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Overcoming the Fear of Losing


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Overcoming the Fear of Losing

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  #21 (permalink)
Mozart2112
Minoqua Wi USA
 
 
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''The first loss is the best loss" I've learned that along time ago and that quote has helped me move past the fear and has saved my ass many times... btw, is having a 'written' trading plan, execution of the plan, and staying discipline to the plan no longer valid? I may be old school but, that is what takes emotion out of trading... also, trading live is the best teacher because there are consequences.

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  #22 (permalink)
Amstaff
Queens, New York United States
 
 
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I think thereís a loss factor for many people and I think the institutions design the system to create this fear. Institutions are not required to disclose losses. We as traders know the institutions have losses but the average working person doesnít. For example, in my previous occupation if you sat with me for 10 minutes you would swear I was the best at what I do. This is the first trap, get the customer into the office.
For anyone frightened by the idea of trading I have this advice for them: look up IRS code 550 beginning in chapter 18. Read the chapter these arenít the words of Amstaff, Amstaff is a yo-yo, these are the directions from the IRS. Then just buy something that pays a dividend and drip until you have 100 shares. Next get your crayons out and a piece of paper and write down some sort of option trade. Check the expiration date to see if it won or lost. Document why it won or lost and do this until itís repeatable.
Finally get your ass-kicking boots on and try with real money. By this time your cost of owning the stock has probably dropped that you can get executed and still be profitable. 🍻 good luck

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  #23 (permalink)
 tradepips 
Sacramento, CA USA
 
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I have found that although I have a system that is working and it's getting good risk to reward (better than 1:1), when I get a losing streak I will attempt to make it back by exiting with a small amount of profit rather than waiting for what my plan calls for. In the moment it feels like capturing that tiny profit is going to mean that at least this trade made money. However, it changes the risk to reward ratio.

It's obvious, when you think about it, that going for a 1:2 risk to reward and then suddenly changing that to 1: 0.5 or even 1: 0.25 risk to reward changes the probabilities of the system drastically if the plan hasn't factored in reduced reward trades. One or two losses in a row will easily wipe out the tiny profits. Yet that is exactly how I trade when I have losses. I'm not saying that if there is a change in the market and a real reason to get out early that you shouldn't act quickly, I'm talking about getting out early based on nothing more than not wanting to sit through the time required to make it to the target.

I did it on Friday. Even though it was my first and only trade of the day, I had one losing trade the last time I traded. So, the day I had lost I took a full stop out, but the profit I made on Friday was 1/4 of the stop loss size, although it would have made better than 1:1 risk to reward had I just held onto it.

It FELT like it was the right thing to capture profit early but in actuality, it was trading with a high risk to low reward ratio and over time would need a very high win rate to be profitable.


OccamsRazorTrader View Post
If you have an edge the only way to exploit that edge is to take the trade, every trade. If you trade a system, discretionarily taking trades is a system killer. Good luck.

That's the post that got me thinking that taking profits too early is actually changing my trading system into something with unknown probabilities, since the exits are often based on my feelings and THAT throws an unreliable money-wrench into the whole thing!

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  #24 (permalink)
 glennts 
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glennts View Post
I attempt to recognize the support or resistance developing that will turn price and often this process will take longer or be more complex than my itchy trigger finger is willing to tolerate and I get in early and take a hit. Knowing that this is a characteristic of my particular approach, the loss will give me more confidence that the event is soon to occur.

If I may quote myself....this is a good example from the above quote of taking a hit on a trade by being early and recognizing that the trade concept was still valid.



There have been several mentions of R/R ratios. In the way I view price action, having a fixed R/R ratio is only valid if you can be certain that a formula based stop reflects actual price behavior. If my goal is to get as close to developing support as circumstance will allow based on the assumption that this time frame's trend is about to turn, then the logical place for a stop is just below support. It doesn't matter to me what the R/R is when the potential magnitude of the expected move is going to be significantly greater then the accepted risk of entering above support.

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  #25 (permalink)
 chipwitch 
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glennts View Post
If I may quote myself....this is a good example from the above quote of taking a hit on a trade by being early and recognizing that the trade concept was still valid.



There have been several mentions of R/R ratios. In the way I view price action, having a fixed R/R ratio is only valid if you can be certain that a formula based stop reflects actual price behavior. If my goal is to get as close to developing support as circumstance will allow based on the assumption that this time frame's trend is about to turn, then the logical place for a stop is just below support. It doesn't matter to me what the R/R is when the potential magnitude of the expected move is going to be significantly greater then the accepted risk of entering above support.

The idea behind R/R ratio, to me, is a bit of a misnomer(?). Perhaps a misconception? In reality, they both sides of the ratio are self-imposed limitations. Don't get me wrong, I don't consider them useless by a longshot, but I think a lot of people may experience an emotion related to the number itself, in a vacuum. But, it is way more complex than that, isn't it? To me, "risk to reward" implies probability of success or failure. I think that connotation creeps in just about every time I hear the phrase. In reality, the probability of success or failure of a trade has to do with one's setup and a statistical likelihood of the outcome. Looking at it in that way, using your chart pic as an example, it doesn't matter if you had a 2 point SL or 20. The SL has no bearing on the statistical outcome of the trade. In fact, the failure of the initial trade is a direct result of having had a 2 point SL instead of 20! That is precisely the opposite outcome to what the phrase "risk reward ratio" would suggest!

I find it interesting how this affects ones statistics. The reality of these two trades is that you have a win rate of 50% with an average profit of $450 (roughly $1000 profit and $100 loss). No one can complain about that. But, contrast it with had you stuck with the trade... 100% win rate and $1000. Realized losses hurt. Now, I'm not suggesting that you should have stayed with the initial trade. I do this on paper but I cannot with real money, nor am I saying that it would be smarter to let the initial trade ride with a greater SL. On a philosophical level, I just find it interesting and haven't yet reconciled with it. For me personally, those small SL are my bane. On paper trading, if I still think the trade is valid, then the SL is a liability for me and I end the day with greater loss.

I have attempted to trade (with real money) just like your example. I get stopped out, knowing that the setup is still valid, enter again when I think "now" is the right time and have gotten stopped out as many as 4 times before catching that wave I was looking for. My typical MO is to have a series of losses and then breakeven with one big win. Not exactly a sustainable strategy for me. If I could limit myself to just one failed entry before the successful trade, I would be very happy. Your example is a textbook example of how it should be done.

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  #26 (permalink)
 Anagami 
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chipwitch View Post
I have attempted to trade (with real money) just like your example. I get stopped out, knowing that the setup is still valid, enter again when I think "now" is the right time and have gotten stopped out as many as 4 times before catching that wave I was looking for. My typical MO is to have a series of losses and then breakeven with one big win. Not exactly a sustainable strategy for me. If I could limit myself to just one failed entry before the successful trade, I would be very happy. Your example is a textbook example of how it should be done.

Sounds like always skipping the first or even second entry might skew the odds in your favor for you.

You are never in the wrong place... but sometimes you are in the right place looking at things in the wrong way.
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  #27 (permalink)
 kevinkdog   is a Vendor
 
 
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Anagami View Post
Sounds like always skipping the first or even second entry might skew the odds in your favor for you.

I've seen that too, many a times. A few times I tested it, since it seemed so clear that skipping the first entry was the way to go. Funny enough, there was no difference - it was just a bias I had when I saw results. I thought the 2nd or 3rd or 4th entry would be magic, but in the long run testing showed they all were about the same as talking the 1st. That could have been just my situation though...

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  #28 (permalink)
 glennts 
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chipwitch View Post
.... it doesn't matter if you had a 2 point SL or 20. The SL has no bearing on the statistical outcome of the trade. In fact, the failure of the initial trade is a direct result of having had a 2 point SL instead of 20! That is precisely the opposite outcome to what the phrase "risk reward ratio" would suggest!

The reality of these two trades is that you have a win rate of 50% with an average profit of $450 (roughly $1000 profit and $100 loss)....... had you stuck with the trade... 100% win rate and $1000....... nor am I saying that it would be smarter to let the initial trade ride with a greater SL.

It may be just semantics or more likely a difference in point of view. For me "the trade" was not " I'll enter here with a stop loss of x ticks" but it was " I'll enter here because I think this immediate support level will hold and I will get out if it does not and invalidates my justification for the trade" In the chart below my expectation was that short term support ( yellow) would hold and longer term resistance ( red region ) would break in the next several minutes. The trade was exited when price tested resistance ( under the 7 ), rejected lower and broke the prior 5 min low. This opened the possibility of a test of the low put in at @ 6:30 and that was a ride I did not want to take. Getting out reduced risk and freed me up to re-enter at the next demonstration of buyer commitment....either at a successful test of the 6:30 low or, as was the case, the reversal higher on the very next bar.

I regard much of the consideration of trade related stats to come out of the "price movement and trade results are random" school of thought. I realize this can result in a valid method of trading for some, the algo oriented for example, but it has no place in what I do.


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  #29 (permalink)
 Anagami 
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kevinkdog View Post
I've seen that too, many a times. A few times I tested it, since it seemed so clear that skipping the first entry was the way to go. Funny enough, there was no difference - it was just a bias I had when I saw results. I thought the 2nd or 3rd or 4th entry would be magic, but in the long run testing showed they all were about the same as talking the 1st. That could have been just my situation though...

Yah, this is the problem with the non-empirical approaches (i.e. guessing based on a small number of cases).

You are never in the wrong place... but sometimes you are in the right place looking at things in the wrong way.
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  #30 (permalink)
OccamsRazorTrader
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kevinkdog View Post
I've seen that too, many a times. A few times I tested it, since it seemed so clear that skipping the first entry was the way to go. Funny enough, there was no difference - it was just a bias I had when I saw results. I thought the 2nd or 3rd or 4th entry would be magic, but in the long run testing showed they all were about the same as talking the 1st. That could have been just my situation though...

Isn't that the catch 22, the more you wait for confirmation of a trade i.e. the trade moving further in your trend direction, hoping to get a higher win rate, the further the stop is from your entry and the more the losses hurt the winners ..?

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