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Trading: Oh what a tangled web I weave, When I want to take profits in trading
Frequency: Several times daily
Duration: Years
Posts: 1,742 since Nov 2014
Thanks Given: 3,435
Thanks Received: 3,012
Yup. Decision made.
I am going to become a full-time trader from October 1, 2016. I informed my close family members so that I am accountable. My wife is already aware of my plans 'sometime next year' but she knows the official date now
What's changed? Why am I confident and committing now? I believe I have a solution to address my biggest barrier in trading.
If you understand the concepts of Cognitive Behaviour therapy (CBT)used by Psychologists, what I describe will resonate with you.
It's essentially the link between THOUGHTS, FEELINGS AND ACTION.
A. THOUGHTS - My belief system is - I WANT TO BE RIGHT.
Though I understand the concepts of odds/probabilities in trading, and the reality that the outcome of every trade is random, I struggled to ACCEPT it in my heart. When my trade fails, I blame myself for missing SOMETHING. I end up looking for trivial details and hoping to spot it in my chart when I see similar pattern the next time. What that means is that I see failed trade as MY FAILURE or mistake.
B. EMOTIONS
This failed trade has several consequences but the most important one is Emotional impact. IT HURTS. This damn loss always hurts. The reason is, at some level, it triggers emotions associated with personal failure.
3. BEHAVIOR / ACTION
The next logical step is to avoid those painful feelings. How did I do that? By NOT taking lossess. (Infact, I am doing that right now with my swing position but that's for another post) My behaviour of avoiding losses meant Not using stops. I justified that destructive behaviour with some -ve reasoning like Markets hunt for my stops and even some +ve ones like 'Look @tigertrader or @Big Mike, successful traders don't use hard stops'.
What happens next is familiar to most of us. Getting married to positions, confirmation bias, ignoring true market information and in the end turning a small loser to a big loser.
Now, HOW did I change that.
First is the change in my thinking. Obviously it's a slow painful process and help from members here but Deceased Mark Douglas recent video changed my perspective. Bottom-line - When your trade fails, what that means is simple. You expected hundreds of bigger traders to take thousands of contracts in the same direction as you but AFTER you. If they didn't follow you, whose failure is it?
I promise you that it felt like I was stuck by lightening when I listened to that clip.
Once my thoughts / belief changed, I focused on modifying my behavior. 2 weeks ago, I started a new journal and method, GIGUL, (Get in, Get Up and Leave). It was actually intended to deal with my trading restriction of only 60 minutes due to day job but I wanted more data to analyse my habits and method. Just the simple action of Entering a trade and NOT CHANGING TARGETS OR STOPS, NO MATTER WHAT, ( I repeat NO MATTER WHAT) has done wonders. I truly get a worry-free state and often don't even think about the outcome of my trade whilst working.
I MAY BE CURIOUS BUT DON'T CARE ABOUT THE OUTCOME.
That's one small step for a trader but a giant Leap for Me I believe I am on the right track.
Strongly agree with this. I am currently trading stocks and etfs to rebuild my confidence.
I had success in day trading forex during 2012 and 2013, but then my edge disappeared as the markets changed.
I moved to futures in 2014 and I lost half of what I earned in the two preceeding years.
I would say that futures should never be a starting point for a trader, but rather an arrival point after many years of success.
there is a big difference between reconciliation and acceptance and intellectualization and avoidance. reconciliation is the action of making one view or belief compatible with another, and accepting its inevitability. intellectualization is a defense mechanism where reasoning is used to block confrontation with an unconscious conflict and its associated emotional stress where thinking is used to avoid feeling. it involves removing one's self, emotionally, from a stressful event. in the former case, one does what’s right because it is the correct thing to do. in the latter case one does something because it makes them feel comfortable. comfort is an avoidance mechanism; and a terrible one that will always lead to significant underdevelopment or failure. therefore, a trader must be able to find the balance of not being complacent nor dogmatic, but also fully committing mentally with sizable risk when a strong thesis is in motion. so you have to ask yourself, “am i being too dogmatic with my use of hard stops, because it makes me feel comfortable, or is it because its the best process for making money?” then ask yourself if you are giving yourself an opportunity to succeed, to emerge, to realize your full potential as trader, or are you stultifying your progress in order to feel more comfortable and at ease when you are trading.
yes, a trader must accept the inevitability of the vagaries and vicissitudes that come with trading, and one should always have a feeling of respect for any amount of money made. however you must fully exploit one’s edge in a highly competitive environment where the most brilliant (and sometimes evil) minds fight for their share of profit. this attitude is not to be confused with bravado, ego, or thoughtless “full-on” risk taking; rather than an approach that is built on a foundation of strong conviction and self-confidence, and predicated on thousands of hours of screen time, hard work, and creative thinking.
mushin repeatedly comes to mind. it is a mental state into which very highly trained martial artists are said to enter during combat. they also practice this mental state during everyday activities. the term is shortened from mushin no shin a zen expression meaning the mind without mind and is also referred to as the state of "no-mindness". that is, a mind not fixed or occupied by thought or emotion and thus open to everything.
in essence then, the trader as warrior, must sit down in front of his screen, free from thoughts of anger, fear, greed, ego, and comfort, so that he is free to act and react towards an opponent without hesitation and without disturbance from such biases. at this point the traders actions are guided by what’s best for exploiting the trade while still controlling risk, and not by what makes him feel safe and comfortable.
"If you aren't in over your head, how do you know how tall you are?" -T.S. Eliot
"You have to learn the rules of the game. And then you have to play better than anyone else. -Albert Einstein
Very insightful words. I highly appreciate your time and effort to educate us and enhance our trading game.
I often have to read your posts 3 to 4 times, without distraction, to get the full essence of your wisdom.
I agree with your comments about comfort, avoidance and rationalisation.
However my twisted mind came to an inverse conclusion with regards to use of stop loss. (avoiding its use, I must say)
When I take heat on my trades, I am aware of my uncomfortable feeling. Instead of accepting loss, I wrongly assumed that 'uncomfortable feeling means I was doing the right thing' and take it up to an extreme puke point.
best laid plans need to be constantly revised based on the conditions, otherwise you are just making binary bets with no opportunity to act on new information. what's important then is a process that alerts you to failure as soon as possible i.e., strong feedback vs. weak feedback. only in this way can you avoid putting yourself in these uncomfortable situations. there are times when a trade is against me and i am puking, and just as many times, if not more, when i am adding to the trade.
Wow! Nailed it. Here is the the issue how fast is the fast enough in this HFT world? For example take recent example of range market to rip in your face rally after very bad jobs report and before that damn every BTFD worked until it failed miserably but now we are back to those conditions. So in these scenario's maybe a puking point stop (Dollar amount or percentage etc) might be helpful. How do you build that process (that alerts us to failure as soon as possible)? I am assuming by experience but that experience doesn't matter in making right decisions in trading for example if that experience matters then every single time we will not hear stories about Gartman and Doug Kass. As recent as Big Mike sticking to swing position for long enough of course, position size, puking point, personal situations and other parameters are different for every trader but my question is how do you build that process and know that process is right or wrong? clearly experience is not enough (I am not looking for an indicator). This exact point is where swing traders like me and Narcissus are struggling, I admit I am not fast enough that's what makes me to hold on to loosing position because after certain pain point mind get's adjusted to the pain. Thanks again for all your insights and we do miss here on this futures.io.
the human mind is a living flow which we experience reality and interact with it. but as einstein stated, "reality is merely an illusion, albeit a very persistent one". this sentiment is why he placed so much emphasis on intuition, imagination, and a " feeling for the order lying behind the appearance." new traders are woefully ill-prepared to begin trading because they do not possess the knowledge nor the perspective necessary to comprehend the reality of the market. and to make matters worse, they don't believe it's a prerequisite for success. even after having dipped their toes into trading, they trade the market same way day-in-day-out, without regard to the context of the market. to make matters worse, the one strategy they employ is not that great to begin with.
inevitably they make random trades and of course, they experience random results. i am eternally puzzled by the naivete of the new trader and their reluctance to gain knowledge about the markets. a new trader's craving for tools that provide concrete results is evidence of their difficulty in dealing with uncertainty and the intangible, hence the unconditional reliance on trendlines, patterns , indicators, and repetitive methodologies. the allegedly “objective knowledge” thus acquired imposes representations that actually exist only in the mind of the trader, since they are not the result of real interactions in the market. this type of illusion of control leads to assumptions that claim to be “realistic”, and “pragmatic”, when in fact they are the opposite of that.
the market is neither efficient nor inefficient; it is not random nor systematic. these are attributes given to it by humans. the market is a complex system that is multiple, diverse, and is in constant change. the market is self-organizing which leads to the emergence of adaptive behaviors in response to changes in the environment. the market also has an identity i.e., core characteristics that identify the system that remain even when it evolves and changes. like the human body, the market also feature homeostasis, which determines how the system maintains its relative instability. and, the market as a complex system, can also be qualified by its permeability, which determines how it reacts to the environment. these dimensions are not static and their relationships are not linear. so, linear thinking will not serve a purpose in this environment.
this is especially relevant to the current market. as previously explained rapid re-balancing by etfs and risk-parity funds made for chaos as "price insensitive flows," determined by algorithms and risk limits (VaR) pushed the market away from fundamentals, while HFTs were quick to withdraw liquidity which exacerbated market instability. the lesson to be learned was that mechanical selling is insensitive to price and trading off of arbitrary lines and perceived levels of s&r was not best practice. the debate is still open as to whether the btfd psychology has re-emerged or is in the process of morphing into something else. one rule that never changes however, is that when the perception of value presents, buyers will reappear. the resulting rally laid testament to this phenomena as the market was lead by the very stocks that were beaten down the most.
i realize this sounds very theoretical and not practical, but it is at the core of your dilemma. you can't take a linear approach with a complex system, because it is non-linear by nature. it's not as simple as cause and effect, because the whole is greater than the sum of its parts. so you as a trader must become self-organizing and adapt your thinking in response to changes in the market and like einstein said, " raise new questions, new possibilities, and regard old problems from a new angle" this requires "creative imagination in order to make real advances." he also said, "the only thing that interferes with my learning is my education."so be careful what you read, "any man who reads too much and uses his own brain too little falls into lazy habits of thinking." - guess who?
Trading: Oh what a tangled web I weave, When I want to take profits in trading
Frequency: Several times daily
Duration: Years
Posts: 1,742 since Nov 2014
Thanks Given: 3,435
Thanks Received: 3,012
Very useful comments. My dilemma is this.
Most beginners, including me, enter a trade and then they tend to SELECTIVELY pay attention to new information. I guess we are naturally wired that way. It's mostly unconscious due to a variety of bias and cognitive errors. Very often this leads to either closing out a position too early or holding on to it for too long for wrong reasons. aka Fear & Hope.
Let's pretend that I have a decent methodology and I enter the market for the right reasons after reasonable analysis ( I am probably few years away from that, but it's ok)
My plan is to make 100 trades in 3 months with real money but limited risk. I see 3 benefits in this.
1.Better discipline (especially with my stops which is a huge isssue for me and to move away from scalping mentality)
2. I may begin to interpret market fluctuations in a SOMEWHAT NEUTRAL way, b'cas I can NOT change my stops/targets are fixed.
3. Trying to see patterns in my dumb trading habits and also where my winning trades come from. For instance, I learnt that I am Permabear and hence don't do well on Gap UP days.
I am not planning to do this as my long term style though but felt this may be a good start.
What sort of habits you would suggest to beginner traders in their first 3 years of training ONCE THEY ARE IN THE TRADE? How can they reach the stage of objectivity/flexibility you mentioned, during early stages of training?
I agree with you that at expert stage, you internalize decades of training and intuitively know of subtle anomalies in patterns. But we all have to start somewhere basic and I thought about the above method. I sincerely appreciate your thoughts.
You can be harsh. I am here to learn and (I think) I have a thick skin.
