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Confidence in discretionary trading


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Confidence in discretionary trading

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  #31 (permalink)
gaberoz
Kyiv, Ukraine
 
 
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To be confident in this or that variant of work, you need to devote enough time to training and hone your skills. When I started working with a broker from Amarkets, I went through these stages.

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  #32 (permalink)
 ursus 
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AllSeeker View Post

Confidence is derivative of many things that come together in body of trader, which includes probabilistic backing, experience, faith in own ability and proper understanding of your own psychology and risk profile.

Anything related to psychology tends to be reciprocal. If you feel sad, for example, hold a pencil between your teeth, so that the ends of it stick out of the corners of the mouth. This little trick activates muscles involved in smiling and, surprisingly, improves mood. So, if you are happy you smile, and, if you smile - you will feel happy(-er, at least). Acting happy also helps getting out of foul mood.

The point is, you can and should "fake it until you make it". To be able to sit through an adverse price moves, not to end the agony before the stop is hit, as well as avoid the temptation to move the stop away, not to take profit too early and other silly things one needs confidence to start with. Self talk in a situation like this is important, I think. Positive thinking is not something metaphysical (or maybe it is, doesn't matter). Visualizing the result helps making better decisions on a subconscious level. Here is a good analogy. You are in a foreign town and need to get to the tower on the other side of it. You can see the tower, but you have no idea of the outlay of the streets. So all you can is keep an eye on the goal and move your feet. I think this works for everything, including trading.

I have similar problem, my confidence level is not what it was twenty years ago when I had good trading results. But I know that I have to spend at least ten minutes a day in silence, seeing myself being consistently profitable trader, feeling it, living it. Someone said, most people trying to get rich are trying "do - be - have" approach: doing what rich folks do, which will lead them to being rich to having toys they want. Whereas the correct way is to "be - do - have": become rich in your mind first, then do whatever is needed, then toys will come.

It all sounds a little wu-wu, I understand. But thoughts become actions which lead to outcomes. The trick is to develop confidence similar to that needed to fetch post from a post box. You just make a fe steps and get it. Something interrupts you - no big deal at all, you do it later. What I am saying is, working on confidence as the primary driver is a worthwhile goal.

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  #33 (permalink)
gaberoz
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I think you need to be very careful with this. Traders need to keep their information very strong at all times.

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  #34 (permalink)
 Keab 
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chipwitch View Post
This is a question directed at self-described successful discretionary traders.

How does your confidence in your trading profession compare to the confidence most people feel in their non-trading profession?

To clarify, as a trained ultrasound tech, I had a high degree of confidence in my ability. While I wouldn't say that I have confidence in my ability to trade, there have been moments where I did. But then, some series of losses wipes it all away. I began to wonder if having the kind of confidence one generally has in their abilities in most careers is even possible with discretionary trading.

I understand that there are various aspects that can give one confidence. I have confidence that I can manage risk and make sound decisions around that. This is about having a high degree of confidence before entering a trade, only to find out 10 seconds later that you just bought at the high, sold at the low, or some other equally humbling result. I don't expect perfection of myself. One such loss, meh, I made a mistake. Oops. Move on. Next one, similar. I start trying to figure out where I went wrong. It's in that scrutiny that I begin to realize, after 4 months eating and breathing trading, I have no better clue than when I started.

Sure, I still get those trades that restore some small measure of confidence. But it comes and goes. Does that ever go away for you successful discretionary traders? At some point, does it just come, and not go?

So, this question is about the feeling of confidence. Do you consider yourself in possession of it in the same way a surgeon might feel about their career? Does a series of losses above some anticipated threshold shake your confidence?

Please describe your confidence and compare it to the confidence you had in a previous career, sport (golf?), hobby etc.

I read this thread last week and something has been in my head since then. I hope I can put it into words.
I should make it clear that I do understand what you mean by discretionary trading vs system based trading.

I find it interesting when you state " I have confidence that I can manage risk and make sound decisions around that. "
I think that this is because you can clearly define these parameters and can control it. It is specific and measurable and you can follow the system that you have in place.

You then state "Sure, I still get those trades that restore some small measure of confidence. But it comes and goes. "
Compare the way you feel when managing your risk (where you feel confidence/assurance in your competence in this area) to these successful trades that restore your confidence. Which then fades over time.

Could the problem be a simple one, and that is that you simply don't know what makes your profitable trades versus the ones where you lose?
If you do not have a systematic (please continue reading so you can see my point on this) way of trading the market then surely every discretionary trade that you take has an air of randomness to it? And if that's the case, confidence in your trades will be hard to come by in the absence of waiting for a clear signal/zone/whatever you want to call it.

The thought that I couldn't rid myself of that surely a discretionary trader has some internalised rule based way of deciding when to trade, it is simply not as rigid and defined as a systematic trader. There might be 5/10/15/who knows many different factors that swirl around discretionary trading. This will be based on trade location, price action, order flow and volume and other factors. And even of they are harder to define in a systematic way, surely a discretionary trader has a checklist (residing in the subconscious) similar to a systematic trader in order to know that certain parameters have been reached? How else would a discretionary trader know when to enter a trade otherwise? When I say checklist it won't literally be a "has x occurred. If so then do y", it will be more complex than that, but for me it is the complexity that is the difference between a systematic and discretionary trader. I think they're the same thing, but one has a lot more bells and whistles attached.

I hope that makes sense. What I'm trying to say is that a discretionary trader is not actually that different from a systematic trader. There will still be criteria that will need to be fulfilled, but these may be more ethereal and reside in the subconscious which makes it harder to work out why some trades work and why some don't. The inability to define these ethereal (sorry to keep using the term but can't think of another) criteria means that, as you have stated, "after 4 months eating and breathing trading, I have no better clue than when I started."

Edit:
I just read this and thought it would be interesting to apply to your discretionary trading approach:
"1. Don’t: Buy (or sell) just because prices look like they’re going up (or down). This can be one of the siren songs of the markets, but by definition, it deprives you of the logical reasons for entering a trade. If you don’t understand what is likely going on and why you entered in the first place, you are stacking the odds unnecessarily against you."

Does your discretionary trading system provide you with a (more complex) logical reason for entering a trade, based on a variety of (consciously) undefined factors?

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  #35 (permalink)
 chipwitch 
Nashville, TN
 
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I think there is some confusion as to why I started this thread. There seems to be a big misunderstanding with people reading between the lines. @Keab if you don't mind, I'm going to respond to your comments. At times I may be blunt, for the sake of clarity, for others as well as yourself. I don't mean to be abrasive


Keab View Post
I read this thread last week and something has been in my head since then. I hope I can put it into words.
I should make it clear that I do understand what you mean by discretionary trading vs system based trading.

I find it interesting when you state " I have confidence that I can manage risk and make sound decisions around that. "
I think that this is because you can clearly define these parameters and can control it. It is specific and measurable and you can follow the system that you have in place.

I think you understand that perfectly, or at least in the same way I do.


Quoting 
You then state "Sure, I still get those trades that restore some small measure of confidence. But it comes and goes. "
Compare the way you feel when managing your risk (where you feel confidence/assurance in your competence in this area) to these successful trades that restore your confidence. Which then fades over time.

Could the problem be a simple one, and that is that you simply don't know what makes your profitable trades versus the ones where you lose?
If you do not have a systematic (please continue reading so you can see my point on this) way of trading the market then surely every discretionary trade that you take has an air of randomness to it? And if that's the case, confidence in your trades will be hard to come by in the absence of waiting for a clear signal/zone/whatever you want to call it.

This is correct. But it isn't "the problem" at least not one that I was expressing. As a beginner, it is understandable that I would lack confidence. This does not surprise me at all. The randomness is completely expected. My post was about the feeling of confidence that successful discretionary traders feel. It occurred to me that my expectation of one day being confident in trading in the same way I am confident in a trade skill is an unrealistic one. That was a bit of an epiphany and I was looking for confirmation of it.


Quoting 
The thought that I couldn't rid myself of that surely a discretionary trader has some internalised rule based way of deciding when to trade, it is simply not as rigid and defined as a systematic trader. There might be 5/10/15/who knows many different factors that swirl around discretionary trading. This will be based on trade location, price action, order flow and volume and other factors. And even of they are harder to define in a systematic way, surely a discretionary trader has a checklist (residing in the subconscious) similar to a systematic trader in order to know that certain parameters have been reached? How else would a discretionary trader know when to enter a trade otherwise? When I say checklist it won't literally be a "has x occurred. If so then do y", it will be more complex than that, but for me it is the complexity that is the difference between a systematic and discretionary trader. I think they're the same thing, but one has a lot more bells and whistles attached.

I hope that makes sense. What I'm trying to say is that a discretionary trader is not actually that different from a systematic trader. There will still be criteria that will need to be fulfilled, but these may be more ethereal and reside in the subconscious which makes it harder to work out why some trades work and why some don't. The inability to define these ethereal (sorry to keep using the term but can't think of another) criteria means that, as you have stated, "after 4 months eating and breathing trading, I have no better clue than when I started."

By and large I agree with you. However, from a discretionary perspective, there is much more subjectivity. Something I can't quite put my finger on, to spell out in explicit detail. I can be looking at 5 different things looking for qualitative signals and have to make a decision to trade or not trade based on them. A systematic trader looks for signals that can be quantified. With discretionary trading a sense of "something is just not quite right but I don't know what it is" is one of those qualitative signals. Of course there is probably some algorithm that could be written to quantify what I concede I'm not smart enough to. BUT, it wasn't the point of the thread. The point of the thread is about a feeling. A feeling of confidence, and how it might differ for a trader than it does for someone familiar with the confidence of a more traditional career. My expectation was that they were one and the same. But, I'm beginning to discern that they are not. Confidence in ones risk management skills, not withstanding, confidence in trading isn't so absolute and certain. I think you will agree on that point?


Quoting 
Edit:
I just read this and thought it would be interesting to apply to your discretionary trading approach:
"1. Don’t: Buy (or sell) just because prices look like they’re going up (or down). This can be one of the siren songs of the markets, but by definition, it deprives you of the logical reasons for entering a trade. If you don’t understand what is likely going on and why you entered in the first place, you are stacking the odds unnecessarily against you."

Does your discretionary trading system provide you with a (more complex) logical reason for entering a trade, based on a variety of (consciously) undefined factors?

My "system" is at the fetal stage of development, as in I'm still trying to find one! I think I'm getting close. But, it has come after studying various indicators and strategies for myself. I am a bit of an enigma. I am a very rational person who has made peace with my "feelings." I demand logic and reason for any argument and am not swayed by appeals to emotion. Yet, I have a keen awareness of my emotions and have learned that they are to be trusted, while not allowed to command the ship. Like I said, I'm getting closer to my "system." I cannot quantify it. Perhaps someone smarter than me could. But I am quite comfortable letting my emotions make decisions where logic says they know what they're doing. That does not mean that my emotions aren't consistent. They haven't always been, but they're getting better where trading is concerned.

That last paragraph was my response to what you wrote for informative purposes only. It has nothing to do with the OP. I am not struggling with trading. Any frustration I experience is something I am accustomed to as part of any new undertaking. I have not requested any help in this thread to solve a problem. Nor, have I asked for solutions or suggestions on how to improve my trading. I am of course always appreciative of advice and generally read it with enthusiasm whether or not I asked for it. I am merely stating this so people can understand the OP as I think many of the suggestions, while warmly appreciated, have missed the point of the OP.

However, I am pleased if my post caused you to ponder some facet of trading that you hadn't considered before, whether I intended it or not. The whole point of these forums isn't to find solutions to problems but to sow seeds and occasionally reap a greater benefit. I find far more value in the ideas that come to me as an ancillary component to conversations here, than I do the explicitly voiced advice. That seems reasonable since I think anyone who has spent more than a week trying to trade probably understands that trading is something one can't be taught, but must discover for oneself. Those are the true gems.

I truly appreciate your thoughtful post! It sounds like you have a more analytical, systematic approach to trading. It is so easy for us to focus on only what we know or can relate to firsthand. With trading there are SOOOOO many ways to trade successfully. The nuance in each trading style makes for a nearly infinite possibilities. You have given me a little insight into the systematic approach. I hope I have given you a glimpse into the (my) discretionary approach.

Best luck trading!

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  #36 (permalink)
 Airsoftor 
Ladysmith BC, Canada
 
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In this market don't use any indicators and use a Bar chart so you can decifer if it's a good bar. Go into your Properties and put the up bar to green and bear bar to red. It can be done on your chart.

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  #37 (permalink)
 datahogg 
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chipwitch View Post
This is a question directed at self-described successful discretionary traders.



Please describe your confidence and compare it to the confidence you had in a previous career, sport (golf?), hobby etc.

This is just my opinion. I trade the SPX verticals near the money with 1 or 2 days to expiration.
These are traded with very little stress. Often losses can be very small and gains can be large.
GAMMA can be your friend.

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  #38 (permalink)
S10Blazer
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After 27 years of trading I've seen and adapted to a lot of change. I approach trading like walking through a seedy part of town. My heads on a swivel. I have situational awareness which comes from experience and I'm prepared for the black swan unanticipated event.

I imagine it's the difference between an ER doctor and a medical instructor.
The ER doc has seen just about any and everything. S/he's lived it.

Confidence IMHO comes from the feeling that you can cope with whatever the market throws your way.

Competence comes from the doing.


“Improvise, Adapt and Overcome”

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  #39 (permalink)
 pimmsno1 
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I have confidence in my ability to analyze data, program various studies and algos, etc. I might say I do not have confidence in the consistent performance of algos or principle in trading. Maybe more accurate is that I am confident that the markets will act to screw as many people with a move as possible. That means that if a system or time of day is working and getting well known, the application of that in the market will either cause the pattern to shift or arb it to a point it is not profitable. Even very solid patterns must be considered with all other factors including the current mood of the market - just finished trading the FOMC as I write this. You must always consider that the decision must include enough factors, ideally some from nonquantitative sources (look as OXY over the news period of Ukrain since December.) If it all fell into a repeat that did not need to be tweaked, it would all arb out and the market would turn flat. Only HFT funds would be able to pull much.

Thus, I keep trying to adapt my algos and my discretionary to the market as it changes and moves to whatever regime will be the most unexpected for the most people. Last few years, that means adjusting things to the tendency for moves to be short and quick, with more short bars in between. True story - if you run the average bar length over the last 20 years, the average range as a percent of total contract value is not that different, but the distribution of bar length is more either long or medium to short. Much less of the 60th percentile bars that used to move from a to b in a few bars. Instead, you have static and a long quick move. Makes some systems lose money when everything else looks good from 10 years ago.

If you mean confidence in a stable income, very little confidence there. Only money in the bank is stable, money in the trading account is working capital for as long as that business or its methods can stay working as the environment changes. Its not a job with the stability that implies, its a business that can go up and down or out of business due to many factors.



chipwitch View Post
This is a question directed at self-described successful discretionary traders.

How does your confidence in your trading profession compare to the confidence most people feel in their non-trading profession?

To clarify, as a trained ultrasound tech, I had a high degree of confidence in my ability. While I wouldn't say that I have confidence in my ability to trade, there have been moments where I did. But then, some series of losses wipes it all away. I began to wonder if having the kind of confidence one generally has in their abilities in most careers is even possible with discretionary trading.

I understand that there are various aspects that can give one confidence. I have confidence that I can manage risk and make sound decisions around that. This is about having a high degree of confidence before entering a trade, only to find out 10 seconds later that you just bought at the high, sold at the low, or some other equally humbling result. I don't expect perfection of myself. One such loss, meh, I made a mistake. Oops. Move on. Next one, similar. I start trying to figure out where I went wrong. It's in that scrutiny that I begin to realize, after 4 months eating and breathing trading, I have no better clue than when I started.

Sure, I still get those trades that restore some small measure of confidence. But it comes and goes. Does thaI t ever go away for you successful discretionary traders? At some point, does it just come, and not go?

So, this question is about the feeling of confidence. Do you consider yourself in possession of it in the same way a surgeon might feel about their career? Does a series of losses above some anticipated threshold shake your confidence?

Please describe your confidence and compare it to the confidence you had in a previous career, sport (golf?), hobby etc.


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  #40 (permalink)
 Tagus 
Lisboa, Portugal
 
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After 6 years trading and trying both more discretionary and more systematic systems, I learnt that first and foremost, you need to find a system that adapts to your personality, secondly, there are no real discretionary systems (it's a contradiction in terms), thirdly, when you are making too many mistakes, number one reason is that you are either betting too much money per trade (bad risk/reward ratio) or overtrading (which apparently you are) or both. To find your edge you need to somehow quantify it, to quantify you need to journal and systematize processes and results in a detailed enough way that allows you to analyze and compare results genuinely and honestly.

I have been managing disruptive tech innovation processes for 20 years. It is stressing, believe me. Confidence is key and disruptive innovation, for many is like a shot in the dark. It isn't. That is a myth. 99% of success cases come from years of hard work. They require intelligence most of the time, lots of it. But without hard work, nothing gets achieved. And when I mean hard work, I mean lots of path corrective measures along the way, years of earning little to no money, determination. It's the same in trading in my point of view. I found my edge like that, after a lot of mistakes, but mostly, by being true to myself, working hard to quantify and systematize my discretionary system (purely based on price-action, but not random at all, with clear entry and exit signals) and with determination to avoid falling into the quick big profit pit-fall and correcting my methodology whenever needed (most of times to simplify it further to the point the only indicator I use is a MA16, but this is me, does not mean its you or better or worse than anyone).

So, in sum, I don't think the issue is to compare confidence levels in trading vs other jobs or careers. It's about finding out what are you emotional triggers and controlling them better independently of the situation, being systematic (even when discretionary) and playing it simple.

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