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The PandaWarrior Chronicles
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The PandaWarrior Chronicles

  #1971 (permalink)
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tigertrader View Post
@PandaWarrior: Once again, this is one of the main problems that inhibits consistent profitability in trading. Learning what to do, and actually doing what you learned under pressure are two different things. And once again, it goes back to one's desire to maximize the chance of gain, not to maximize the gain itself. Getting out of winning trades prematurely, is an obvious manifestation of this phenomena. All it serves to do however, is make one feel better AT THAT MOMENT IN TIME. In reality, it is to the severe detriment of long-term performance. One has to realize that trading is a big-picture endeavor, and what feels good in the short term, is most likely counter-productive in the long term. Quite simply, leaving a large amount of money on the table, or worse yet; missing a major winning trade, is just as bad , if not worse, than a losing trade. The market however, lulls you into complacency, and even reenforces this natural behavior, because it spends more time in ranges than in trends, where small profits quickly vanish. You then learn to instinctively cover trades before they return to your entry point, or turn into losers.

What makes matters worse, is that that your exits command top priority in the trade decision hierarchy, followed by trade size, and entry point. Liquidations are far more important than initiations, and harder to get right. When you enter a trade it is the most hopeful point in the trade cycle, but come exit time, stress, cognitive load, emotions and bias, have reared their ugly heads, just in time to distort your expected value of the trade.

Having a predetermined target and sticking to it is not the answer, in my opinion. In most cases, people are going to get out early anyway, and it is tantamount to trying to predict the market. It is more important to concentrate on projecting losses, risk management, and finding signals that produce trades that are well defined, have a proven edge, and are reproducible, rather than trying to predict the market.

This means that path dependency is what matters and awareness of it's variability, duration, and signal are critical components to optimizing any trade, not some arbitrary line or inferred sufficient profit. If price action or your expectation dictates the market should continue in your favor, why get out ? And, why use a target, that you're not going to allow yourself to hit as your exit point? Exit the trade when price action/signal tells you the trade is not good anymore.


I embrace this thought process.....up to the point where I try to embrace the prospect of the uncertainty of where I might eventually exit the trade, either for profit or loss. My brain runs over the countless days where I've seen CL reverse a 200 tick short move and end the day positive.....or where its ranged in between two levels all day...and letting a trade simply go all day ends with a small net loss or a small net gain or flat, when you may have been up 30-60 ticks at any one point.....

I functionally understand letting it run on the 200-400 tick days and adding size as it goes makes up for the flat or small gain/small loss days.....but emotionally it still doesn't feel right. Something tells me I need to make money every day or at least give it my best shot......

What does FEEL good is capturing some pre-planned portion of the day's move regardless of what that amount is...as long as its more than I normally risk....and even if I've left a reasonably large portion of the day on the table.

It seems to me there needs to be or should be a happy medium somewhere in here??????????????

EDIT:

This being said, I fully recognize the secret to winning long term is letting the winners run....the question has always been, how far???????

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #1972 (permalink)
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A classic case:


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Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #1973 (permalink)
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PandaWarrior View Post
I embrace this thought process.....up to the point where I try to embrace the prospect of the uncertainty of where I might eventually exit the trade, either for profit or loss. My brain runs over the countless days where I've seen CL reverse a 200 tick short move and end the day positive.....or where its ranged in between two levels all day...and letting a trade simply go all day ends with a small net loss or a small net gain or flat, when you may have been up 30-60 ticks at any one point.....

I functionally understand letting it run on the 200-400 tick days and adding size as it goes makes up for the flat or small gain/small loss days.....but emotionally it still doesn't feel right. Something tells me I need to make money every day or at least give it my best shot......

What does FEEL good is capturing some pre-planned portion of the day's move regardless of what that amount is...as long as its more than I normally risk....and even if I've left a reasonably large portion of the day on the table.

It seems to me there needs to be or should be a happy medium somewhere in here??????????????

EDIT:

This being said, I fully recognize the secret to winning long term is letting the winners run....the question has always been, how far???????

I think what @tigertrader is talking about is how to take trading to the next level. Once you're consistently profitable, how can you extract the most out of the volatility provided each day. That said I'm definitely not at that stage yet, I missed the early downtrend action today on the NQ.

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  #1974 (permalink)
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tigertrader View Post
.... Once again, this is one of the main problems that inhibits consistent profitability in trading. Learning what to do, and actually doing what you learned under pressure are two different things.

And once again, it goes back to one's desire to maximize the chance of gain, not to maximize the gain itself. Getting out of winning trades prematurely, is an obvious manifestation of this phenomena. All it serves to do however, is make one feel better AT THAT MOMENT IN TIME.

In reality, it is to the severe detriment of long-term performance. One has to realize that trading is a big-picture endeavor, and what feels good in the short term, is most likely counter-productive in the long term. Quite simply, leaving a large amount of money on the table, or worse yet; missing a major winning trade, is just as bad , if not worse, than a losing trade.

The market however, lulls you into complacency, and even reinforces this natural behavior, because it spends more time in ranges than in trends, where small profits quickly vanish. You then learn to instinctively cover trades before they return to your entry point, or turn into losers.

What makes matters worse, is that that your exits command top priority in the trade decision hierarchy, followed by trade size, and entry point. Liquidations are far more important than initiations, and harder to get right. When you enter a trade it is the most hopeful point in the trade cycle, but come exit time, stress, cognitive load, emotions and bias, have reared their ugly heads, just in time to distort your expected value of the trade. Having a predetermined target and sticking to it is not the answer, in my opinion. In most cases, people are going to get out early anyway, and it is tantamount to trying to predict the market. It is more important to concentrate on projecting losses, risk management, and finding signals that produce trades that are well defined, have a proven edge, and are reproducible, rather than trying to out-guess the market.

This means that path dependency is what matters and awareness of it's variability, duration, and signal are critical components to optimizing any trade, not some arbitrary line or inferred sufficient profit. If price action or your expectation dictates the market should continue in your favor, why get out ? And, why use a target, that you're not going to allow yourself to hit as your exit point? Exit the trade when price action/signal tells you the trade is not good anymore.



tigertrader View Post
.....My only edge is I'm smart enough to know, that Iím dumb enough to know, that I donít know the answers. Instead, I observe, and try to uncover what game is working and play that game. I don't cling to labels - breakout trader, trend trader, mean reversion trader.


So much gold in this that its difficult to fully appreciate. 2013 will go down as an year in my quest for what TT postulates. And I have failed in that endeavor. It is very difficult to do this. And as TT says, that is where the pot of gold is. The last step of the 38 steps.

And man, is it elusive. Not only that, it is also ephemeral. You think you have it, but a string of losses can insidiously completely change your mindset. I don't know how to change to get into the truly free mindset that TT talks about in the 2nd quote, bu that is convergent completely with the first quote.

For 2014, in order to protect my capital from myself, i have decided to split my capital into two strategies. One, that provides my daily nut (a risk averse approach) and the other that attempts to maximize the chance of gain, exactly as TT projects. The latter is the builder of wealth and the former to provide an income. The profoundness of what his statements are unquestionable and most of us will likely talk a long to appreciate the power of this. Fewer still will attempt it, and most that attempt will fail. However, that is why I must try.

At the same time, the fearful (prudent!) in me says, I must split capital strategically enough to make sure that I don't go down in flames while attempting to do so. Ironically this brouhaha about CME fee hikes and my general move into FX has made this transition (realization) easier. I hope to report my trials and failures (of which, no doubt, there will be many) in the future.

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  #1975 (permalink)
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PandaWarrior View Post
A classic case:


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There are at least a couple of scenarios that I think, are worth looking at, on these shakeouts. One is to identify a re-entry trigger bar, this involves a re-application of risk-reward sizing, such as this.

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The other one, is to watch correlated markets (ES / NQ / TF / YM) for a retrace or a better looking swing (one where the impulse/ correctives are more easily identifiable). AS such - neither ES nor TF were clean, but the YM was. This is different approach to yours, but a robust one. Relying on the correlated nature of the index markets to produce at least one good signal for a measured expansion.

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Your approach is based on ADR expansion, probably more suited to approach #1 (identifying a re-entry bar). While I would use an unrelated methodology to identify this bar (MTP), but one could also ID this using a volume VSA spike bar or some thing else and target the expansion that was expected on the first failed trigger.

Which one is more robust, more easily reproducible? I prefer the 2nd approach. But, the first one is very much valid if one can clearly quantify the re-entry and target and assess the position sized risk simply


Last edited by Deucalion; January 3rd, 2014 at 10:04 PM. Reason: Grammar
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  #1976 (permalink)
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Excellent discussion on the problems / emotions we all face. Thanks, guys.


AJ
Nashville, Tennessee


"Life On The Edge of SR"
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  #1977 (permalink)
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Deucalion View Post

For 2014, in order to protect my capital from myself, i have decided to split my capital into two strategies. One, that provides my daily nut (a risk averse approach) and the other that attempts to maximize the chance of gain, exactly as TT projects. The latter is the builder of wealth and the former to provide an income. The profoundness of what his statements are unquestionable and most of us will likely talk a long to appreciate the power of this. Fewer still will attempt it, and most that attempt will fail. However, that is why I must try.

At the same time, the fearful (prudent!) in me says, I must split capital strategically enough to make sure that I don't go down in flames while attempting to do so. Ironically this brouhaha about CME fee hikes and my general move into FX has made this transition (realization) easier. I hope to report my trials and failures (of which, no doubt, there will be many) in the future.

I was going to say something similar to this but deucalion beat me to it

anyways, for the first half of the day/week/month/quarter you should consider taking quick profits on some or all of your position to build up a profit cushion. Then, leverage that profit cushion for the last half of the day/week/month/quarter to let trades run further or going all-in-all-out on every trade.

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  #1978 (permalink)
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Sazon View Post
I was going to say something similar to this but deucalion beat me to it

anyways, for the first half of the day/week/month/quarter you should consider taking quick profits on some or all of your position to build up a profit cushion. Then, leverage that profit cushion for the last half of the day/week/month/quarter to let trades run further or going all-in-all-out on every trade.


No, you don't trade your p&l - you trade the market. You make trade decisions based on the kind of market you are trading, i.e., range vs. trend, volatility etc. - not your p&l.

Imagine that trade management is like grilling a steak. If you like your steak well-done, you're not going to take it off the grill after 3 minutes, because you're hungry and can't wait for it to fully cook. And you're not going to take it off the grill at some arbitrary time, because some cookbook said a well-done 2-inch steak should be cooked for 8 minutes. Instead, you are going to observe the steak, maybe poke it with your finger, or cut it open a little to see if its done. And only when it is cooked to perfection, do you take it off the grill. This applies to EVERY steak you cook.


Last edited by tigertrader; January 5th, 2014 at 01:17 PM.
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  #1979 (permalink)
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tigertrader View Post
No, you don't trade your p&l - you trade the market. You make trade decisions based on the kind of market you are trading, i.e., range vs. trend, volatility etc. - not your p&l.

Imagine that trade management is like grilling a steak. If you like your steak well-done, you're not going to take it off the grill after 3 minutes, because you're hungry and can't wait for it to fully cook. And you're not going to take it off the grill at some arbitrary time, because some cookbook said a well-done 2-inch steak should be cooked for 8 minutes. Instead, you are going to observe the steak, maybe poke it with your finger, or cut it open a little to see if its done. And only when it is cooked to perfection, do you take it off the grill. This applies to EVERY steak you cook.

Of course, that all depends on how YOU trade. Heck, in some cases, I might take a trade off because I didn't like the way the wind blew across my a$&, and in other cases I'm more comfortable to let my entire position or a portion of my position run and run and run because I've already built up substantial profits from a previous trade. I hear what you're saying but successful trading in general is not like cooking. It's not a black or white thing. Often you will need to adjust your size if you see something that you don't like or your money management strategy if it's not working for you. That's how I trade anyways and it works masterfully.

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  #1980 (permalink)
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Sazon View Post
Of course, that all depends on how YOU trade. Heck, in some cases, I might take a trade off because I didn't like the way the wind blew across my a$&, and in other cases I'm more comfortable to let my entire position or a portion of my position run and run and run because I've already built up substantial profits from a previous trade. I hear what you're saying but successful trading in general is not like cooking. It's not a black or white thing. Often you will need to adjust your size if you see something that you don't like or your money management strategy if it's not working for you. That's how I trade anyways and it works masterfully.

@Sazon: I'm sure you're the second coming of Ray Dalio, or Jeremy Grantham, but I really don't think you hear what I'm saying, or you wouldn't be spewing out such nonsense. If a trade is good enough to make its good enough to make at full size, if a trade is not good enough to make at full size, then don't make it at all. If a trade is no longer good, get out. If a trade is still good, don't get out. The decision to initiate a trade , and the determination of whether to stay in or get out of a trade should not have anything to do with your P&L - there is no grey area here. The kind of fine tuning you describe may give you the feeling of being very accurate, but in fact, appears to be as arbitrary as the wind blowing across your ass.

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