Platform: NinjaTrader (It's a love/hate relationship)
Favorite Futures: CL, TF, 6E
Posts: 176 since May 2010
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The question assumes that trade entry plays a significant role in profitability. In my experience, it does not. Trade entry plays a very minor role in overall profitability compared to exit strategy and money management. The reason traders blow accounts is more a result of poor performance in the latter, not in trade selection or entry... yet most traders expend 90% of their energy on entry technique.
Rather than retaking reverse trades, reverse the way that exits are handled and the trade is managed. Start spending most of your time on money management and less time on learning or perfecting entry techniques.
I'll give an example: Many if not most traders like to trade multiple lots and scale out so they can protect some profits quickly & they hold onto the full position size when the trade is going negative. But this is essentially the opposite of what they should be doing. Instead, scale INTO winning trades and let them go to completion. Scale OUT when the trade is moving against against you. This way, on losing trades you will have a small position size and when you do hit the occasional home-run, you will have the largest position size possible. This one technique alone transformed me from a losing trader into a profitable trader.This is universal and has nothing to do with technique or methodology, but rather is all money management and the psychological fortitude to actually do it. I've found using this principle alone, that on the occasional day when I trade with my head completely up my ass, very little to no damage is done to my capital.
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One thing often said to be the flaw of unsuccessful traders is that they tend to cut their profits short and let their losses run. So in that perspective it is the management of the trade that loses you money rather than whether you go long or short. As you would be aware that the trade opened is opposite to what your rationale would have wanted you to do it is very likely that you would manage the trade like you usually do.
If you find someone to trade for you however he or she is not aware of what you are doing and, being an unsuccessful trader would let your profits run and cut your losses short. I do believe it would help though if your "trading desk" had their own money involved as well.
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I actually think this system might work: that is, reversing the trade buttons. However, you'd have to go farther than that and make sure the P/L display is also in reverse, so that it looks like you're making money on a given trade when you're actually losing money.
That's the key factor that gets accounts blown up, the psychological reaction to seeing that a trade is currently in the red or in the black. If the average trader could reverse the way they react to winning versus losing trades, there's a good chance they'd wind up profitable even with random entries.
It would be difficult to carry out this experiment on your own since you'd be aware that the buttons had been reversed. But I like the idea of hiring beginning traders, with reversed buttons and an inverted P/L display on each trade.
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As you said, the problem is created by feedback. If you want to do the opposite you must cut through that feedback loop.
Let us assume that your trading buddy is a notorious loser. If he puts on a position, just do the opposite and trade size. But do not let him know, otherwise he will start winning.
Once you have understood the game, you may want to open a forex broker business. Then watch what your retail clients are doing and just do the opposite. Eliminate the few outliers who make profits from your watch list. Do not trade against your clients, but trade on another ECN. That will work as well.
If you do not have a trading buddy and if you do not have enough money to open your own FOREX broker business, there is another option to cut through the feedback loops:
Follow your rules!
The following 2 users say Thank You to Fat Tails for this post:
If the small traders were consistent losers, you could fade them. But if you study the COT reports, you will find that it does not pay out to fade them. It is very difficult to draw any conclusions from their behaviour.
Commercials show an anticyclical behaviour, while larger traders and swap dealers are usually procyclical. But small traders are useless altogether. As they are not even consistent losers, it is best to ignore them.
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Pourquoi tu ne lui propose pas de changer la langue, comme ça tu pourrait profiter aussi. D'ailleurs, c'est probablement un Wallon, et c'est bien connu que les Wallons pensent à l'envers*). Si nous écrivons en Anglais, ça veut dire que nous faisons des efforts exceptionnels pour nous faire comprendre par des incultes, et tu va quand-même accepter quelques petites fautes de notre part, M. Sans-Merci.
*) ne pas prendre comme insulte, je ne suis pas Flamand
Last edited by sam028; October 17th, 2010 at 05:10 PM.
Reason: faute de frappe ;)
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