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Confidence in discretionary trading

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  #1 (permalink)
 chipwitch 
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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.

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  #2 (permalink)
 Scalpingtrader 
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I'm not one to speak to the confidence bit but what stands out to me based on your writing is that you don't seem to fully appreciate / accept the statistical nature of trading.

e.g. you're speaking of a losing trade as a mistake. That's direct, outcome based and - perhaps more misleading - cause and effect based thinking applied to a field that is littered with uncertainty and billions of variables playing out each second.

I have yet to wholly internalize this for myself, but trading is a long-term numbers game, much like rolling dice....:

Let's say your strategy is such that you receive +1.6 on any 1 or 6 rolled, lose -1 on a 2, 3 and 5 & nothing happens on a 4.

Now with rolling dice it's intuitive that you rolling a 5 is not a mistake! It just is part of the distribution of transactions that, over time, will net you a profit.

Apologies for derailing this but that bit jumped out at me and it may be correlated to the answer regarding confidence, as it cannot ever be confidence in short-term outcome. Not in trading.

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 chipwitch 
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Scalpingtrader View Post
I'm not one to speak to the confidence bit but what stands out to me based on your writing is that you don't seem to fully appreciate / accept the statistical nature of trading.

e.g. you're speaking of a losing trade as a mistake. That's direct, outcome based and - perhaps more misleading - cause and effect based thinking applied to a field that is littered with uncertainty and billions of variables playing out each second.

I have yet to wholly internalize this for myself, but trading is a long-term numbers game, much like rolling dice....:

Let's say your strategy is such that you receive +1.6 on any 1 or 6 rolled, lose -1 on a 2, 3 and 5 & nothing happens on a 4.

Now with rolling dice it's intuitive that you rolling a 5 is not a mistake! It just is part of the distribution of transactions that, over time, will net you a profit.

Apologies for derailing this but that bit jumped out at me and it may be correlated to the answer regarding confidence, as it cannot ever be confidence in short-term outcome. Not in trading.

I appreciate the comment. Perhaps you are right to a point, but I intentionally referenced, buying at the high, selling at the low wrt mistakes. It's uncanny how often I can make that mistake. The problem is that I don't see whatever it is that would prevent me making that mistake so much. If only I could figure that out, I would finally have my edge! I could sell the high and buy the low! LOL Statistically speaking, that shouldn't happen as often as it does. Contrast that with a trade that goes to within a tick or two of your profit target. That doesn't bother me.

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 Mich62 
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chipwitch View Post
It's uncanny how often I can make that mistake. The problem is that I don't see whatever it is that would prevent me making that mistake so much.

As @Scalpingtrader tried to tell you, these are not mistakes, it happens, it's a game of probabilities over a longer period. It's not a mistake (which can be avoided) when the ball falls on red and you bet black in roulette.

What's the expectancy of the setup(s) you're using?

If the expectancy is positive (for example $50 per trade) over let's say a 100 trades, does it bother you when you lose 5 times on a row?

What is the chance of getting 5 losers on a row with a 50% win-rate? What's your risk of ruin?

You should know the expectancy, that's what will give you confidence (besides knowing that whatever will happen, you will survive bc you can bear the loss, taking small risks).

Having a positive expectancy of your setup and knowing nothing can happen to you will give you confidence, don't you think?

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 chipwitch 
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Mich62 View Post
As @Scalpingtrader tried to tell you, these are not mistakes, it happens, it's a game of probabilities over a longer period. It's not a mistake (which can be avoided) when the ball falls on red and you bet black in roulette.

What's the expectancy of the setup(s) you're using?

If the expectancy is positive (for example $50 per trade) over let's say a 100 trades, does it bother you when you lose 5 times on a row?

What is the chance of getting 5 losers on a row with a 50% win-rate? What's your risk of ruin?

You should know the expectancy, that's what will give you confidence (besides knowing that whatever will happen, you will survive bc you can bear the loss, taking small risks).

Having a positive expectancy of your setup and knowing nothing can happen to you will give you confidence, don't you think?

You're getting hung up on the word "mistake" and not answering the question I asked. I'm interested in knowing what confidence successful discretionary traders have. Not theoretical. Not why I do or do not have confidence. Maybe I will never get there. I'm not there now. Any modicum of win rate I may eek out is quickly gone over some mistake. If you don't like that word, call it a "flaw" in my trading method. I am a card player. I understand the statistics of it. I don't expect to win every time. I consider it a "win" if I play well, even if I lose. My win rate/profit per trade do not make money. I stopped trading real dollars weeks ago until I find the stability of which you speak.

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 ZviTradingCoach   is a Vendor
 
 
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"Confidence" in trading is actually twofold:
1. Confidence in my system: Do I trust that if followed, it can actually delivered?
2. Confidence in myself: Do I trust myself to follow my system?

Due to the random nature of trading, these two are very often mixed and very deeply intertwined.
After losing a few trades in a row, am I starting to second guess the system ("This doesn't work")? Or am I second guessing myself, my judgement and my skill (I'm never gonna get it, I'm no good etc.)?

Both are critical for successful trading. Both take a long time (individual of course, but usually in the span of years) and several slumps and recoveries before they are established.

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 chipwitch 
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ZviTradingCoach View Post
"Confidence" in trading is actually twofold:
1. Confidence in my system: Do I trust that if followed, it can actually delivered?
2. Confidence in myself: Do I trust myself to follow my system?

Due to the random nature of trading, these two are very often mixed and very deeply intertwined.
After losing a few trades in a row, am I starting to second guess the system ("This doesn't work")? Or am I second guessing myself, my judgement and my skill (I'm never gonna get it, I'm no good etc.)?

Both are critical for successful trading. Both take a long time (individual of course, but usually in the span of years) and several slumps and recoveries before they are established.

I hear you to say that your confidence has been up and down on the scale of years before obtaining a sustained sense of confidence. That's fair. Thank you.

I was specifically asking this of discretionary traders, though. While they certainly have rules they follow in making their trading decisions, it's far more subjective. Where as having "Confidence in my system," as you say, implies a more quantitative, less subjective approach. As I understand it, system trading is the diametric opposite of system trading. https://www.thebalance.com/discretionary-or-system-trader-1031038

A riddle I created: What's the difference between a scalper and a swing trader? A scalper can experience a lack of understanding the market a thousand times a day... A swing trader, only once.

Yes, that was meant to be humorous, an exaggeration and not the reality. But the underlying point is that while watching the market to take a scalp... I personally experience, "I have no idea what price is going to do," with nearly every bar that paints to the chart. THEN, a bar paints and I feel like I DO know what it's going to do. That's when I take the trade. When swing trading, I experience that a whole lot less, because once in a trade, I stop looking for new entries. If "daily affirmations" is a thing... then scalping and acknowledging all the bars that you don't have a clue what's happening most of the time, must do the opposite. It was only a joke.

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 glennts 
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Don't think you can equate the confidence a trader must have with the confidence of one who is in some other profession. Certainly a surgeon is confident in their skills and yet we occasionally hear of one who over the years has left a string of failed operations behind them and continue to practice until their license gets yanked and they go to prison. So confidence does not necessarily translate into competence. I think the ultimate example of confidence are free climbers or the tight rope walker who crosses over a vast expanse. You fall, you die. As I type this my palms start to sweat just thinking about it. And interestingly there are moments trading when my palms will sweat as I consider selling that High and I have come to see that as confirmation that this is a risk worth taking. It is the confidence in your judgement, validated over time and thousands of trades, that allows you to make that commitment even when your fears have grabbed a hold of you.

As ZviTradingCoach astutely points out, you need confidence in your methodology and confidence in your ability to follow that methodology, which is the hard part for a discretionary trader.

I haven't followed all of your threads but my sense is that your experience is measured in months and not years. It is a grave mistake to expect that the process of becoming consistently profitable as a trader is comparable to the time, effort, education and experience required to be confident in your competence as an ultrasound tech. I have seen confident, highly educated and accomplished individuals being brought to tears over their frustration at trading not being just another successfully met challenge in their lives. I may be off the mark but I suspect the skills you learned in your profession are to some extent standardized. By this I mean person A receiving a tech certification from college X will likely be just as competent as person B attending a different institution. Over time your knowledge will be seasoned with experience but basically you are equipped with what you need to know from the get go.

Trading is not this way. If it were you would be required to spend 2 - 4 years learning about the field and have to spend a significant amount on educational and living expense and then demonstrate competency to become a certified trader. Instead, we jump into the deep end of the pool confident, because of earlier accomplishments in life, that we can learn how to swim before we drown.

Well guess what.

It is unlike anything you have attempted before and to assume otherwise will only invite frustration and disappointment.

The final barrier is a psychological one as you alluded to. How to not do the things we know we should not do. By most metrics I am successful as a discretionary trader but it took me 10 years and the movement of millions in and out of the markets in small wins and some not so small losses to get to that point. Yet still, there will occasionally be the "Why did I just do that?" trade that is always lurking around and waiting to pounce when we let our guard down.

So, to try and swing this ramble back to the original question. The confidence you need is being confident that you eventually, no matter how long it takes, will figure it out. Given that the overwhelming majority fail at this is to argue that this is very difficult to succeed at, regardless of your background. To have found the answers to being a successful trader in a matter of months would argue that not only is this easy, but it is a lot easier than earning your ultrasound tech certificate.

How likely is that?

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 chipwitch 
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glennts View Post
I haven't followed all of your threads but my sense is that your experience is measured in months and not years.

You are correct. The Reader's Digest Condensed Version of my experience in addition, is: I had my series 3 license (commodities broker) about 35 years ago. I had a brief foray into daytrading equities in the dot com era using eSignal and etrade. I lost 30k on a short squeeze, 20k of my margin was credit card. I swore I would never trade again. Here I am.


Quoting 
It is a grave mistake to expect that the process of becoming consistently profitable as a trader is comparable to the time, effort, education and experience required to be confident in your competence as an ultrasound tech.

I never said I "expected" them to be the same. I could simply see how one might be a "successful discretionary trader" and still never have the same kind of confidence as someone in a skilled profession. And yet, it was also hard to imagine a successful trader NOT having the same degree of confidence. Certainly, the journey is different. I can go to school to become an ultrasound tech, and with an understanding of my own ability to learn, have 100% confidence that after completing a four year medical degree, I will be successful. That can't be said for trading. Many traders have bombed after 4 or more years of trading. Perhaps a majority, assuming they have the finances to stay with it that long.


Quoting 
The final barrier is a psychological one as you alluded to. How to not do the things we know we should not do. By most metrics I am successful as a discretionary trader but it took me 10 years and the movement of millions in and out of the markets in small wins and some not so small losses to get to that point. Yet still, there will occasionally be the "Why did I just do that?" trade that is always lurking around and waiting to pounce when we let our guard down.

This is the gold I was seeking. Thank you


Quoting 
So, to try and swing this ramble back to the original question. The confidence you need is being confident that you eventually, no matter how long it takes, will figure it out.

Given my age, death may occur first.

I have a great deal of confidence in my abilities. I never had children. I think that provided me a more selfish lifestyle where I indulged my desire to learn at every turn. I passed the series 3 test after studying for only 1 single weekend. I got my private pilot's license in almost half the hours in flight training as the national average. I was awarded my college's math excellence scholarship for no other reason than my 3 professors had never seen a student before me get A's in Calc and Diff Eq without taking notes (I listened intently at lecture). I am virtually self taught in programming, art (welding and painting) and lots more. I don't mean this to sound like bragging. It is not. I actually consider myself to be average at all of those things. Heck, I've even forgotten all my math training above trig which I use from time to time. Each one of those things I just mentioned, I began them with 100% confidence that I could do it. At no point did I ever doubt that. I cannot say the same for trading. I think there must be a HUGE difference in confidence between most learned skills and trading.


Quoting 
To have found the answers to being a successful trader in a matter of months would argue that not only is this easy, but it is a lot easier than earning your ultrasound tech certificate.

I don't think I've ever stated that it is easy, or that I should be successful after a few months. But after 4 months, and virtually every waking moment spent thinking (I can't get through a night's sleep without waking up and thinking about tradin), studying, reading, trading the market, I do expect to see SOME sign that my ability to read what's happening in the market has improved over 4 months ago. I cannot. I have, however, seen an improvement (not perfect) in my emotional control, and better risk management. It's the feeling that I know, with a modicum of probability, what the market is about to do that eludes me as much now as it did 4 months ago. I might even venture to say that feeling gets worse each day.

FWIW, I am not a person of faith (a belief in the absence of evidence or cause). I wish I were. Life would be happier and simpler. If unsupported blind faith is requisite to be a successful trader, I will never make it.

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 glennts 
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It has always been apparent from even your first posts that you are accomplished. However one of the points I was trying to make is that to face a new challenge with the same confidence that brought you earlier success is adequate as long as the new challenge is comfortably inside the venn diagram that is your collective experience/challenges/accomplishments.

Trading, particularly discretionary trading, is a unique challenge that arguably falls outside that area. It is intellectually challenging with its math framework.... you can check that box... it is visually challenging in it's pattern recognition requirements...you can likely check this as well... it also requires, for lack of a better term, intuitive empathy. In addition to obvious price structure there are changes in price behavior that can be seen as signatures or tells of pending changes in price direction. Similar changes in behavior will happen at similar times with similar results. Some can tune into this, some cannot. There is also an overarching conceptual challenge that concerns how you view market activity and if that is something you can lean into to understand why price is or is not doing what you expect it to do. From your comments it seems you haven't quite gotten a handle on this yet.

Flying demands some of these attributes and it also requires enough confidence to overcome fear. As you train to become a pilot you learn the procedures necessary to pilot safely. There are fairly precise steps to follow to deal with an engine failure, aircraft stall, aborted landings some of which are particular to the aircraft some of which are generic. But in every case there is a solution to a problem, procedures to follow. Discretionary trading is getting into a home built experimental aircraft for the first time without knowing what its flight characteristics are. Seat of the pants flying and you have to develop the manual as you go along. Yes there are common things to look out for but there is also the unexpected / unanticipated event for which no by the book procedure exists. It's somewhat similar to hopping into your Citation but it is also very, very different.

Because trading is similar to but also very, very different from anything else, you will inevitably reach a point where, relative to you other accomplishments, you wonder why you have not made the same type of progress as with earlier challenges. This is when the " Can I really do this?" question starts to arise. Your expectations are based on the success in tackling your prior challenges. If trading is very, very different then holding onto those expectations is unrealistic. You can't expect that $10,000 home built to handle like a $250,000 C 172.

Don't know if you are a runner but even if not, you could get yourself to the point where you could do a marathon ( yeah I know... you've run 3 so far this year... but lets pretend you haven't and you just came out of ACL surgery ) . It would take awhile to get in shape, maybe several years, but you could do it. Take this marathon challenge and apply it you where you are now in trading. Considering where you want to go you are possibly still at the point where you can barely bend over and touch your toes. So the question becomes how badly do you want to cross the finish line and will you put in the time, endure the pain and frustration that awaits you along the way?

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