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I'm sure that I am not inventing the wheel for most people on this one, but I am the type of person that no matter how much I hear others say things, I need to figure it out for myself. For me, it is the best way to learn.
After almost 2 years trading and testing, and coding algos, and manual trading, etc... I have come to the conclusion that the number 1 enemy and cause of losing is the psychological aspect of it.
My 15 year old son in high school has trading apps on his phone, and he has a paper account, and consistently wins. He plays mostly CL and a little NG. He usually wins about $200 to $300 a day. He is very good at math, and has a very rational/logical/cold way of thinking.
But here is why I am saying this. Broker fees aside. If you flip a coin, there are only 2 possible outcomes (technically 3). Heads or tails. The 3rd outcome, I will leave to the physics professors, but I suppose the coin could land standing up. 1 in a million.
Same for trading.
Ask/Bid Spreads and Broker fees aside, if you played with a target and stop of the same distance from entry, then the odds in trading would be 50/50. The price can only move in one of two directions. So If every morning, I place a trade in either direction without looking at a chart or fundamentals, I should get a result of about 50%. Doesn't matter which direction the trades are in.
So is it that hard to find some sort of strategy, indicators, fundamentals, time of day, etc just to slightly skew the 50/50 into a 51/49 win rate?
If I can consistently lose, then why not do it the George Costanza way and do the opposite of everything that I have been doing. Whenever my failed strategy tells me to buy, I sell. Whenever my failed strategy tells me to sell, I buy.
Makes sense.
A consistently losing strategy can just be flipped into a consistently winning strategy. Just do the opposite.
But that doesn't seem to work either.
So the only conclusion that I have come up with is the psychological aspect that always gets in the way. This is why my son is good at it. Granted he is using paper trading. Maybe I should switch his account to a real account without telling him.
Can you help answer these questions from other members on NexusFi?
When one of our grandsons was around 3+ years old - now 15 - I would let him watch me trade sometimes - when we were taking care of him. I bought a small Mouse for him - so he could play some little kid games. One day I said to him - would you like to trade. He knew what I was talking about - you could tell he was excited. At first - I would tell him when to press the button on the mouse - and Buy or Short on the screen. He actually made money - most of the time. And this was Real Money - not Sim. Of course - I was telling him what to do. The main problem doing this with him - was that he didn't want to stop - LOL - and it was hard trying to convince him otherwise. Now days - he is more interested in girls - and he is 6'3" - and good looking - unlike me.
Ah - George Costanza - been there - done something similar in my early trading days - didn't work so good - LOL.
While I can't offer you any Code - you are more than welcome to watch my Signals with me - maybe I can help some. Just send a Private Message - with contact info - preferably Skype - if you have Skype. Not sure though - if private messages can be done in this forum. I am just sitting here doing some Coding - I get these ideas running thru my brain - then have to Code it - before I forget it - LOL.
If you recall - I responded to your other topic that you started.
Winning strategy or strategies, poor discipline (could include psychology, money management,etc): YOU WILL LOSE
Losing strategy or strategies, poor discipline : YOU WILL LOSE
Losing strategy or strategies, great discipline : YOU WILL LOSE Winning strategy or strategies, great discipline : YOU COULD WIN (although you could be unlucky and lose here, too)
In my experience, trading costs (slippage and commission) are a BIG part of why a strategy wins or loses. Most technical indicators, patterns etc are profitable before costs. But with costs they lose.
I have your answer and for years I am always in awe at how ridiculous traders are about not really understanding what is going on in the markets in an intraday basis.
It is important to understand that MOST day traders lose and thats because they are gamed to lose.
If anyone truly believes that back testing or even worse paper trading wins or losses has anything to do with psychology then you are not understanding the game.
When someone paper trades the trades they make do not go anywhere and they are not gamed against in small time frames by market makers and liquidity providers. What if I told you the majority of large orders for 401k and large retirement accounts are sent to fidelity or blackrock or vanguard the night before and so are the buys. These must be executed for customers but at advantageous pricing and the same goes for large and small hedge funds. Sure... Many traders are trading intraday but a huge chunk is predetermined as buys and sells. Imagine you are vanguard and you must buy 10 billion in sp500 stocks and sell 40 billion in sp500 stocks and you know this before the bell opens? Well this is the same thing for citadel except a few seconds or minutes is like a day or 2 by normal human time.
My point is that a large majority of the trading is predetermined as buying or selling against areas or price levels that interest most day trading chart traders who are playing with stops.
Now back to paper trading. The trades do not get filled by anyone on the opposite side . They have zero market impact. Your 1 lots have market impact. They trigger selling and buying in much larger qty than your 1 lot by mkt makers and other electronic traders..they are anonymous. Real trading... You lose not because of market psychology but because almost every trade you make goes against you and rapidly. This is because in micro time frames all the market makers want and other traders is for you to exit the mkt at a loss. If you do the opposite then the outcome will be the same because you will be gamed against as well.
There are entities with unlimited funds who trade hedged and will push the mkt around to crush lots of day traders who get into the mkts in the same areas and use stops that are pretty close. This is all a hunting ground for fast filling algos!! It's not psychology because many have tried doing the opposite in real life and it's the same outcome..losses and more losses. It is all because the trades you make are gamed and don't even get me started on wash trades which happen and are a thing.
Also the cme has it's own prop trading desk..not kidding. They say it's just for adding liquidity when it's needed but that trading desk makes millions every year with the fastest of everything.
So ho do you win? Well do they ever tell investors to bet huge or use stops? Nope..they say just buy and hold and wait during the swings and add to drawdowns if you have the money. Well that's what you should do with your day trading if possible.
To think that you can just do the opposite of what you or that it is 50/50 is ridiculous. I would bet that it's more like 20/20 for retail traders. You have a 20% chance of being right going long and a 20% chance of being right going short. 50/50 means you are playing a fair game with no slippage no fees and no insider cheating and no legal gaming of the system. Goodluck
Why traders fail:
There are several reason that I can think of;
The odds are against you to start with. 95% failure rate.
No comprehensive trading plan or proven edge.
Unrealistic expectations.
Overconfident.
Undercapitalized.
And of couse there is not having the discipline to follow your plan.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
Because the market mutates all the time and ALL fixed setups, strategies, indicators, patterns will lose you money over a certain cycle of time. You have to mutate along with the market, blend in and feel the flow on multiple timeframes. Nothing new here, it's the old school truism from the open outcry times.
Nothing wrong with figuring out things for yourself, but if you are going to draw conclusions like "Trading's number 1 reason for failure" based on only two reference points, i.e. your son's trading in a paper trading account and your trading, I'm not sure this is any more valid than listening to other, especially more experienced, people.
I agree that in a sense playing in the markets is rigged against human nature as we tend to do the opposite of what's sensible, i.e., we ride our losses hoping they'll come back and cut our winners short afraid they'll go back to zero.
I think psychology is possibly both overrated and underrated. Overrated since many will want to blame lack of a good system on psychology. And underrated since in the end it's very much a mental game if you're trading discretionary. And the higher your leverage and shorter your time frame, the more pronounced that effect will be.
I'm so glad you said " flip a coin." That's exactly what an amazing trader form the Market Wizards book did. His name is Tom Basso. He tested a "flip coin" strategy with positive results.
His findings concluded that a winning trade is more about position sizing and proper money management than psychological aspects.
So, it's possible that you might be looking at things the wrong way(meaning it's all psychological).
I remember listening to Tom Basso talk about this himself on a podcast. I found it fascinating. Van Tharp also writes about this in his book, " Trade Your Way To Financial Freedom."
I found this video on You Tube which explains it(there are more).
