically will come back to it's normal ways when it does trade fringe. Of course it is possible a market will never come back to the "way it traded" but is not usually the norm in my experience although I have seen it happen.

I also think the presenter used his examples more to demonstrate concepts than present perfect math. We all know the market has a dynamic element to it.

I enjoyed this webinar can't talk enough about managing risk. I may manage different but key is manage it and always be open to how others do it as can make us all better at what we do.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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I also think the presenter used his examples more to demonstrate concepts than present perfect math. We all know the market has a dynamic element to it.

That is the crux here. I think the issue is mostly that 95% of the peopel can not deal with statistical math, and for the other 5% the exampe is disturbingly wrong bvecause they focus on teh math.

Let's get into the other side - psyhcology. If I ahva starat wih a 80% winning chance per trade historical (some funny scalping) then assuming per math the next trade has a 80% win expectancy... after a number of wins (LIKELY) the 2 losses in a row or 3 (unlikely, but will come over a larger sample) will get my monkey playing - because basically I cam not used to this. 80% is good enough ppeople never get comfortable with the loss.

Taking the "I expect the net trade tio loose with 50% chance" attitude helps to overcome this and points out the psychological issue.

Still for the math inclined this is arguing along "1+1=2.2" and as such it is alienating our ingrained thinking.

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Hotch View Post
Not noticed this myself, any papers on it?

It's obvious that the market isn't fixed odds like a roulette wheel, but it doesn't mean the analogies aren't useful for explaining things, nor does it mean that statistics aren't useful to traders. There'd be a lot less people employed in statistics if we only used it for fixed odds propositions!


I agree completely that they're useful; we wouldn't be able to think without analogy, metaphor, simile. But people often get caught up in the analogy and forget about its limitations.

Similarly with statistics - they're very useful, but ever since I started looking into various statistics in medicine, I've become extremely suspicious of anything that's bandied about.

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your win rate = 65%

The probability that your next trade will fall within the 65% group is either 0 or 1. However, over a series of trades, you should get more 1 than 0. Maybe expressed this way it will be easier to accept the binary nature of this single isolated trade.

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liquidcci View Post
A well designed mechanical AT that takes the right factors into consideration does not have to be tweaked constantly nor replaced abruptly. Market conditions do change but a good AT will stay out of the market when conditions are not favorable to the setups of the AT. Meaning equity curve will stay flat until conditions come back that are favorable. Nothing wrong with flat for awhile just don't want to lose big while waiting for right conditions to return. This can be designed into a system.

As mentioned above while market conditions do change in most cases they return and have cyclical nature about them to a large degree. Key is not to design a system that only works well when market is trading in some outlying fringe condition. But design for the way a market typically trades. That way can have reasonable assurance of system performance over time. The market typically will come back to it's normal ways when it does trade fringe. Of course it is possible a market will never come back to the "way it traded" but is not usually the norm in my experience although I have seen it happen.

I also think the presenter used his examples more to demonstrate concepts than present perfect math. We all know the market has a dynamic element to it.

I enjoyed this webinar can't talk enough about managing risk. I may manage different but key is manage it and always be open to how others do it as can make us all better at what we do.

Yes, I basically agree with you. In January 2008 I had 2 very good, dependable and completely uncorrelated equities systems suddenly stop working - thankfully they didn't lose money, but they sure generated lots of pointless commissions. Things do happen.

And yes, I think he is more interesting in emphasizing a concept that will help with the psychology of discretionary trading than anything to do with math.

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trendisyourfriend View Post
your win rate = 65%

The probability that your next trade will fall within the 65% group is either 0 or 1. However, over a series of trades, you should get more 1 than 0. Maybe expressed this way it will be easier to accept the binary nature of this single isolated trade.

That is the way I approach. I have no idea if my next trade will be a win or a loss. It will be one or the other and I don't even care on a trade by trade basis. But based on my stats over a series of trades I expect my system will produce a certain result based on probabilities. I don't apply my probabilities to my next trade but to my overall system.

I just can't see how anyone can survive much less profit over a long period of time without using probabilities.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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trendisyourfriend View Post
your win rate = 65%

The probability that your next trade will fall within the 65% group is either 0 or 1. However, over a series of trades, you should get more 1 than 0. Maybe expressed this way it will be easier to accept the binary nature of this single isolated trade.

Sadly the mathematical correct way to say that is that this trade has a 65% probability to be a profitable one. For those taht know statistics and can think statistically this is not a prediction it will win - it just means that this trade setup has a higher win chance.

Now, you can say "that next trade" but statistics is neer about that next trade.

> over a series of trades, you should get more 1 than 0.
(65% actually) -> then that means that the next trade has a 65% chance to be a 1.

NOTHING implies that the next trade is a winner in there. This is statistics - and sadly, and here i really agree withteh sense - can not think in statistics.

This is not that bad actually - there is something worse people do. Let's say the next trade is a looser. Then they think the next trade after has a highr chance of winning ("to make up for the 65% chance"), and that is TOTALLY untrue. Distribution within the target curve is random. You can have a 65% win rate and still 10 loosers in a row once ian while. Does not change the 65% chance.

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There is a huge and basic mistake in all of these discussions regarding trading probability.

The probability of an event like a coin toss, roll of a die or a roulette reel is not comparable to trading. the outcome of those events occur outside the control of the participant. The participant has NO control over the outcome.

In trading the outcome is directly controlled by the trader, his actions determine the outcome. The entire probability discussion in regards to trading is misleading and based on an error in logic. A win loss ratio is not the same as a probability of one event occurring over another, it is just a win loss ratio of past events without any predictive value.

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TI Anon View Post
There is a huge and basic mistake in all of these discussions regarding trading probability.

The probability of an event like a coin toss, roll of a die or a roulette reel is not comparable to trading. the outcome of those events occur outside the control of the participant. The participant has NO control over the outcome.

In trading the outcome is directly controlled by the trader, his actions determine the outcome. The entire probability discussion in regards to trading is misleading and based on an error in logic. A win loss ratio is not the same as a probability of one event occurring over another, it is just a win loss ratio of past events without any predictive value.

A win loss ratio while having no predictive value on next trade does have a value although not absolutely perfect on the expectation of the future performance of an overall system. That is if the win loss ratio is based on a statistical edge which can be identified in the market over many trades.

A trader does not have complete control over the outcome. Identifying points of control (control being points where trader does have control entries and exits) using statistics and probabilities is what allows a trader to win with consistency. A trader does not fully control the outcome but can control entry and exit. The market does have a mind of its own. But using stats and applying math - statistical trends can be identified and leveraged. A trader cannot control the outcome but can be in position to take advantage of what outcomes have the highest probability of happening. The beast can be tamed or at least ridden.

I sincerely believe not using probabilities in trading will eventually lead to account destruction.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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You take the trade on a 60% edge because you have a better chance of winning over the series (which is dynamically changing by the way as far as that xx% edge). However, you can't have a 60% winner and a 40% loser on the next trade...can you?

Not sure why this is confusing. It is in front of us every day. It is a simple fact.

Mike stated it correctly. If you knew which of the 60% trades were winners, then mortgage your house and put 1,000 contracts on those and skip the rest. Oh...so you don't know where the 60% will come in?...so what do we do then?

You cannot pick to just take the winning trades because the ALL have a 60% chance of winning.

Even if you win 90% of your trades, you can't just pick the winners because you do not know ahead of time which one's will win or lose. Every trade you take in that case has a 90% chance of wining.

Of course - the next trade may win or lose but you can't take 2 possible outcomes to = 50/50 probability. That's a bastardisation of statistics.

Look - if you put me in a room with Brad Pitt and you send Claudia Schiffer in with instructions to screw one of us, the probability of me getting laid is not 50/50.

I understand the point being made but probability is not the correct terminology.

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DionysusToast View Post
You cannot pick to just take the winning trades because the ALL have a 60% chance of winning.



Look - if you put me in a room with Brad Pitt and you send Claudia Schiffer in with instructions to screw one of us, the probability of me getting laid is not 50/50.

Unless Angelina is in the room

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Enough of the 50/50 line of debate!!! We've already done this on the other thread. Go create a new thread if you want.

Move on already!

Plenty of other fantastic material in the webinar to discuss!




Big Mike View Post
Some points I am taking away from this webinar:

Price Risk vs Information Risk

Mike


Big Mike View Post
Don't look to be right. Trade the better probability.

Mike


Big Mike View Post
Most important: Have the right attitude to trade.

Mike


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Learn how to take losses.

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Big Mike View Post
Your "monkey" will try to get you out of stressful situations, just like your survival instincts take over when you step in front of a car, or when a grizzly bear is chasing you. It's an instinctive response much beyond your control.

Mike


Big Mike View Post
In trading, Losing is not Bad. Losing is the best way to prepare yourself for the next trade.

Don't sit and hope. Take the loss, move on to next trade.

Mike


Big Mike View Post
Prior market action does not represent future market action.

Mike


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Setups don't make money. Probabilities and confidence make money.

Mike



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ok, then let me say that I REALLY enyoed the presentation. A lot of very usefull information and I think I will start a new strategy line (CoiNToss) to check the numbers.

VERY good stuff. I have seen some weinars here, and some are quite - random. Al Brooks was a bad one - no basicc talk, jsut going from chart to chart. Quite... hm... not realy anything worthwhile if you anyway work through the books.

This one was a gem. VERY nice information. VERY well presented (with the cough issue of 50%) and with a lot of really important things pointed out. Makes me pick up my card and get more info from FuturesTrader

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Quoting 
Prior market action does not represent future market action

What does it mean? I always look to the left of my chart (Prior market action ) to get a feeling for the bias and likely path of future orderflow.

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trendisyourfriend View Post
What does it mean? I always look to the left of my chart (Prior market action ) to get a feeling for the bias and likely path of future orderflow.

To me, it means the markets are constantly evolving, and never repeat themselves. What happened yesterday, last week, last month or last year was based on more than just price data. It was based on events in the world, dictatorships, wars, terrorists, elections, oil spills, earnings reports, inventory reports, economic condition, and the list goes on for miles...

This means that even though a price pattern may look similar today or tomorrow to a pattern from last week, month, or year, it is not the same.

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Big Mike View Post
Enough of the 50/50 line of debate!!! We've already done this on the other thread. Go create a new thread if you want.

Move on already!

Plenty of other fantastic material in the webinar to discuss!





















Mike

Well said Mike. Eat the chicken leave the bones on the plate.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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Just trying to understand. How is this helping you? Just take the VWAP for example. Many traders will try to enter near the VWAP on a retracement. Does it mean looking at this repeating pattern may become hazardous?


Big Mike View Post
To me, it means the markets are constantly evolving, and never repeat themselves. What happened yesterday, last week, last month or last year was based on more than just price data. It was based on events in the world, dictatorships, wars, terrorists, elections, oil spills, earnings reports, inventory reports, economic condition, and the list goes on for miles...

This means that even though a price pattern may look similar today or tomorrow to a pattern from last week, month, or year, it is not the same.

Mike


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trendisyourfriend View Post
Just trying to understand. How is this helping you? Just take the VWAP for example. Many traders will try to enter near the VWAP on a retracement. Does it mean looking at this repeating pattern may become hazardous?

Don't get me wrong. I still use historical price information, because I think it is better than planetary alignment or throwing darts.

You just have to know that things change. And just because price did something in the past, there is no way to predict what it will do in the future.

This is why I prefer discretionary trading vs mechanical or automated trading. I have the flexibility to make decisions on my own. And I can then look at my on forward tested results set, of my own discretionary traders over a length of time, and reach some conclusions about my trading.

With a mechanical or automated approach, you could design a bot that has this type of flexibility, although 99% of retail traders I would say don't take that approach. They use hard-fast numbers like "CCI 14" or "MACD 12,26,9" or whatever the case may be, and the strategy is unable to adapt. It has a fixed set of inputs, and it is looking for a zero or a one to make a new order.

But going back to throwing darts, I found it most interesting the examples @FuturesTrader71 listed towards the middle or end of webinar, with his spreadsheet demonstrating random entries using 5-tick stop/5-tick winner vs 2 contract 5-tick stop/5-tick winner + 5-tick stop/10-tick winner. I would like to extend that spreadsheet out to tens of thousands of trades to see if the expectancy holds up. Because if the expectancy does hold, then throwing darts might be a good idea

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Big Mike View Post

But going back to throwing darts, I found it most interesting the examples @FuturesTrader71 listed towards the middle or end of webinar, with his spreadsheet demonstrating random entries using 5-tick stop/5-tick winner vs 2 contract 5-tick stop/5-tick winner + 5-tick stop/10-tick winner. I would like to extend that spreadsheet out to tens of thousands of trades to see if the expectancy holds up. Because if the expectancy does hold, then throwing darts might be a good idea

Mike

In FT's example one of the 14 trades in the 2 contract 5-tick stop/5-tick winner + 5-tick stop/10-tick winner, had only a "1" tick loss not 10 ticks as the other losers. This went against the rules he stated at the start and would change his expectancy, perhaps even moving it to break even or a loss. (This is a good example of critical examination and due diligence)

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TI Anon View Post
In FT's example one of the 14 trades in the 2 contract 5-tick stop/5-tick winner + 5-tick stop/10-tick winner, had only a "1" tick loss not 10 ticks as the other losers. This went against the rules he stated at the start and would change his expectancy, perhaps even moving it to break even or a loss. (This is a good example of critical examination and due diligence)

I'm not following what you mean.. ?

You are saying his spreadsheet is wrong?

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I'm not following what you mean.. ?

You are saying his spreadsheet is wrong?

Mike

I believe this is the spreadsheet:





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I remember that he had another coin-toss experiment in his Webinar 3 with a different set of rules that yielded some really interesting results. The problem was that there wasn't enough samples. One interesting rule (hopefully without giving too much away) was that the system couldn't trade during the first and last hours because there is too much directional bias during those times.

I would like to see variations of these experiments with 1000's of samples.

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emerson View Post
I would like to see variations of these experiments with 1000's of samples.

Me too. Maybe he will attach the spreadsheet to a post, or someone can spend a few minutes and re-create it from scratch?

@vvhg?

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TI Anon View Post
In FT's example one of the 14 trades in the 2 contract 5-tick stop/5-tick winner + 5-tick stop/10-tick winner, had only a "1" tick loss not 10 ticks as the other losers. This went against the rules he stated at the start and would change his expectancy, perhaps even moving it to break even or a loss. (This is a good example of critical examination and due diligence)

This didn't go against any rules he set up. Trades 5, 8, & 14 had a best scale out (BSO) of 5-ticks and got stopped out on the second contract. On trade #5 he didn't have a 1-tick stoploss; there was slippage of one tick when he took the 5-tick stop on the second contract. On the other two trades, the net was zero because one reached the initial 5-tick target and the 2nd reached the 5-tick stop instead of the 10-tick target. Trade #11 experienced a 1-tick slippage on the stop as well. He also experienced positive and negative slippage on full winners.

I didn't perform the actual tests but that's what my critical examination and due diligence indicates to me

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I watched the webinar and I must say that I take offense at his surfing comment.

There are no wave machines in Oslo, but there is one in Bø:





However, that's not a proper way to surf, so why not take a trip to Lofoten instead?




I demand an immediate retraction and apology!

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emerson View Post
...
I would like to see variations of these experiments with 1000's of samples.
...

I would like to see the 1000 trade sample run comparing the all in/scale-out to the all in/all out, but with the exact same trades. I guess to do that, you'd have to do the coin toss by hand, and then calculate the outcome of the trades for both methods from the price chart, rather then actually by taking the trades.

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With these sorts of studies there's a few things to keep in mind:


1 - The 5 tick target/5 tick stop seems like it should be a 50/50 trade right?
It isn't.
The market always has 2 prices. A bid and an offer.
If you enter with a buy market order, you will get the offer price, the bid price will obviously be 1 tick below. If the market ticks down 4 prices, you will already be at your stop. If the market ticks up 5 prices, you will be at your target, still - being at your target does not guarantee you a fill. So, you really need price to move up 6 ticks to get a 5 tick profit.

So - a 5 tick target/5 tick stop means you lose if price goes against you 4 ticks and you gain if price moves your way 6 ticks.

If you enter on a limit order, you have a slightly different issue in that you need the market to move against you first and then move your way afterwards. That's a different proposition.

2 - Any method that uses random entry and a trailing stop is not actually trading randomness. Such a system will work under certain circumstances. If your market is trending, the system will be profitable. If the market is rangebound, it will lose. So - whilst on the surface, it appears you are trading at random, that is not really the case. What you are doing is making a bet that the market will trend more than it will chop. The trailing stop portion is the part of the system that requires specific market condition to work. Most people miss this because they think the 'edge' can only exist in the entry part of a strategy, when in fact that does not have to be the case.

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For anyone interested in FT71's post about the Theoretical Average he discussed in the most recent webinar, here is the link:

Anatomy of a scaling trade

On a totally unrelated topic, at about 1hr36min into the webinar it sounds like @BigMike has the same text notification ringtone from Dexter that I have. If so, I'd love to be able to figure out the odds of that happening.

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omni72 View Post
On a totally unrelated topic, at about 1hr36min into the webinar it sounds like @BigMike has the same text notification ringtone from Dexter that I have. If so, I'd love to be able to figure out what were the odds of that happening.

Hehe, yes I am a big fan of Dexter. I think I got the ringtone from Zedge on Android. It is my text ringtone, and my other favorite show is Game of Thrones, so that is my call ringtone

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I'm not following what you mean.. ?

You are saying his spreadsheet is wrong?

Mike

No, I'm confident his spreadsheet is right.

The point I was trying to make (poorly it seems), is in this series of 14 trades, 1 trade (#5) was mainly responsible for the result. And, since the sample size was so small the results were of little, if any, practical value.

You commented about the series of posts of traders becoming frustrated, etc. and quitting in disgust. After years of seeing people come and go, one reasons stands out as the cause. They all start trading without understanding the task at hand by using the same type of education; after-the-fact and faulty statistical analysis by self promoted trainers. Successful trainers train, successful traders trade.

One of the most amazing things, never discussed, that contributes to the high failure rate is the large amount of effort put forth in training people how to "embrace losing". Brokers, trainers and even peers all do it. Brokers because they want to limit their liability. Trainers because they know their method doesn't work,(they used it and it didn't work for them-that's why they became trainers). And, peers because they have been brainwashed by the other two.

When the Chicago Bulls were interviewing Derek Rose, before drafting him, they asked what he didn't like most about playing basketball. He immediately responded, "I hate losing!", they knew at that moment they had a potential MVP. It's no wonder so many traders fail, when so many are teaching them to be "great losers". It is only possible to train "how to be a winner" when you have an actual winning strategy. Without one, you have to teach "how to be a good loser", or you'll soon be out of business.

(I know there is a good chance I'll be attacked for these comments. I'll only consider the attacks by long term profitable traders-with verifiable proof- to be of any consideration, what so ever. Comments by others will be treated in kind.)

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I find that a very interesting statement. Not in a negative way.

You HAVE to not bother about the individual looser - obviously. NO strategy is perfect, so if you get nervous with one or a small nmber of loosers then - this is a problem.

At the same time you have to seriously work on the bigger picture and hate loosing money there. And duefully always evaluate trades against the larger picture (i.e. are 5 losses a statistical outlier that WILL come when you trade even with a 80% profit rate often enough) or is the edge more permanently fading?

Staticics are very hard things to deal with. Trading often enough even an 80% profitable setup will give you 10 losses in a row quite regtularly, if you trade 5 markets with a strat making 10 setups per day per market. That is 11000 setups per year (5 markets, 10 setups on 220 days each). The sheer number of trades makes a very unlikely event (10 losses in a row) something that will occur with a certain regularity. But when do you analytically start to review the edge? And how long do you assume that losses in a row are normal part of the game?

Interesting enough many tools (Nina etc.) do not have support for that at all. Make an expectancy, then compare trades in timeframe / nr of executions against expectancy projection.

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  #80 (permalink)
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One of the most amazing things, never discussed, that contributes to the high failure rate is the large amount of effort put forth in training people how to "embrace losing". Brokers, trainers and even peers all do it. Brokers because they want to limit their liability. Trainers because they know their method doesn't work,(they used it and it didn't work for them-that's why they became trainers). And, peers because they have been brainwashed by the other two.

When the Chicago Bulls were interviewing Derek Rose, before drafting him, they asked what he didn't like most about playing basketball. He immediately responded, "I hate losing!", they knew at that moment they had a potential MVP. It's no wonder so many traders fail, when so many are teaching them to be "great losers". It is only possible to train "how to be a winner" when you have an actual winning strategy. Without one, you have to teach "how to be a good loser", or you'll soon be out of business.

(I know there is a good chance I'll be attacked for these comments. I'll only consider the attacks by long term profitable traders-with verifiable proof- to be of any consideration, what so ever. Comments by others will be treated in kind.)

No trader wants to lose money.

But if you take the Derrick Rose example, embracing losers or being a good loser would be equivalent to Derrick missing a lay up. If he flips out, loses control, throws out all his strengths of how to play good ball and just starts fouling everyone and hoarding the ball, missing shot after shot after shot, then he is going to have a problem.

He doesn't do this. He is a good loser when you equate a loss to a particular shot within the game. He keeps his cool and doesn't focus on the missed shot. No. He moves on to the next shot, because that is what matters.

Traders need to be a good loser in the terms they need to learn that missing a lay up is part of the game. It is not a big deal, so don't make it one. By being a good loser on these individual plays, or trades, then the game as a whole (trading session, day, week) can come out on top as a winner because you've remained in control and allowed your experience as a player prevail.

Mike

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  #81 (permalink)
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(I know there is a good chance I'll be attacked for these comments. I'll only consider the attacks by long term profitable traders-with verifiable proof- to be of any consideration, what so ever. Comments by others will be treated in kind.)

Try being more positive, it works wonders . This is a positive, helpful forum. The goal of a post is not to prove anyone wrong but to have a good civil discussion without dragging people through the mud.

If a large number of people don't understand a post, it might be best to reword it from a different angle.

Mike

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  #82 (permalink)
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Thank you for the positive environment traders strive to have here.

That webinar from T-71 was the best i have heard in a long time , His comments on confirmation was something that has been chewing on me and was a fog. I never understood it.

This fourm just keeps getting better and better for me , Thank you Big Mike and all

Nothing so Impressive as Simplicity
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  #83 (permalink)
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Big Mike View Post
No trader wants to lose money.

But if you take the Derrick Rose example, embracing losers or being a good loser would be equivalent to Derrick missing a lay up. If he flips out, loses control, throws out all his strengths of how to play good ball and just starts fouling everyone and hoarding the ball, missing shot after shot after shot, then he is going to have a problem.

He doesn't do this. He is a good loser when you equate a loss to a particular shot within the game. He keeps his cool and doesn't focus on the missed shot. No. He moves on to the next shot, because that is what matters.

Traders need to be a good loser in the terms they need to learn that missing a lay up is part of the game. It is not a big deal, so don't make it one. By being a good loser on these individual plays, or trades, then the game as a whole (trading session, day, week) can come out on top as a winner because you've remained in control and allowed your experience as a player prevail.

Mike

The D. Rose example was to highlight an attitude about losing. I'm not sure the shot analogy to trading is fair. The only shot that is comparable is the one shot at the end of game that either wins or loses the entire game. It is the only has shot that has same potential similar to trading. Since the potential to "be in it" or "done" is there. And, great players definitely lose their "cool" on that one.

I find your use of term "good loser" interesting.

“Winning is a habit. Unfortunately, so is losing.”
~ Vince Lombardi

“Practice does not make perfect. Only perfect practice makes perfect.”
~ Vince Lombardi

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  #84 (permalink)
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The D. Rose example was to highlight an attitude about losing. I'm not sure the shot analogy to trading is fair. The only shot that is comparable is the one shot at the end of game that either wins or loses the entire game. It is the only has shot that has same potential similar to trading. Since the potential to "be in it" or "done" is there. And, great players definitely lose their "cool" on that one.

I find your use of term "good loser" interesting.

“Winning is a habit. Unfortunately, so is losing.”
~ Vince Lombardi

“Practice does not make perfect. Only perfect practice makes perfect.”
~ Vince Lombardi

This is what happens when people use analogies to simplify complex subjects, the debate becomes about the analogy itself, rather then the original subject, and we end up learning zilch.

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  #85 (permalink)
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By being a good loser on these individual plays, or trades, then the game as a whole (trading session, day, week) can come out on top as a winner because you've remained in control and allowed your experience as a player prevail.Mike

Seemed to work pretty well for this guy:


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  #86 (permalink)
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CRM5096 View Post
Thank you for the positive environment traders strive to have here.

That webinar from T-71 was the best i have heard in a long time , His comments on confirmation was something that has been chewing on me and was a fog. I never understood it.

This fourm just keeps getting better and better for me , Thank you Big Mike and all

Thanks for your post it reminds me what great information there was on confirmation,information risk and trade management among others.It helps me to get over my funk on the 50-50 thing.

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  #87 (permalink)
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Big Mike View Post
No trader wants to lose money.

But if you take the Derrick Rose example, embracing losers or being a good loser would be equivalent to Derrick missing a lay up. If he flips out, loses control, throws out all his strengths of how to play good ball and just starts fouling everyone and hoarding the ball, missing shot after shot after shot, then he is going to have a problem.

He doesn't do this. He is a good loser when you equate a loss to a particular shot within the game. He keeps his cool and doesn't focus on the missed shot. No. He moves on to the next shot, because that is what matters.

Traders need to be a good loser in the terms they need to learn that missing a lay up is part of the game. It is not a big deal, so don't make it one. By being a good loser on these individual plays, or trades, then the game as a whole (trading session, day, week) can come out on top as a winner because you've remained in control and allowed your experience as a player prevail.

Mike

I think what is unclear here in this comment was that a missed lay up or even series of missed lay ups makes Derek a loser...when nothing could be further from the truth. One missed lay up or missed trade does not a loser make.....however, its how you handle the missed lay ups that determine if you are a loser or winner.

A loser takes that mistake and extrapolates it out into the future as a repeating and unbreakable habit. A winner knows mistakes happen and just keeps playing their game. There is a world of difference. Slumps happen. During a slump, you play smaller, you play within yourself and to switch metaphors to baseball, you look for base hits, get hit by a pitch, walk, whatever it takes to get on base. Build small successes once again. But you have to keep swinging, you have to keep taking your shots.... you know that eventually, the slump will break and you'll be a super star again....in trading, that means continue to trade but trade smaller size, look for smaller winners...whatever it takes to build success again.

Anyway, my thats my view from the

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #88 (permalink)
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omni72 View Post
For anyone interested in FT71's post about the Theoretical Average he discussed in the most recent webinar, here is the link:

Anatomy of a scaling trade

On a totally unrelated topic, at about 1hr36min into the webinar it sounds like @BigMike has the same text notification ringtone from Dexter that I have. If so, I'd love to be able to figure out the odds of that happening.

Thanks for sharing that link. I think this is a good example of what traders should not do as FT71 refers to a few times. I'm not too familiar with FT71 and these are only my opinions of course. However, I've been trading for a long time and have managed millions of dollars in client and proprietary capital and know what makes sense and what does not. I think in the example provided in the link, it shows how one can get out of trouble while being biased on a direction.

I think it's extremely important to do one's "homework" so that they are prepared going into each day's trading session however, it is extremely important to remain open minded. You can have a "slight" bias on direction but I think it's more important to recognize and change what the order flow is telling you. By looking at the chart provided on how the day turned out, you were trying to swim against the current all day. Had you watched the open and order flow, there clearly was downward pressure on the market. Establishing a short position off vwap and cycling through positions on retracements and thrusts back into trend would've resulted in far more of a profit while taking risk off as the trend developed further. Remember, previous areas of support are often tested and when they're blown through, the market can reward you big time. Same goes for areas of resistance.

I understand the point of the description given but I think this was a case of being overly biased on direction and being lucky enough to have caught that first retracement higher which was the majority of the overall return in the trade(s). So, my point here is don't fight the order flow!

Anyway, I realize hindsight is 20/20 and it's easy to sit here and rip through a chart. My intentions for showing this are not sanctimonious in any way and are simply to emphasize that while it's important to have a game plan, you need to be open to adapting to what the order flow is telling you (sorry for being repetitive but I really want to drive that home). The chart below provides an alternative view which shows what I'm referring to based on what is happening TODAY. High and low volume nodes are important to watch as we can see how the market accepted and rejected price in the past however, the market is constantly changing and what was in in the past, may not be the case tomorrow which is why it is extremely important to remain open minded and trade what your screens are telling you.

I mean no disrespect to FT71 as I'm sure he is an excellent trader/teacher or whatever and this is an example of just one day but I had to step in here as opinions vary. I guess this makes the market move as people have different ideas on what is happening or will happen based on their trade set ups, etc.



Cheers,
PB

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  #89 (permalink)
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In terms of trade management, my experience has been that 'all in/all out' has always proven to be superior. I believe most average traders like scaling out because it makes them feel good. That in itself may be a valid reason to do it, but it generally does not perform better.

With enough skill and mathematical planning, I think 'scale in/scale out' may be quite ingenious, if you have the skill and account size and tools to scale into positions that are going against you, improving your average entry price, your risk/reward ratio, and then scaling out at various points and make the math work in your favor.

But, I also believe that 'all in/scale out' is probably the worst of them all, because when you lose, you lose on many more contracts then when you win. You are actually maximizing your losses when you lose, and minimizing your wins when you win. The only event that saves this approach, is when you get an odd ball extended run on your last contracts that makes up for the inherent weaknesses of this approach. Hoping to get that rare extended run, means you are requiring the market to do something extraordinary in order to make money.

I also believe that ' 'full stop/full target' is superior to trailing stops, and break evens for the typical day trader, and increasingly so, the shorter the chart period you trade. At the end of every trading day, I evaluate the theoretical performance of all my signals using trailing stop, break even, and full stop/full target approaches. The full stop/ full target approach almost always performs better. Of course your mileage may vary based on your particular trading method and trade management, but I think overall the result would probably be the same for most.

I'm including a pic of my excel sheet of the CL signals this Friday, comparing my different trade management approaches, if they were applied to each of the signals. I generally do 2:1 risk/reward with trailing stop and break even, 2:1 full stop/full target, and 1:1 full stop/full target. As usual 2:1 full stop/full target is the most profitable.

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  #90 (permalink)
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monpere View Post
In terms of trade management, my experience has been that 'all in/all out' has always proven to be superior. I believe most average traders like scaling out because it makes them feel good. That in itself may be a valid reason to do it, but it generally does not perform better.

With enough skill and mathematical planning, I think 'scale in/scale out' may be quite ingenious, if you have the skill and account size and tools to scale into positions that are going against you, improving your average entry price, your risk/reward ratio, and then scaling out at various points and make the math work in your favor.

But, I also believe that 'all in/scale out' is probably the worst of them all, because when you lose, you lose on many more contracts then when you win. You are actually maximizing your losses when you lose, and minimizing your wins when you win. The only event that saves this approach, is when you get an odd ball extended run on your last contracts that makes up for the inherent weaknesses of this approach. Hoping to get that rare extended run, means you are requiring the market to do something extraordinary in order to make money.

I also believe that ' 'full stop/full target' is superior to trailing stops, and break evens for the typical day trader, and increasingly so, the shorter the chart period you trade. At the end of every trading day, I evaluate the theoretical performance of all my signals using trailing stop, break even, and full stop/full target approaches. The full stop/ full target approach almost always performs better. Of course your mileage may vary based on your particular trading method and trade management, but I think overall the result would probably be the same for most.

I'm including a pic of my excel sheet of the CL signals this Friday, comparing my different trade management approaches, if they were applied to each of the signals. I generally do 2:1 risk/reward with trailing stop and break even, 2:1 full stop/full target, and 1:1 full stop/full target. As usual 2:1 full stop/full target is the most profitable.

I would say that it's pretty stupid to give back 50-100 (CL) ticks by not moving one's stop. However, if I recall correctly, you are going for like 10-20 ticks and that is very different from playing the larger swings.

The problem with stop moving or trailing stops is that people move them based on arbitrary numbers, that is never a good idea. It's much wiser to do so based on the "rhythm" of the instrument.

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  #91 (permalink)
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monpere View Post
In terms of trade management, my experience has been that 'all in/all out' has always proven to be superior. I believe most average traders like scaling out because it makes them feel good. That in itself may be a valid reason to do it, but it generally does not perform better.

With enough skill and mathematical planning, I think 'scale in/scale out' may be quite ingenious, if you have the skill and account size and tools to scale into positions that are going against you, improving your average entry price, your risk/reward ratio, and then scaling out at various points and make the math work in your favor.

But, I also believe that 'all in/scale out' is probably the worst of them all, because when you lose, you lose on many more contracts then when you win. You are actually maximizing your losses when you lose, and minimizing your wins when you win. The only event that saves this approach, is when you get an odd ball extended run on your last contracts that makes up for the inherent weaknesses of this approach. Hoping to get that rare extended run, means you are requiring the market to do something extraordinary in order to make money.

I also believe that ' 'full stop/full target' is superior to trailing stops, and break evens for the typical day trader, and increasingly so, the shorter the chart period you trade. At the end of every trading day, I evaluate the theoretical performance of all my signals using trailing stop, break even, and full stop/full target approaches. The full stop/ full target approach almost always performs better. Of course your mileage may vary based on your particular trading method and trade management, but I think overall the result would probably be the same for most.

I'm including a pic of my excel sheet of the CL signals this Friday, comparing my different trade management approaches, if they were applied to each of the signals. I generally do 2:1 risk/reward with trailing stop and break even, 2:1 full stop/full target, and 1:1 full stop/full target. As usual 2:1 full stop/full target is the most profitable.

All great in theory but at the end of the day none of it really matters, it is all profitable or all not profitable. The problem for most people if not all people is never the method, it is psychology, what is theoretically best tends to cut you apart the hardest where the rubber meets the road anyway.

What is far more important than worrying about the "most profitable" or "best" method is finding ones own personal path of least resistance . You see for FT his path of least resistance is all in/scale out. I can promise you that him using this method which suits his personal style and psychology versus someone striving for "the best" or "most efficient" way of taking points while disregarding other factors, he will win that battle every time.

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  #92 (permalink)
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The All-In/Scale-out sounds consistent with FT's philosophy. You should have conviction in your analysis to take the trade at all (All-in). Once you are in, any of a number of things can happen - news event, HFT crash, etc, so scaling some on the way to an anticipated destination makes sense, since you can only anticipate the destination, not force it there.

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DangerBoy View Post
All great in theory but at the end of the day none of it really matters, it is all profitable or all not profitable. The problem for most people if not all people is never the method, it is psychology, what is theoretically best tends to cut you apart the hardest where the rubber meets the road anyway.

What is far more important than worrying about the "most profitable" or "best" method is finding ones own personal path of least resistance . You see for FT his path of least resistance is all in/scale out. I can promise you that him using this method which suits his personal style and psychology versus someone striving for "the best" or "most efficient" way of taking points while disregarding other factors, he will win that battle every time.

Agreed. Even though my daily data tells me all in/all out would be most profitable for me, I generally start trading the strategy with trailing stop/break even and switch to full stop/target after being sufficiently positive. This is most comfortable for me given that I am very risk averse. Because of my personal psychology, I prefer to be less profitable with less stress, then the other way around. Another trader might absolutely prefer to generally take more heat in order to be more profitable.

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  #94 (permalink)
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I have following this thread with great interest. I wanted to add to Panda's comment except I wanted to use Bowling as an example because I am rather fond of the sport and as in golf and other sports there is the physical game (the setups) and there is the mental game. If you are diligent and practice correctly what you are doing is trying to perfect your stance, delivery, targeting and arm swing and tune your physical game. Your pre shot routine speaks to your mental game. In trading that pre shot routine I like to think of as doing your homework because a bad shot in bowing or golf often is linked to a poor setup...start poor finish poor. Those are things you can work on. The mental game however is much more challenging, you have to learn to read the lane (or the greens and wind conditions in golf) and adjust to the ever changing conditions. The elite bowlers who win consistently have mastered all the aspects of this. They make a bad shot, they spend about 15 seconds thinking about it, realize that its over and nothing can be done about it, they quickly analyze what might have caused it and they make minor adjustments and prepare immediately for the next shot. The great ones do this instinctively, yet I have seen many people completely fall apart after making one or two bad shots. They over adjust and end up completely self destructing over it.

My second comment is, and no offense to the other people who have come on Big Mike to do webinars and there was a lot of great information shared, but this series by FT 71 was one of the best I have seen in a long time. The points really hit home with me. And one other comment if I might. I suggest that instead of trying to pick apart and dissect individual parts of FT71's message and look for flaws in parts of his arguments in order to negate the whole thing (you know who you are) instead I suggest for the rest of us it might be better to focus on the entire body of information and the totality of the message he is trying to convey. First and foremost the guy is a pro, he's been in the trenches and has achieved a high degree of success in what can only be described as a very difficult arena with a very high attrition rate. He's made his chops and figured out how to survive and not only that thrive. He has achieve what so many of us here can only hope for. So when people like this offer to give of themselves and share their hard won knowledge with me for free I am all ears! Enough said about that

My background is in Engineering and I have worked with Statistics and Process Control in my career. I was also fortunate to have been an Intelligence Officer in the Military...more in that later. In fact my Masters Degree is in Operations Research and Statistical Process Control. I consider this probably a negative when it comes to trading. Although I'm not a statistician (thank God) I have had my fair share of the maths. So although I have had this background I still consider myself a simple country boy meaning I like to keep things simple so in my mind I have boiled things down to about the lowest level that I can to explain things to myself and perhaps this might help some of the other people around here. With regard to things like Process Control and Statistic's and Mechanical Systems the statistics were invented to describe relatively closed system and processes that have few variables and work best where you can control the environment and measure the results of what you are doing. When things start to vary too much from the mean then you know you have a problem and you start to investigate why things are going outside of your measured limits. When you have a dynamic system with many variables all of which are changing on the fly then normal statistical measures are in my opinion pretty ineffective because there are always exceptions and we are always trying to deal with and explain away ambiguity. Then you are into the realm of using probability, which really can be described as an educated guess because that's all it is a guess. The more data you have to support your guess the better you feel about it but in the end its still guessing. When you get to describing things like trying to predict where the stock market will go you are trying to do many of the same things that scientists and physicists have been doing for as long as there has been math models and computers. Things like trying to predict the weather or the location of a nuclear particle with some degree of accuracy is very imprecise. It is to say the least a virtually impossible thing for most of us to comprehend. What you get is a bunch of answers that boil down to this.. perhaps it will do this or it might do that but in the end we really don't know we can only give it our best guess but we are still going to go ahead and throw a number on it.

This has caused me a lot of problems psychologically in trading because engineers are oriented to deal with things being precise and we wrap ourselves in a blanket of mathematics and statistic's to try to explain the nature of the physical world and our environment. We tend to believe that there is a logical and mathematical answer to everything. Really what we are trying to do is retreat into a mental zone where everything is cozy and safe and has a logical explanation. However good information about this is only true in hindsight.

The whole discussion that FT71 was trying to make, at least I am interpreting it that way, was to say that there is always going to be ambiguity, that making decisions under uncertainty is hard and something you have to learn how to deal with is being wrong because we all like to be right. Nobody wants to be wrong, but its part of the game and you have to learn how to embrace it and get past it and move on . There are certain decision support tools you can bring in to use to help you understand your environment better and gain some semblance of situational awareness, but in trading you are operating in an environment where you are going to be asked to make decisions while in possession of incomplete or imperfect information. That's the rub, yet to be effective you have to learn how to function inside this environment and make your decisions based on the best available information and your judgement but you have to recognize that very often despite your best efforts you are going to be wrong. Personally when I started thinking about this it took me way outside of my comfort zone.

The only defense you have really, as in my bowling analogy, is to recognize very early on that things are not working right. You have to tune your Spidey Senses to see and know if something is working or its not. The faster you can make this assessment the better you are going to be in trading I think. Then you have to have the mental courage to either make an adjustment or get out of the situation, forget about it, move on and reset for the next go and most important be thankful for it. Over a long period of time thinking about this what I have come to realize is that everyone has a relationship to their environment and the trading environment is no different. Your brain is huge sensor that takes in raw data and analyzes it in different ways and applies filters to it based on your individual experience and biases and we all carry a lot of biases with us. The more times you deal with a situation the better you become in handling the variances that inevitably come your way because in markets I believe its ok to say things often rhyme but they certainly don't repeat in exact ways. One thing I have found that helps me in this regard is lots of screen time and really getting to know the action and nuances of whatever instrument you are trading. You can run all the simulators in the world but as pilots will tell you nothing beats actual time sitting in the left seat.

Being an Intelligence Officer has taught me that when you are dealing with human behaviors that individuals are totally unpredictable yet group behavior often is somewhat predictable. FT71 used a great example with stop placement...retail traders often place their stops a tick or two above and below a well known reference point. Does this mean that all retail traders place stops here or even a majority of traders? No it means that if you probe those areas you are very often going to find that there are indeed stops there and very often a sufficient number to make it worth your while probing there when you have a chance. How does he know this? Experience taught him this or the experience of others who told him that this was true. Those who have traded this kind of thing probably tested the idea over time and found out that it worked more times than it didn't. Is this an edge? Can you measure it? Probably if you do it 1000 times and you come away with evidence in the form of a bunch of ticks and put cash into your trading account. And doing this gives you a confidence factor and that is all. Isn't that all an edge is after all statistical or otherwise? For those who want to rely on metrics and backtesting and all of that stuff go ahead knock yourself out if it gives you that security and support to make decisions around. Because psychologically what are you really doing after all except trying to convince yourself through the use of math and stats that some observed behavior that you measured happens more times than it doesn't happen. So arming yourself with this body of facts gives you a greater confidence that when you are faced with a situation that looks similar to that which you measured that the data suggests you have a greater chance of being right than you do of being wrong and you feel less uncertain about the decision you are going to have to make.

So my takeaway from FT71 in this regard is this. Trading is decision making under uncertainty at its best. When you see the situation or setup develop do you really know with 100% certainty that if you take the trade and put money on the line that its going to work out? Because its uncertain and its a binary situation (either you are going to make money on the trade or you are not) you cannot know the outcome of the next event with certainty but if you have a lot of experience and what you see agrees with whatever decision support tools you use to help you chose to go or not go you can gain some sort of edge.

Actually things are getting better for me mentally because I started saying to myself that every trade I make is likely a loser until proven otherwise. That simple thing dumb as it sounds really helps me because I'm not worried about winning I'm focused on what is going to bite me and I'm looking for signs that things are running off the rails I'm keeping one eye always on the exit. Believe me for myself this was giant shift in the tectonic plates with regard to my mental attitude about trading and making trades. When I win a trade now I am surprised and I pat myself on the back mentally because I did something right to avoid losing money. In closing I also liked FT71's example about putting the chair next to you and imagining your Monkey is sitting there. For me that is easy I have my Thinkorswim Monkey sitting right on my desk looking at me all the time to remind me that my demons are always present.

Thanks for reading and I look forward to the continued discussion about these topics

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  #95 (permalink)
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Big Mike View Post
There are two outcomes to the next trade.

Win
Lose

Scratch = loss, commissions/time

Two outcomes = 50/50

We are talking only about the very next trade. Not a string of trades.

If you could predict the future, and you knew the next trade was a loser, why take it?

If you could predict the future, and you knew the next trade was a winner, why not trade 1,000 lots?

Mike

This is the only way you can look at trading. Each time you click that mouse, it has to be 50/50. This is an immutable fact. Because you cannot predict the future, with accuracy.

You can, however, become a profitable trader by the way you manage risks, buy the way you position your trades, by the way you manage your emotions, by the way you manage your business.

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  #96 (permalink)
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thank you Futures Trader 71 for a great webinar! i am an equities options trader nonetheless got alot out of it - very helpful indeed.

re the 50/50 argument, 90% of which i didn't even understand, nonetheless my guess is, people are confusing the fact that they themselves can be accurate more than 50% of the time - my own stats have gone above 50% for periods - with their ability to predict the outcome of the next trade. but our "accuracy" as traders is not so much accuracy in knowing which way the market goes, as in knowing when the *** to get out!

this said by a woman who is now ~ 20% invested in underwater AAPL calls, lol. however, the darn thing isn't breaking the 3mo connect-the-lows trend line, and that's my stop for these april & may contracts.

wow, now i know why i don't trade futures - 70K per contract?? eeeeek!

and "the monkey" - great image.

are there any musicians in the room? u know those electronic tuners. well, don't u wish u had one for yourself? so you cd breathe deeply until your thoughts are no longer sharp or flat.

such a good idea to divide yr account size by how many trades u think u will need to become profitable & make that the position size. see above uncomfortable AAPL calls situation

2 things i suspected, confirmed: backtesting is a form of procrastination & "confirmation" = too late! u gotta get in *b4* the pattern perfects or u just can't make enough money.

i think the best use for indicators is in trade *planning*, not execution. the night before, study those bollinger bands and rsis and god knows what else, make yr watchlist, then forget them next day and trade what unfolds.

confused though abt scaling out: are you using the *profit* from the 1st scale out as yr stop, or the whole amount of the sale? not sure how i cd incorporate this strategy into the options trades i'm doing but wd like to think about it anyways.

thanks again for a highly useful webinar.

Du sublime au ridicule, il n'ya qu'un pas. ~Napoleon Bonaparte
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Private Banker View Post
......

I mean no disrespect to FT71 as I'm sure he is an excellent trader/teacher or whatever and this is an example of just one day but I had to step in here as opinions vary. I guess this makes the market move as people have different ideas on what is happening or will happen based on their trade set ups, etc.

Cheers,
PB

No disrespect but maybe an analysis such as the one provided should have a prominent disclaimer. Have been inspired by the most recent commentary from Lance Begg:

"There is a tendency called hindsight bias in which the human mind views past occurrences as having been more predictable at the time than they actually were. And there is a confident belief in the fact that you would have entered at the right time, and quite likely would have targeted just the right area for maximum profits. The reality is far different. Uncertainty prevails at the hard right edge of our screen and there is actually no way we can know how we would have felt, decided or acted, were we actually trading this live. So... while this analysis actually will appear quite simple, it may not have been so obvious at the time."

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Big Mike View Post
No trader wants to lose money.

But if you take the Derrick Rose example, embracing losers or being a good loser would be equivalent to Derrick missing a lay up. If he flips out, loses control, throws out all his strengths of how to play good ball and just starts fouling everyone and hoarding the ball, missing shot after shot after shot, then he is going to have a problem.

He doesn't do this. He is a good loser when you equate a loss to a particular shot within the game. He keeps his cool and doesn't focus on the missed shot. No. He moves on to the next shot, because that is what matters.

Traders need to be a good loser in the terms they need to learn that missing a lay up is part of the game. It is not a big deal, so don't make it one. By being a good loser on these individual plays, or trades, then the game as a whole (trading session, day, week) can come out on top as a winner because you've remained in control and allowed your experience as a player prevail.

Mike

This is a good point. Babe Ruth held the record for most strike outs for years ( the records has since fallen). However, if you were trying to put together a baseball team, among average players, would he not be your first pick?

If the Babe got a big hanging breaking ball that looked like a balloon over the plate, and he popped it up, a ball he had hit for an HR 100 times before, would he have accepted that and said oh well? Doubtful.

But on his next at bat, I dont doubt he would be fully engaged taking his hacks.

Its not about losing, its about how about how one handles the loss Losses are a fact of trading. They happen. You learn more about yourself as a trader, as a person, by losses, more so than wins. Losses are a motivator, losses help you learn how to deal with adversity.

And losses in trading, are a fact.

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trendisyourfriend View Post
No disrespect but maybe an analysis such as the one provided should have a prominent disclaimer. Have been inspired by the most recent commentary from Lance Begg:

"There is a tendency called hindsight bias in which the human mind views past occurrences as having been more predictable at the time than they actually were. And there is a confident belief in the fact that you would have entered at the right time, and quite likely would have targeted just the right area for maximum profits. The reality is far different. Uncertainty prevails at the hard right edge of our screen and there is actually no way we can know how we would have felt, decided or acted, were we actually trading this live. So... while this analysis actually will appear quite simple, it may not have been so obvious at the time."

Soooo true.... unless you are a mechanical trader hehehe

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omni72 View Post
This didn't go against any rules he set up. Trades 5, 8, & 14 had a best scale out (BSO) of 5-ticks and got stopped out on the second contract. On trade #5 he didn't have a 1-tick stoploss; there was slippage of one tick when he took the 5-tick stop on the second contract. On the other two trades, the net was zero because one reached the initial 5-tick target and the 2nd reached the 5-tick stop instead of the 10-tick target. Trade #11 experienced a 1-tick slippage on the stop as well. He also experienced positive and negative slippage on full winners.

I didn't perform the actual tests but that's what my critical examination and due diligence indicates to me

Precisely. There was no movement of the stop. This is the Russell and so it sometimes trades THROUGH a stop or target. Part of the reason why I like trading it.

I think people want to see a fault no matter what is in front of them sometimes. That's ok too. In the end, I will take the next trade that comes along; no due diligence necessary since I know my risk has been handled.

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