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Getting Started Trading with 1,000.00 Using Ninja Trader
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Getting Started Trading with 1,000.00 Using Ninja Trader

  #121 (permalink)
Normal Wizard
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DbPhoenix View Post
Strange intersections this morning. After reading Grausch's post above, I checked my email and found this:

I suppose one reason this thread hasn't attracted more attention or posts is because most people refuse to believe that it really can be that simple lol !

Most system threads that start off with workable stuff like what you and I are doing, for example, will on most boards inevitably and within an incredibly short time span turn into some kind of a monster that will have nothing to do with the original idea.

The main reason for that -- and also why most traders fail -- is, I presume, because people cannot accept losses which every system will have, so instead they go on an eternal chase for a non-existing holy grail by adding on all kinda gizmos or hopping from method to method hoping that at some point they'll have the market cracked and never have to suffer through losses again.


Which in turn reminded me of something I wrote back in the 90s:

Let Your Losses Run

Once upon a time, two behavioral scientists named Daniel Kahneman and Amos Tversky asked subjects what they would do if they were given $1,000 plus either

1a) a certain gain of $500 or

2a) an even chance to gain $1,000 or gain nothing.

A strong majority, 84%, selected the certain gain of $500, passing up the 50% chance to double their money.

A second group was asked what they would do if given $2,000 plus

1b) a certain loss of $500 or

2b) an even chance of losing $1,000 or of losing nothing.

The result of the first option in each case is identical, either $1000 + $500 ($1500) or $2000 - $500 ($1500).

One might reasonably expect, therefore, that investors would be indifferent to these distinctions and show the same preference for both scenarios. However, in the second scenario only 31% of subjects selected the certain $1,500 (choice 1b). The other 69% elected to gamble on the possibility of losing $1000 in option 2b rather than accept the certainty of losing $500 in option 1b.

So what does all this have to do with our kicking our toes into the dirt every time the opportunity to pick up those bargain basement stocks presents itself? Since the subject who chooses option 1 in either case winds up with exactly the same amount of money, there has to be something in options 2a and 2b that accounts for the disparity in the number of people who choose option 1a in the first scenario (84%) and the number of people who choose option 1b in the second scenario (31%), and that something is fear, specifically the fear of loss. In the first scenario, we are more afraid of gaining nothing than we are hopeful of gaining $1000. Therefore, we'd rather lock in the $500 gain offered in option 1a and pass on option 2a altogether.

In the second scenario, the idea of a certain loss (1b) -- even though we'd wind up with exactly the same amount of money as in option 1a -- not only does not appeal to us, most of us don't even consider it. We prefer instead to gamble on option 2b. There is, after all, a chance in option 2b of losing nothing, whereas if we were to choose option 1b, we would lose $500 for sure (there is also a chance of losing $1000, but it's not a certainty).

Put another way, the pain of loss which would result from choosing option 1b is so much greater than the pleasure of the gain that would result from choosing option 1a, we will do anything to avoid it, even if that means chancing an even greater loss by choosing option 2b. The potential loss represented by 2b is after all only potential. It's in the future. Something might happen that will enable us to avoid it. For example, the world might blow up and we'll be off the hook (anyone who's ever watched a gambler increase the size of his bets as he loses will recognize this phenomenon in action; amateur investors who continue to buy stock as it declines in order to lower their "break-even" point are avoiding this same rendezvous with loss).

If all of this sounds crazy, that's because it is crazy. The pain of loss is so great, and our fear of it is so ingrained, that we will do anything to avoid facing it. We will hold onto a stock all the way to bankruptcy to avoid facing it (if we don't sell it, it isn't really a loss).


There's more, but this seemed particularly pertinent to this particular thread.

Thats a good reason why adequate bankrolling is so important. Its not just about being able to take several hits, if you are under-rolled it will impact your performance because your fear of loss is greater. Its also why it is very important to not give significance to gains or losses, i.e. focus on process not outcome. If you view winning trades as positive, you will view losing trades as negative by default. The less you are emotionally impacted by your P&L, the better you will perform.

Understanding yourself is just as important as understanding markets.
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  #122 (permalink)
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TickedOff View Post
Thats a good reason why adequate bankrolling is so important. Its not just about being able to take several hits, if you are under-rolled it will impact your performance because your fear of loss is greater. Its also why it is very important to not give significance to gains or losses, i.e. focus on process not outcome. If you view winning trades as positive, you will view losing trades as negative by default. The less you are emotionally impacted by your P&L, the better you will perform.

In terms of trading, however, the fear of loss has little to do with how much money one has to waste. The fear of loss has more to do with whether or not one has any idea what he's doing.

The fear of loss is assuaged by creating a consistently-profitable trading plan, not by feeding one's diminishing trading account. If one has such a plan, and if one has accepted the inevitability of loss, there is nothing to be afraid of.

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  #123 (permalink)
Normal Wizard
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DbPhoenix View Post
In terms of trading, however, the fear of loss has little to do with how much money one has to waste. The fear of loss has more to do with whether or not one has any idea what he's doing.

The fear of loss is assuaged by creating a consistently-profitable trading plan, not by feeding one's diminishing trading account. If one has such a plan, and if one has accepted the inevitability of loss, there is nothing to be afraid of.

If you got rent to pay, mouths to feed etc and cannot afford to lose/need to make money thats going to set up an enormous amount of pressure and interfere with your trading. A plan isnt going to help you very much then.

Understanding yourself is just as important as understanding markets.
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  #124 (permalink)
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TickedOff View Post
If you got rent to pay, mouths to feed etc and cannot afford to lose/need to make money thats going to set up an enormous amount of pressure and interfere with your trading. A plan isnt going to help you very much then.

Losses are unavoidable and inevitable. If one "can't afford to lose", then he will be unable to accept that inevitability, in which case he shouldn't be trading at all.

A thoroughly-tested and consistently-profitable trading plan, and the discipline to follow it, are just about the only things a trader has in his corner.

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  #125 (permalink)
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I am thoroughly impressed that a thread like this has gone this far, as they typically lasts three posts, then gets sent to purgatory.

I am grateful it has!

The gems have been worth it.

-Jimmy
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  #126 (permalink)
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DbPhoenix View Post
Losses are unavoidable and inevitable. If one "can't afford to lose", then he will be unable to accept that inevitability, in which case he shouldn't be trading at all.

A thoroughly-tested and consistently-profitable trading plan, and the discipline to follow it, are just about the only things a trader has in his corner.

Losses are unavoidable: In your opinion, what trading worldview should a new trader have? I would assume this trading worldview would be somewhere in between the far left extreme ( any losses consume the trader with fear and such) and the far right where the trader is not remotely effected by any losses.

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  #127 (permalink)
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sledmt View Post
Losses are unavoidable: In your opinion, what trading worldview should a new trader have? I would assume this trading worldview would be somewhere in between the far left extreme ( any losses consume the trader with fear and such) and the far right where the trader is not remotely effected by any losses.

Always far right.

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  #128 (permalink)
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PeakGrowth View Post
Always far right.

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That is your trading worldview?

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  #129 (permalink)
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sledmt View Post
That is your trading worldview?

All successful traders don't get affected by loss because it's part of the cost of business. Consider it your expenses, a business isn't losing sleep at night because there are costs, it's just part of the game.

If you let losses affect you you'll never make good decisions.

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  #130 (permalink)
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sledmt View Post
Losses are unavoidable: In your opinion, what trading worldview should a new trader have? I would assume this trading worldview would be somewhere in between the far left extreme ( any losses consume the trader with fear and such) and the far right where the trader is not remotely effected by any losses.

The implication is that the "trading worldview" centers around losses. It can at some point center around losses, depending on how the trader begins his journey. If he doesn't understand how markets work, if he does not have a thoroughly-tested and consistently-profitable trading plan, if he hasn't even thought about risk, much less accounted for it in his strategies and tactics, then, yes, quite soon he will be faced with losses. At that point, he can either become paralyzed by them, or he can ignore them until his broker notifies him that he no longer has enough in his account to trade.

The new trader should understand that the purpose of the market is to facilitate trade. He should understand that it functions according to the law of supply and demand. He should understand that the market is not sentient: it doesn't care about him, has no interest in what he wants or needs or what his personality is. It has no desire to make him happy nor to punish him. It has no desires at all.

Many if not most new traders -- and more than a few not-so-new traders -- will go to any lengths to avoid assuming responsibility for their trading and trades. This is why their trading plans, if any, are so "soft". Being soft, they do not lend themselves to the collection of data, and without data, the trader has no way of determining exactly what he is doing right and what he is doing wrong, much less what to do about either. If he conducts trading reviews at all, they tend to be of the self-congratulatory sort or a wallow in self-pity, neither of which helps him toward becoming a consistently successful trader.

Few new traders want to study the market. Those who read anything at all prefer to read what somebody says about the market rather than study the market itself. Few new traders are interested in practice, much less weeks to months of it. At the beginning, they generally succeed. They succeed because they have not yet learned fear. But the luck runs out sooner or later, and fear moves into the spare room and settles in for the duration. And the trader eventually becomes a statistic.

But this has all been said before by Jones, Seykota, Douglas, O'Neil, Gann, Gartley, Schabacker, Magee, Raschke, Schwartz, Oz, Zweig, and dozens of others. The message, however, is drowned out by Make Bazillions In Only Minutes A Day (at your kitchen table). And the beat goes on . . .

The trader who takes the other fork, though, studies the market. He learns why price goes up and down. He understands the scientific method and applies it to what he observes. He tests his hypotheses and begins to gather data in order to come up with a trading plan which is grounded in reality rather than wishes and hopes. He explores those strategies and tactics which enable him to act on what he has found as a result of his testing. He begins to understand that there is no such thing as a risk-free or loss-free method, but that his plan provides a level of predictability that provides a consistently profitable outcome over time. Not every trade. Over a series of trades. Over time. Therefore he does not freak out over losses but accepts them as part of the win-lose cycle*. They are a cost of doing business. Is he unaffected by them? Of course not. He analyzes them just as he analyzes his profitable trades so that he can maintain a course of continuing improvement.

And then he prepares for the following day . . .


*Before you’ve lost all your money, the thought that you haven’t the least idea what you’re doing may prevent you from blowing your account entirely. You realize now that this is not easy, it’s hard, it’s work, but rather than chuck it, you elect instead to take the subject “seriously”. You locate your library card and/or shop Amazon. You check out -- or take much of what you have left and buy -- all the “recommended reading”. You take the courses. You attend the seminars (box lunch included). You subscribe to the chatrooms and websites and newsletters. How-To book or notes in hand, you scan the markets every day. After a while (sometimes a good long while), you notice a particular phenomenon which pops up regularly and seems to "work" pretty well. You focus on this pattern. You begin to find more and more instances of it and all of them work! It’s all true! It Works! Your confidence in the pattern grows and you decide to take it the very next time it appears. You take it, and almost immediately your stop is hit, and you're underwater for the total amount of your stoploss.

So you back off and study this pattern further. You go back to the books, back to your notes. And the very next time it appears, it works. And again. And yet again. So you decide to try again. And you take the full hit on your stoploss.

Practically everyone goes through this, but few understand that this is all part of the win-lose cycle. They do not yet understand that loss is an inevitable part of any system/strategy/method/whathaveyou, that is, there is no such thing as a 100% win approach. When they gauge the success of a particular pattern or setup, they get caught up in the win cycle. They don't wait for the "lose" cycle to see how long it lasts or what the win/lose pattern is. Instead, they keep touching the pot and getting burned, never understanding that it's not the pot (pattern/setup) that's the problem, but a failure on their part to understand that it's the heat from the stove (the market) that they're paying no attention to whatsoever. So instead of trying to understand the nature of thermal transfer (the market), they avoid the pot (the pattern), moving on to another pattern/setup without bothering to find out whether or not the stove is on.


Last edited by DbPhoenix; August 7th, 2015 at 09:03 PM.
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