Everything has to come together(you really need both). You can find a way to get an edge in the markets and still lose without proper mentality. It's kind of like what comes first the chicken or the egg. If you're able to find an edge and win, that improves your mentality which in return helps you be more calm and stick to your trades.
A lot of traders have the ah-ha moment but it can come at great cost. I think the biggest factor in trading is capital to be honest. Not having sufficient capital, leads to stress particular if its your only income. Let's say you need to hold onto a trade longer for it work, yet you have bills coming due at the same time. It can alter your judgement and make you exit early.
Not sure if that helps or even makes sense, just an observation.
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Next, create a trading plan about how you are going to exploit your edge. Your plan should be very systematic, but you should allow for situations you are permitted to deviate or do what you think is the right course of action given the circumstances.
Then, learn to become aware of when you are fearful, overconfident, etc. Your feelings will want you to deviate from your plan. Fight hard to follow your plan. But because we are human we will always have emotions, so instead of fighting them we need to learn to embrace our emotions in a safe way. Sometimes they are instinctively right, especially if you have a lot of experience in the markets.
For example, I have my rules, but if I am fearful about taking the trade because I feel the market is not favorable to my signal(s), I allow myself to trade a smaller position size. So I am embracing my feelings and respecting the 20+ years of experience I have following markets, but I am aware that if I follow the system with smaller size my winners will also be smaller. I acknowledge that up front and weigh the cost of trading scared in the face of my systematic edge. Then I take responsibility for whatever the outcome is.
P.S. Zero shares/contracts can also be a valid position size.
Last edited by shodson; September 6th, 2015 at 12:14 PM.
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It's never one thing, but any one thing can change profitability.
Trading is 100% mental and a complete whole body process. If you trade angry, over confident (emotional),
tired, caffeinated up (physical), or on drugs or alcohol, it will change how you think...
Hungry? it's gonna mess you up....ate too many jelly donuts.....it'll mess you up!
If you're clueless as too how the market moves, you may make $ here and there, but over the long term you'll lose and be spittin' in the wind....even if mentally you have your A game.
The true edge imo, is on-going maintenance....you have to evaluate ALL areas of your life that affect trading, pay attention to your own trends and LEARN from your mistakes....and monitor your trading all the time! do you think the best leaders and athletes don't continue to evaluate their performances?
If you're trading out of desperation, even if you understand markets and truly have an edge, it'll mess you up.
If you're greedy it'll affect position sizing and you may have large wins, but what do you do when an algo-slam spoofs the market and moves $800 a contract against you in the blink of an eye.....do you freak out close, hold on til you're $3000 per contract out, or should you never have been in the market in the first place?
Anything can happen and if your risk is too much you're screwed...if you're clueless, you're screwed....if you're emotionally out of tune and aren't disciplined to stay out the market, you'll be screwed.
the market is always open another day and every trade win or lose is what it is....learn something from it and then let it go.
Give it time....it takes a lot of time!
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Sometimes a little caffeine or alcohol might help. It's important to note that if any small thing can affect your trading to such a degree that you're negative, it might mean that your system isn't as versatile as you need it to be, you're not putting enough patience to wait for a sufficient pattern, or you're trading too large of size that it's clouding your judgement with fear and worry. I think too many traders get caught in the minutia of what can go wrong and they forget what goes right, and how to maximize on the positive aspects.
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lol....yes, I tend to draw towards caffeine, but maybe sometimes I need a glass of vino or shot of grappa
true true....focus on what can go right and take the trade, win or lose, its just a trade!
I've found I've made most of those errors and they tend to cost me(one time after going clubbing and having a blast I came home and checked the market and saw a 'great' setup on euro/usd.....i figured a little $ would be a nice night cap.......riiiiiiight....not so much lol)
The thing that gets me the easiest is distractions....that throws me off big time...
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Then I threw away small timeframes. Not saying they're useless, I'm just useless to them.
I download data in excel format, and just look at it. I notice things, then develop a hypothesis; If this, then that.
Then I test it. I used to test it by odds of success. 50%, 70% 90%, etc. Then I threw that out. I developed two systems that were +95% win, then papertraded it. They lost immensely, in short order.
Now I never test using win%, even now idk what my strats win% is, because it doesn't matter.
I test using P/L minus slippage and commissions. I call it $20 round trip per contract.
My strategies show me an overall P/L ratio, and a 21 day moving P/L ratio. If it starts declining quickly it shuts off, because that means the strategies are losing quicker than they're winning. Say 2:1 down to 1.05 in two trades. I wait for it to rise back up, then it trades again. Even that doesn't always work.
The main thing that helped was to throw everything away, and start testing for myself. Only after putting in my own screen time and leg-work does other's advice even remotely make sense. Build your own indicators by learning what indicators do and how they work. Learn what they are looking at and you will understand it better if you build it yourself.
Like @Big Mike says, it will only make sense why it fails only if you knew why it worked.
I hope this is useful.
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When I think about it, it's actually pretty simple. It's not fully psychology as it has a bit of trade management aspect too.
I TRADED WITH A SIZE I DIDN'T CARE ABOUT.
Once I did that, I paid more attention to my method and execution rather than profit/loss.
It's a tip from @Big Mike 's webinar. He recommended microforex or similar products. My interest is in Emini futures. So I traded SPY ETF for 3 months. Commission with IB was just 1-2 dollars. Even if S&P collapses by 100 points, that's 10 dollars for a stock. It won't keep me awake at night.
It works for lot of people, because it's REAL money, not sim. Dollar sign has a magic effect in our brain.
Last edited by Narcissus; September 18th, 2015 at 09:21 PM.
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And the hunger for action...how many times do I open a position on feel...way too many. Only practice account and I suck. Happy to be learning make believe loses : )
So much progress yet to be done...hai carumba !