It's not really depressing, these are the actual statistics of retail traders. It should motivate you to work harder, and smarter, to avoid ending up like the majority. I would emphasize that trading really doesn't have anything to do with having a positive mindset. Of course, being self-destructive will separate you from your money. However, the critical part is having a system with positive expectancy. This will most likely give you a positive mindset automatically anyway. Being positive without having an "edge" can be disastrous, a healthy dose of skepticism is recommended...
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Having a structured approach with a positive expectancy is a necessary condition, as @jstnbrg has put it correctly.
But this is just the first step on the path to become a successful trader. Even, if you have an approach with a proven success history, you may not be able to trade it
- because you lack the discipline to execute it
- because you are sitting in front of your screen for too long a time and suffer from attention deficits
- because loss aversion causes you to use Martingale strategies or cut your profits short
- because your software goes long, when you want to enter a short position
Once you have an edge, your learned habits become the most important factor for success. Psychology is the tool used to unlearn bad habits and learn better habits. So psychology becomes most important in that second phase. It is obvious that a system trader is not as dependent on psychology as a discretionary trader. The system trader, however, has to master technical challenges.
Once you have an edge and you have adopted the habits of a successful trader, money management becomes the key.
I think that the process of becoming a trader is slow and there are distinguishable steps.
Step 1 -> Focus on entries, setups, exits, technical and fundamental analysis to develop an edge
Step 2 -> Learning good habits, unlearning bad habits, time management, nutrition, balance of life
Step 3 -> Focus on Risk and Money Management
Step 4 -> No idea, somebody else might tell me.
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I completely agree! My point was more that "a positive mindset" won't make you profitable. You can't "will" yourself successful in trading, something you can do in "most" vocations.
I might be a bit biased when it comes to the psychological aspect of trading. I have never really had a problem with fear or patience. I started sports betting while I was in high school, and progressed from there. I've always enjoyed extreme sports, and skateboarded for several years. Skateboarding is a lot like trading, it is extremely technical, but psychology is also a big factor. It is paramount to keep your calm and overcome fear, otherwise you'll end up with the rail between your legs. And trust me, you don't want that!
As I have a gambling background, I have alway been focused on risk and money management. This is where I have spent most of my energy with regard to system development. I have a tendency to believe that people suffering from psychological distress during trading, usually have not spent enough time refining their risk parameters. If you have done extensive research on the feasibility of your edge and your trade management rules, you should have enough confidence to trade your system without having a mental breakdown.
I guess you can argue that the ability to handle risk is genetic. Maybe not everyone can be a trader?
Having read a lot about neuroplasticity over the past few years, I firmly believe that people can alter their personality quite extensively. But there are some limitations. Maybe it all boils down to hunter vs. gatherer? In trading you need to be both, but it would be easier for the hunter to take on the role as gatherer than the other way around.
If I'm coming across as arrogant, I apologize, that is not my intent. It's more that I am a sensitive person, and having witnessed people lose their savings while trying to become a trader, has made its impact. Trading can lead to personal tragedies and dissolve families. A lot of new traders have an unrealistic approach to this business, and are not willing to do the necessary work. The sophistication of the competition should be exceedingly humbling, and one should do the legwork before risking one's capital. If one believes that trading is 95% psychological, it is my opinion that one will end up chasing one's own tail. But that's just one man's humble opinion. Take it for what it's worth...
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Seems like the good trades take care of themselves, but its how u scramble on the bad trades is what keeps ur money,, course scrambling seems to be the hardest thing to develop IMHO.. The price only makes a difference when u exit....
No meant scrambling,, I have observed many successful moderators pay rooms over the last 10 years.. The moderator made money the rest (myself) were the 95 loser /5 winner rule, even though everyone was trading the same "winning system". What the moderator seemed to have was the uncanny ability to ignore bad entries that the system produced ,have a tighter stop and creative exits, other then the blah blah so many tics stop.. Most did have a catastrophic stop but non of that xxtic stuff from the last swing,, etc,,,,xxxxx enter ur own,, that is obvious to everyone, and the pros just run ur stops.
Seems like in trading, size (of bank account) does matter...
My point is that this is like the "broken" play in sports, golf,football,etc the great ones(5%) make lemonaid the 95% just get the lemons.
If u have a truly "mechanical"plan, lets code it into a bot, for everyone to see that mechanical is good. If u can't write the rules so it could be coded , it aint a mechanical plan..
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The poster makes a good point. Almost all great pit traders that I knew could be very creative in getting out of bad trades. I was like that. Sometimes I would just take a loss, but often, for example, if the yield curve was very strong and I was long Five Year Notes, I would sell 30 year bonds against the trade and then just wait a long time. If the curve continued strong (and why shouldn't it, I'm basically saying it was a trend day) I could often scratch a bad loser. Of course, unless I continued scalping, I would forgo profit opportunities while I was waiting, often in the end a bad deal for a relatively high frequency trader. Guys who traded the curve for a living usually averaged into trades; their first entries on a FITE (five year/ten year spread) were often initially bad, and they would add more units at "better" prices, or they would "butterfly" off the trades, selling NOBs (ten yr./thirty yr. spreads) against their bad FITEs.
Sometimes I would have on a FOB that I had done deliberately, not selling 30 yrs. against a bad 5 yr. position but because I liked the trade, and it maybe would be a disaster. If one side of the spread was trending and the other was not, I might get out of the loser and just let the winner run. It was amazing how many times that worked, and often I'd go for a much larger profit on the good leg than I usually took while scalping. It was in the category of "heroics".
Many years after the fact, my reaction to this seat-of-the-pants risk management is like the car ad where the caption warns "Professional driver on a closed course, don't try this at home". It's bad trading for all but the best capitalized and experienced traders, because if you are successful a couple of times you forget about your discipline. When I did it in the pit I still set myself an absolute "get out" point.
In my opinion, all trades can be categorized in one of 4 ways, each of which requires a different exit strategy. The four categories are, 1: a good entry level with a well conceived trade, 2: a poor entry level with a well conceived trade, 3: a good entry level with a poorly conceived trade, and 4: a poor entry level with a poorly conceived trade. In the first case the trade will never be much against you and you squeeze the trade for a large profit. In the second, you can afford to wait even though you initially take heat because the market will eventually make you whole. In the third you may get a quick profit, and you should take it because time is going to turn the trade against you. In the fourth you should take your loss the second you realize it was a poorly conceived trade, because time will just make it worse. The big trick is recognizing case 3, because the profit may blind you to the fact you made a mistake. I realize that some of this may seem odd to the non-pit trader; why would someone make a poorly conceived trade? The reason is because in the pit we did not always get to choose the trades we made. Our job was to create liquidity and that meant often taking trades we did not like. This was especially true in the 30 Year Bond pit. Harris Brumfield, founder of Trading Technologies and a truly great trader with cojones the size of watermelons, left the bond pit because brokers were constantly taking him out of trades he wanted to be in.
A question about these trading rooms, as I've never been in one: can you talk to the moderator? Can you ask him what he saw this time that made him deviate from his rules? If not, what are you paying for?
"You don't need a weatherman to know which way the wind blows..."
Last edited by jstnbrg; April 23rd, 2011 at 10:35 PM.
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