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Why most traders fail, in 1 minute of an interview


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Why most traders fail, in 1 minute of an interview

  #21 (permalink)
 
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 Massive l 
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Schnook View Post
You're describing returns statistics, which is what the edge produces. But the edge itself is not truly definable unless it's repeatable. I realize it's a very subtle distinction but an important factor in trade psychology. A purely discretionary trader can't backtest or forecast his strategy the same way a systematic trader can. Nor can he as easily diagnose problems or errors when they arise.

You can take a discretionary method and code it and backtest it. There is still a method there you're following. Rules you're adhering to. Unless you're just going off of your gut and pulling the trigger whenever something looks "good" and in that case good luck. My strategies that I coded into thinkorswim require me to still pull the trigger manually. I follow the strat but it's not automated and my results are repeatable. Also, if you trade off of gut or without a defined system and you ar profitable then your stats show your edge, even if it's a mental edge...there's an edge and if you falter then a sports psychologist can diagnose your problems and errors.

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  #22 (permalink)
 
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Tap In View Post
The number one reason most traders fail is lack of a tradable edge. Everything else is commentary

I could not disagree more.

A trade-able edge is obviously a necessary component. I'll make one up on the fly. Not very robust or sophisticated, but here's a candidate. Maybe it produces positive returns, maybe not.

* When the closing price is > 200SMA, on the day that the 8 EMA crosses over the 20 SMA, only take long entries
* after 1 lower closes, buy the open on the next day
* close at 1% lower or 3% higher

A discretionary edge in the current market environment is: buy any dip, set reasonable risk parameters, and watch the money flow in. Seriously.

These are extreme examples but the point remains: there are a plethora of ways to make money in the market. Perhaps the easiest is a trend day. You see it set up, with all the characteristics of a trend day present early on. The market grinds higher, and at the end of the day, after a 1% steady move higher in which almost any buy would have taken little heat, you ask yourself why you didn't take the trade. Your edge was present--you identified it. But something kept you from pulling the trigger. Or, you pulled the trigger, the market went a few ticks in your favor, and you got out. These are trading errors, by a reasonable definition, and it does not matter how trade-able that trend was -- the execution was lacking.

The skills necessary to trade an edge are far more than just "commentary" -- they do not come naturally to most, as proper execution of an edge flies in the face of everything else that tends to work in life. That's the whole point of this thread.

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  #23 (permalink)
 
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 Tap In 
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josh View Post
I could not disagree more.

A trade-able edge is obviously a necessary component. I'll make one up on the fly. Not very robust or sophisticated, but here's a candidate. Maybe it produces positive returns, maybe not.

* When the closing price is > 200SMA, on the day that the 8 EMA crosses over the 20 SMA, only take long entries
* after 1 lower closes, buy the open on the next day
* close at 1% lower or 3% higher

A discretionary edge in the current market environment is: buy any dip, set reasonable risk parameters, and watch the money flow in. Seriously.

Are you trading these "edges"? If not, why not? They seem simple enough to execute.

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  #24 (permalink)
 sixtyseven 
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Tap In View Post
Are you trading these "edges"? If not, why not? They seem simple enough to execute.

Josh's point is that even proven evidence based simple edges aren't money in the bank, because the human sitting behind the keyboard messes it all up.

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 Grantx 
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josh View Post
Curious if anybody fundamentally disagrees with the statement at 4:35 as a fundamental reason for failure among traders:

"Most people, when they are about to make a decision, want to make the right decision -- and that is a guaranteed path to failure, because you'll never be able to forecast the future."

Isn't this really the essence of what failure looks like for traders? I know that it is an all-too-familiar statement for me.

I don't believe an edge exists in the market for these reasons:
  1. The market is way too efficient.
  2. The market is bipolar. One day it is Jekyll the other day its Hyde.

It goes back to what you were saying about THE Man! Mark Douglas. If I could condense the entirety of his wisdom into one single sentence it would be:
Remove yourself emotionally and trade the numbers.

As far as I am concerned these are the steps to achieve this:
  1. Work with probabilities and combinations that suit your personality.
  2. Don't watch your trades. Allow the probability to achieve an outcome.

Personally, I think that the desire to be right is simply the consequence of the core problem: The compulsion to be doing something. To get in and make it happen. Almost every single thing you do in life requires that you engage proactively to accomplish your objective. And you had better act quick otherwise you will lose your opportunity to someone else that saw the same edge but reacted quicker while you were scratching your arse with a confused look on your face deciding whether to act or not.

Trading is a bit different in that you are required to override those natural impulses. The competition now is against yourself. Its not a race anymore, its a game of patience.
The question changes from 'what must I do?' to 'what must I stop doing?'

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  #26 (permalink)
 
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 Massive l 
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sixtyseven View Post
Josh's point is that even proven evidence based simple edges aren't money in the bank, because the human sitting behind the keyboard messes it all up.

sure but an edge wasn't presented, just a candidate. Hard to talk about execution when the foundation (strategy) isn't there to begin with. OF course I didn't expect him to post a strategy with an edge because even the worst edge is better than no edge. If someone can post a 51% win rate and a 1.2 risk reward with a trade a day for 6 months I'd be content but the reality is I doubt anyone will because the edge right there will produce $1000s of dollars over 6 months in the futures market. No one wants to share that ha they should exploit it and hammer it until it stops working. Then we can talk about execution and if it's not automated then the chances of not executing said edge is huge especially if they're not a professional. So I do agree with Josh in that regard.

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  #27 (permalink)
 
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Tap In View Post
Are you trading these "edges"? If not, why not? They seem simple enough to execute.

As I said, I wrote this on the fly and it's merely an example of a strategy. My point is that such edges exist, and they can be that simple. My edge is not the subject of discussion right now so I won't get into it.



sixtyseven View Post
Josh's point is that even proven evidence based simple edges aren't money in the bank, because the human sitting behind the keyboard messes it all up.

Exactly.


Massive l View Post
if it's not automated then the chances of not executing said edge is huge especially if they're not a professional. So I do agree with Josh in that regard.

That's really the point, yes. You currently have an automated strategy and you manually enter/exit trades. If you intervene, it is an error, and you will almost certainly make less money by doing so.

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  #28 (permalink)
 
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Grantx View Post
I don't believe an edge exists in the market

...

As far as I am concerned these are the steps to achieve this:
  1. Work with probabilities and combinations that suit your personality.
  2. Don't watch your trades. Allow the probability to achieve an outcome.

The question changes from 'what must I do?' to 'what must I stop doing?'

If an edge does not exist, then you should not be playing the game. You gamble in Vegas, not because you expect to win, but because you have fun. Trading can be fun, but you should only play if you have an edge, unless you are merely doing it for fun, in which case it's a cool way to gamble.

I think it's ok to watch and work with trades, but it depends on the level of the trader. For example, the edge itself may involve working with order flow in such a way that it's used as the exit. Setting the target and leaving it is a viable strategy, but for others, this "set and forget" is not part of the strategy at all.

I agree very much with your last sentence -- there are many behaviors we must eliminate to succeed.

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Mark Douglas talks a lot about changing beliefs at the core so that your actions become a natural expression of who you are. At that point, the runner/athlete/trader/etc is not showing discipline by exercising, eating well, trading calmly, etc., they are simply naturally expressing who they have allowed themselves to become. To paraphrase Mark, 'discipline is what bridges the gap between who you are and who you want to be, when you're not there yet' ... It's a very powerful concept: you only need discipline until you have internalized what the discipline accomplishes. It changes the dynamic of the struggle altogether -- "hey, maybe I won't always have to force myself to go to the gym -- at some point, I will be compelled to go, because I've internalized that into my identity" ... quite powerful really.

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  #30 (permalink)
 
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 Massive l 
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josh View Post

That's really the point, yes. You currently have an automated strategy and you manually enter/exit trades. If you intervene, it is an error, and you will almost certainly make less money by doing so.

...or more money. I'm actually out-performing my automated strategy.

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