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Killer Instinct and the Home Run Mentality
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Killer Instinct and the Home Run Mentality

  #11 (permalink)
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Eric j View Post
...For me it is practical to trade a market that habitually has large swings on larger tfs and very directional moves like forex or stocks . My model relects TTs suggestions here concerning scaling into a winning trades direction and trying to enter and hold the most lots from the point I determine to be when the bias is shifting and less as its steaming along ...

It seems to me that the TF (RUSSELL) as well as the CL (Crude) are probably the only candidates to which you can apply a pyramiding model if the speed is reasonable. I typically see 2 to 4 good opportunities/day on the TF which involves scaling in and out of trades during a small directional move. I get about the same ratio with the Euro (6E). If i count the number of ticks we can extract from various movements, the potential goes between 30% to 300% more ticks then the raw distance made by price.

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  #12 (permalink)
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monpere View Post
- It is about the ability to identify and wait for extremely profitable opportunities...
That goes without saying.

- Successful traders tend to increase their size in direct proportion to their confidence in a trade...
Newbie, prepare to refund your account

- the frequent times when opportunity and probability calls for the trader to step beyond their own comfort levels and risk thresholds, and lever up...
That will send most of you to the poor house quicker then you can say 'Stop Loss Filled'
If you are trading 1 lot on one trade and 50 lots on the next because you feel more confident. You better get on you knees and start praying that the market will adjust itself and obey the law of your confidence. Because a stop loss on 50 lots is very different then a stop loss on 1 lot. Trading then becomes about who has the bigger set of balls, and can emotionally accept the most risk.

- Successful traders tend to increase their size in direct proportion to their confidence in a trade...
Your kid failing his geometry class, the wife that expressed your lack of attention yesterday, and the idiot who cut you off in traffic will probably affect your confidence and take that edge away plenty quick. So, I would advise you to make sure you have a word document on your 3rd monitor titled '25 price action requirements to discretionary confidence for trade setup 1', and check it before every trade.

- The less-successful trader is apt to become risk-averse in the face of a profitable position and exit early...
So true! Now go kick the dog a couple of times, cause you feel like an idiot for not staying in the trade longer. You need to get a bigger pair of balls, so you can take more risk.

- Overzealously attempting to avoid the turning of profitable trades into losing ones can have a detrimental effect also...
Same holds true for the opposite, overzealously trying to squeeze the next trade for more then it is worth, because of the previous reason above. While the dog is whimpering in the corner, you now will try to hang on longer to this next trade, because you got out way too early on the last one.

- I have had the privilege of trading beside Tom Baldwin and Charlie Di Francesca in the Bond pit, and Dimitri Balyasny...
The problem with statements like these is it assumes the reader will have the skill, talent, and insight of these guys. The worst mistake traders do is assume they can duplicate the trading of some very talented or gifted individuals, or maybe pattern their trading after a legendary trader who traded um-teen years ago in raging bull markets.

- All these traders had the uncanny ability to know when to press a trade, and I am sure that each one of these traders would admit that this ability was paramount in their success...
Exactly!!! The operating word is 'uncanny'. If you want to follow the methodology of these guys, you need to ask your self do I have an 'Uncanny ability' ? You don't have a crystal ball. Just because your discretion makes you 'feel' like pressing that trade, in no way prevents the market from turning 50 points straight against you. Every time you make such a discretionary decision in your trading, you are increasing the risk of your methodology.

The problem with discretionary trading of this nature is that it assumes you have good discretion and risk aversion of the person you are emulating. If you don't, and you believe all those that say, "it's simple, you just have to use common sense discretion", you will find that those traders will make gobs of money on the same trades that will rob you blind.

- The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader...
Not necessarily true. If you trade with a fixed risk/reward ratio, i.e 1:1, 1:2, etc., then the number of winning trades is directly proportional to your profitability.

- Avoiding losses by taking small winners will make the trader “feel” successful...
If a win makes you feel successful, and a big win makes you feel awesome, and a loss makes you feel bad, then you have already lost the game. Trading is a business, a trade is just a transaction, that's the emotional state you need to be at.

- These are these days that make your month, sometimes your quarter, and can even go a long way in making your year...
And if you had to pick up your kid from school that day cause he fell of his bike. You are sh*t out of luck. There goes your week, your month, your quarter, your year. When your success depends on 1 trade or 1 trading day per week, month or year, do you think that in itself can be measured as a huge unit of risk?

- Trading boils down to mathematics and patience...
Now that is the statement that I can agree with. You work out the expectancy of your system and rely on that. You trade by the numbers. If the math has proven that your method has 45% win ratio, and you trade a FIXED 1:3 risk/reward on EVERY trade, then you know exactly the minimum number of winning trades that will make you profitable for the day, the maximum number of trades that will put you at the break even for the day, or put you in the red etc. (See Van Tharp's R-Multiples risk based trading concepts)

If you take every trade in such a system without discretion, never increasing your risk beyond your predefined fixed threshold, relying solely on the numbers, you are pretty much guaranteed to be profitable. You don't need to hope and pray that the next trade will give you a 200 point run, hold your breath and jump in with 50 contracts, and hopefully your continued 'objective discretion' with this huge added risk allows you to hang on long enough to make your weekly goal. And, hopefully you were not in the bathroom when that trade triggered, because again there goes you week, your month, and possibly your year. The dog is in trouble now!


I have no problem with someone taking a polemic tract (in response to something I wrote) as long as they don’t distort my message. Are you disputing my thesis because it antithetical to your beliefs, or is it because you have found the successful implementation of this practice unattainable, and by criticizing, it helps you resolve your conflict?

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  #13 (permalink)
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tigertrader View Post
I have no problem with someone taking a polemic tract (in response to something I wrote) as long as they don’t distort my message. Are you disputing my thesis because it antithetical to your beliefs, or is it because you have found the successful implementation of this practice unattainable, and by criticizing, it helps you resolve your conflict?

No, I just have a different belief. I do realize that different traders are successful trading different methods, and concepts. I think it's fair to be aware of all the different views and aspects of any concept. I am against discretionarily increasing your risk per trade based on what a trader 'feels' the market is going to do. I think there have been many failed traders due to that approach. But I also assume that there are some profitable traders, trading that way. What I'm saying is don't assume that highlighting 3 or 4 famous traders successfully trading that way, proves that most can do it. I think the facts dispute it, and I think that is dangerous to new traders. I believe in the fixed risk mechanical approach. I think many more traders would succeed if they based their trading on fixed comfortable and manageable risk, trade based on the expectancy of their methodology, and avoid subjectivity in their trading. Feel free to provide the counter perspective on my views.

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I think both opinions are valid but it would be much more profitable to discuss ways to achieve what TT has brought to the table and maybe showing possible examples or applications of the theory. This way we would avoid the typical clash of ideas that leads nowhere.

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monpere View Post
I believe in the fixed risk mechanical approach. I think many more traders would succeed if they based their trading on fixed comfortable and manageable risk, trade based on the expectancy of their methodology, and avoid subjectivity in their trading.

If you have two bets that you believe are positive EV, but believe one bet to be better than the other it makes no sense to bet an equal amount on both. Just likes it makes no sense to not bet the lesser and put it all on the better bet.
There is no way the expectancy of any two bets in trading are exactly the same ever so it doesn't make sense to bet the same on each bet. It can't be correct and will be purely random if you are over leveraged or leaving tons on the table.
By that rational may as well take "subjectivity" out of the entry signal and just flip a coin or use a random number generator.

For whatever reason people just don't think this way without some training. How many times have you heard someone that has a wager on a football game say that "I have .5 units on this game"...never, even though that is how a professional would think. Either they have all they are going to bet for that week on the game or they have all they are going to be spread even over all the games they are going to bet. Surely they have an opinion that some of the games they bet on were better than others. This is EXACTLY why people completely suck at sports betting and believe pro sports betting impossible as if they are machines picking games with vastly higher accuracy.
If you take your last 30 trades and see that on some setups you tend to win more than other setups then you should juice those setups and allocate slightly less to the other setup.

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  #16 (permalink)
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dutchbookmaker View Post
If you have two bets that you believe are positive EV, but believe one bet to be better than the other it makes no sense to bet an equal amount on both. Just likes it makes no sense to not bet the lesser and put it all on the better bet.
There is no way the expectancy of any two bets in trading are exactly the same ever so it doesn't make sense to bet the same on each bet. It can't be correct and will be purely random if you are over leveraged or leaving tons on the table.
By that rational may as well take "subjectivity" out of the entry signal and just flip a coin or use a random number generator.

For whatever reason people just don't think this way without some training. How many times have you heard someone that has a wager on a football game say that "I have .5 units on this game"...never, even though that is how a professional would think. Either they have all they are going to bet for that week on the game or they have all they are going to be spread even over all the games they are going to bet. Surely they have an opinion that some of the games they bet on were better than others. This is EXACTLY why people completely suck at sports betting and believe pro sports betting impossible as if they are machines picking games with vastly higher accuracy.
If you take your last 30 trades and see that on some setups you tend to win more than other setups then you should juice those setups and allocate slightly less to the other setup.

You have $10 to play a game, and you say I will bet $2 until I make a certain profit, or run out of money.
Then you are presented with 2 bets. You believe one to be superior, you say, ok I will take the
inferior with $2, and enter the superior bet with $8. Then, because you don't have a crystall ball,
and there is no guarantee that you will win any single bet even if you 'feel' it's better or not, and you loose
both bets. If you bet $2 on both, you can continue playing. If you bet $8 on the one you felt to be superior, then
if you want to continue playing, you have to pull out your wallet... Refund your account!

Your example proves my point about trading mechanically by the numbers. You said: 'You examined your last 30 trades' (that is historical/statistical analysis); 'You see that on some setups you tend to win more than other setups' (that is system expectancy); 'you should juice those setups' (that is assigning a unit of risk based on expectancy).

So, basically, you are saying you've identified 2 different methods with 2 different expectancies, so you will trade them each differently, as 2 different systems each with it's own expectancy and set level of risk. So you will always risk $100 on setup1, and $200 on setup2 and expecting the statistically determined reward out of each. That is very different then if you trade setup2 with $200 the 1st 2 times you see it, with $500 the next 3 times and with $50 the following time you see it, because you felt differently about it each time. Even if I guarantee you, that you will win 3 of those trades, you have no idea how those wins will be distributed. As luck would have it, you will probably win the $50 entries, and loose the $500 entries. Different story if you trade them all risking the same amount each time. If you don't, very soon you will find you have to... Refund your account.


Last edited by monpere; January 30th, 2011 at 08:39 PM.
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monpere View Post
I believe in the fixed risk mechanical approach. I think many more traders would succeed if they based their trading on fixed comfortable and manageable risk, trade based on the expectancy of their methodology, and avoid subjectivity in their trading. Feel free to provide the counter perspective on my views.

If your trading consists entirely of statistical arbitrage and to some degree mean reversion trading, then it makes sense to dispense with all subjectivity and mathematically model your optimal position sizes according to the amount of risk you are willing to incur. But, while this approach may sound good in theory, it may not be the case in practice, when it pertains to discretionary trading.

Position sizing based on historical performance implies that all of future performance will follow the same distribution. Even on an intra-day basis the market’s character changes from hour to hour. The time series of price changes from one period may not be drawn from the same distribution as the time series of price changes from the next or the one before it.

Therefore, you cannot use period one’s data to predict period two if we have reason to believe that the two periods were not drawn from the same distribution of price changes. It follows that this phenomena would be even more pronounced from one day or one week or one month to the next, and would compromise any efforts to model your risk or even the market itself. It even calls into question the efficacy of technical indicators that don’t take time-series analysis into consideration.

It stands to reason that if the market is dynamic so should be your trade management. It should not be based on predetermined parameters that were derived from a predetermined distribution. It would be like betting and playing every poker hand the same way, irrespective of the cards that you were dealt. Instead a successful poker player is cognizant of when the odds are in his favor to go all in. He doesn’t do it pre-flop because everyone would know he had a good hand. Instead he waits until he feels that it is the best time to go all in.

Most traders place great emphasis on entries, are too impulsive on exits, and give little thought to the definition and adjustment of trade size. If they don’t exercise a certain degree of subjectivity by dynamically adjusting their trading size and holding period, they can have a great trading methodology, but a red or modest P&L. The average size of their losers will swamp the winners, and commissions and slippage will eat them alive.

Trading mechanically may be relevant strategy for stat arb, but discretionary trading ( and tournament poker) requires a creativity that blends math and art, and is a trait that is shared by all great traders.

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The "blend of math and art" is a long time in the making. To try to apply 'art' some time in the learning stages would probably be suicide. So for a learner how would one go about learning the art alongside the math? Maybe the art is learned through applying the math for a long long time which I think is Monperes argument? I certainly admire any trader who has found a way to identify the big opportunities and then load up on them thats for sure. At this stage I much more in the math boat..but watching carefully.

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Linds View Post
The "blend of math and art" is a long time in the making. To try to apply 'art' some time in the learning stages would probably be suicide. So for a learner how would one go about learning the art alongside the math? Maybe the art is learned through applying the math for a long long time which I think is Monperes argument? I certainly admire any trader who has found a way to identify the big opportunities and then load up on them thats for sure. At this stage I much more in the math boat..but watching carefully.

Well said Linds, I couldn't agree with you more.

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Linds View Post
The "blend of math and art" is a long time in the making. To try to apply 'art' some time in the learning stages would probably be suicide. So for a learner how would one go about learning the art alongside the math? Maybe the art is learned through applying the math for a long long time which I think is Monperes argument? I certainly admire any trader who has found a way to identify the big opportunities and then load up on them thats for sure. At this stage I much more in the math boat..but watching carefully.


No doubt about it! I should have included the disclaimer, " Do not try this at home! No animals were harmed! No trees were cut down! No steroids or mood enhancing drugs were used! You didn't see me do it and can't prove a thing!" LOL

The "art" or visceral component of trading is an intuitive sense a trader develops about the market after continuously having watched and studied price action and market behavior for an extended period of time. It is not an end state but a dynamic one, always adapting to changing and evolving market conditions and drivers of price. And yes, it takes a great deal of time and experience to sufficiently build up your subliminal data base.

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