A Different Way of Looking at Losses and Profits

Discussion in 'Psychology' started by aeliodon, Sep 11, 2007.

  1. One of my biggest problems as an index futures trader was my inability to sustain a profit factor of above 2.0. I feel if you don't have a 2.0 profit factor then your not really a top trader and since you don't have a very large edge you're likely a blowup waiting to happen.
    So now what I do is record each loss as 2 twice the net loss and record each gain as normal net. So I record a one point loss as -2.2 and record a one point gain as +0.9. This trains the mind to see losses relatively larger than gains so that you're more focused on limiting them and you train your mind to see profits as relatively smaller than losses so you're more focused on protect them.
    I don't moniter PL, only profit factor - because profit factor shows the balance between risk and reward. And I don't have PL goals, only PF goals because PL goals aren't risk adjusted the way PF goals are.
     
  2. That might be a good measuring stick for your particular style of trading, but I would be willing to bet there are quite a few folks on these boards who operate quite profitably at much lower R factors.
     
  3. I strongly disagree with that statement. What do you base this arbitrary number on and why do you feel anything below it is a blowup waiting to happen?

    While I agree that P/L should not be what you focus on, PF is only one way to look at profitability. For me it's a number I record and look at once in a while, but it's far down the list in terms of importance.
     


  4. Your situation is different. You trade many different strategies. I'm speaking as a guy that solely trades ES futures.
    For me there is a huge difference between a PF of 2.0 and above and 2.0 and below.
    When PF is below 2.0, trading is just a grind and you're constantly giving up more than half of your profits.
    When PF is above 2.0, trading is pretty stress-free, consistent, and drawdowns are so small that they're insignificant and don't really affect you mentally at all.
    Mind is the biggest enemy of every trader. If your constantly giving up half of all profits then you will have doubts about your system and about your abilities - then you try to second guess and overtrade - and you fall into a mode of recklessness where you lose a lot of money. But when your PF is consistently above 2.0 then there's no doubts, no fear, no recklessness, no over trading.
    Perhaps 'blowup' is a rather strong term. For me any day in which I deviate from my system is a blow up. A losing week is a blowup for me, etc.
    What do you consider more important than PF as a performance metric?
    Remember the goal isn't just to make money but to make the most amount of money per unit of time, leverage, risk, etc. - to make money efficiently and effectively.