Don't confuse bias with emotions. You can't eliminate your emotions, nor should you. You just have to keep them from becoming destabilizing. If you don't feel the pain of a loss then you will become desensitized to losing, and your financial survival will be tenuous. And, in many ways large profits are even more insidious, than large losses, because they cause overconfidence, and a false sense of ability.
The last thing you want to think about when you are learning how to trade is how much money you are making. What you do want to think about is how to maximize the chance of making money. Once again, its about the process, and not the outcome.
The Trader's Attitude
Focused (on the trade only)
Confident (in your methodology& risk management)
Patient ( to maximize profit)
Disciplined ( in your trade management)
Emotionally Stable ( treat winning and losing the same)
Flexible (admit when you're wrong)
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Peter is a very close friend of mine, and possibly one of the biggest influences on how I learned to think and act. There is not much that he cannot do, and I know that to be fact. I receive his email newsletter on a regular basis, but many times just delete them depending on the topic. Not that what he has to say is not interesting or of value, just that I have had thousands of similar conversations with him over the past 20+ years, and maintaining my email is a consuming task.
But this one was very relevant to a current topic of my journal;
The Razor's Edge Newsletter
For People Who Live Life in the Pursuit of Excellence
“The Art of Waiting"
by Peter Ragnar
Waiting in a doctor’s office, waiting for a plane, waiting for a guest to arrive, waiting for a check in the mail, waiting in line, waiting for success, love, or recovery from illness—the nature of life is waiting.
"When you’re forced to wait, how does that make you feel?"
If you’re like the overwhelming majority, waiting is often coupled with feelings of discomfort. Have you ever been caught in heavy traffic while under time pressure to be somewhere else? Did any anger surface? Any irritation? How many of us identify this as a mild form of suffering?
Interestingly, most religions address this problem, yet we still suffer. Why? Could it be because we lack patience? The Latin “passus,” which means “to suffer,” is the root of both “patience” and “passion.” When we’re impatient, we endure discomfort. However, those who are said to be good patients say nothing about their suffering.
According to the Four Noble Truths of Buddhism, impatience is a form of mental suffering. Paul’s words in the Bible book of Corinthians tell us, “Love is patient and kind.” In the Hindu Bhagavad-Gita, Krishna tells Arjuna, “That one I love ... is incapable of ill will … not agitating the world nor by it agitated.” But how can we wrath-prone humans learn the art of patiently waiting?
The answer lies in only doing one thing at a time and doing it with focused attention. It means being totally present and conscious in the moment: doing what you’re doing without any influence from thoughts about the future or the past. I realize you may have attempted this only to be confronted with its difficulty. Please don’t be dismayed. It takes a lot of practice—much like exercise, until the needed strength is built up. This means regular daily practice. Thankfully, each day presents us with new opportunities to do this.
Can you imagine yourself as “incapable of ill will”? How about as patient and kind beyond measure? Buddha said, “There is suffering and there is a way out of suffering.” This “way” has nothing to do with believing anything. It has everything to do with noticing. It has to do with being as humanly present as possible and living each and every moment being fully conscious.
A Zen master was once asked, “What’s the secret to your happiness?” He replied, “When it’s hot, it is simply hot. When it’s cold, it is simply cold. I do not require its opposite.” Another master was asked the same question and said, “I chop wood and carry water.” Hidden in the answer was the secret. The performance was totally a conscious act.
The art of waiting is the skill of patience. You can be patient only by being conscious. Rousseau wrote, “Patience is bitter, but its' fruit is sweet.” You will taste its delights when you master the art of waiting.
I seem to remember seeing a documentary about this guy a few years ago. Did he used to be in prison or something like that? Or maybe it was he totally failed at something filed a BK and then in about 6 months went from almost homeless to making bank online....if its the same guy, it was really inspiring.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
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Patience is a subject whose importance is not to be underestimated, nor taken for granted. The primary reason for my success as a floor trader was execution edge, reduced commissions, and access to customer order flow. The major factor that slowly eats away small retail accounts, is not that the retail trader is inevitably wrong the market, but that they can't stay ahead of their own transaction costs. This takes into account commissions and execution slippage. As a pit trader I was on the other side of the execution slippage, and commissions were a non-factor.
A theme that consistently runs throughout a lot of novice threads is the overriding concern to make current positions more likely to succeed, always to the detriment of long-term performance. Once again, its the the natural tendency to maximize the number of winning trades, rather than the desire to maximize the chance of gain. These instinctive preferences run counter to perhaps the most fundamental principle of successful trading: Cut your losses and let your profits run.
Asymmetrical responses are common in trading and are often counter-intuitive. If the price moves close to a stop point, the trader will automatically think about moving his stop out to give the trade a little more room, but will not allow such flexibility with a winning trade, and will prematurely book the profit, before it turns into a loss. Decision theorists have demonstrated that people consistently prefer to lock in a sure win rather than accept a gamble with a higher expected payoff. Unfortunately, what works in the short term is nearly the opposite of what works in the long term.
The market likes to lull you into a false sense of security of high success rate techniques, which in the short term might work, but which often lose disastrously in the long run. The trader often compounds and exacerbates the problem, because their natural instincts will also mislead them in trading. These tendencies will make it increasingly more difficult to overcome transaction costs, especially when trying to scale your trading.
Therefore, the first step in succeeding as a trader is reprogramming behavior to do exactly the opposite of what feels good and comfortable, and to do what is correct and right. Patience is certainly an integral component in the formula for achieving this result, if not the most important. Its acquisition was the most important factor contributing to my successful transition from the floor to screen based trading.
Last edited by tigertrader; June 9th, 2012 at 05:31 PM.
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There are so many stories Peter told me years ago, some of them I blur together now into a single message. But one that hit me with @tigertrader's post last night, subsequently triggering my comment about the glass of water today.
The story Peter told is based on some eastern religion, and started with a conversation between master and student. The student asked a question about what is real and what is illusion. The master started to answer, but said, “I will tell you, but first, I am very thirsty. Would you go get me a glass of water?
The two were not near anyplace that was familiar to them, and so he just went to the first farmhouse he came across, knocked on the door, and asked for a glass of water. The girl in that house was the most beautiful he had ever seen, and when he was asked in he jumped at the opportunity. Right there, in that very visit, he asked her to marry him, and she accepted.
They shared a beautiful life, raised several children, their wealth grew, everything seemed right with the world. Years passed.
Then one day there was a tremendous storm. It flooded their village, destroyed their home, and claimed the lives of his children and his wife. The entire village was wiped out, except for the man.
He sat alone, crying.
And then he heard the sound of laughter. Off in the distance, but the location hit him as being strangely familiar, it was the master, laughing. “Where is my glass of water?”
What caused me to gain the confidence to feel I had earned the title of “trader” has similarly been pushed aside for the next step in my trading. I had worked my trading into a place of calm, profits much larger than winners, patience in waiting for the trade to come, as well as for it to end...and then decided “I am ready”. And while that may have been true, the decision itself was enough to set my course askew.
But really, nothing has changed, and the same things that worked initially still work today. It is me that has changed, off on another path, so many life issues disguising the truth. I am still the trader that I was, still believe in the same things that I did, but forgetting them lately on a regular basis as I set my sights on goals that have nothing to do wiht the initial task. I laugh at myself this afternoon, playing the role of both master and student.
The issue is not position size. It is not dollar amount. My motivation changed, and with that so did my priorities.
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You've made some pointed and sometimes cryptic statements on my thread but lately your posts have become less cryptic. Or maybe I am more able to understand them now. This patience thing is becoming more and more a part of what I understand to be the most critical aspect of both waiting for set ups and waiting for targets. Now as patience plays a part in transaction costs, I have a question about these two and what you may consider to be the more appropriate long term strategy.
I have an example from yesterdays crude oil action. I have a method that gives me on average 1-1.5X risk reward. The reason for the 1.5 is its a dual position scale out method at predefined but dynamic targets. Most of the time, on my five min chart, I get a 2nd target projected that ends up at or near the top or bottom of swing. This means I can be out most of the time before a significant pull back on the 5M chart which means I can start looking for a new trade once that ones over. This seems to suit my personality in terms of being out before any real pull back occurs. One never knows if the swing you just took profit on is the last one correct? The pull back may end up being a trend reversal....who knows.
On the other hand, the risk reward ratio is just barely in line which demands at least a 50%+ win ratio. I accept that fact at the moment. I also understand this means my commissions are going to escalate as a percentage of net profit over time, especially as I scale up my position sizes.
I can use the same profit potential projection method to project 3-4X risk but this means pretty much 100% of the time I will be sitting through far more price action in terms of the up and down escalations of price as it works it way toward my profit areas and for a lot longer than I am used to. In addition, there is always those days where I may have gotten 1-2X profit and the 3-4X fail. So if I don't take profit at those nearer profit zones, a very real possibility of no profit at all exists at least on that trade.
Now the question....from a risk reward + transaction costs, would you advise a trader to look for 3-4X risk and win perhaps once a day vs look for 1-2X risk and win 3-4 a day accepting the higher potential of being wrong 3-4 times a day and the higher commission costs associated with more frequent trades?
In other words, more advisable to take the smaller profit targets with the higher probability of them actually being filled, or scratch a bit more and look for 3-4X risk per trade?
Here is my chart and I annotated it and wrote this post over the course of the afternoon with lots of interruptions from my kid so if anything seems unclear or disjointed, please ask for clarification.
Thanks....and with apologies to @GaryD for hijacking his thread with my own selfish interests......
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Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
Last edited by PandaWarrior; June 10th, 2012 at 12:00 AM.
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