Be bright, give up being right

Discussion in 'Psychology' started by tradingkevin, Jan 15, 2008.

  1. Be bRIGHT, give up being RIGHT, and
    emphaSIZE on Position SIZE !!!

    Reacting is a business decision, predicting is an ego play.
    If you just react to market action it will do. It doesn't count if you enter a market 1 or 5 days later.
    It counts
    • when you exit a trade and
    • how much you risk
    on each trade.

    The desire to be right:
    This is a simplified illustration of a stock market phenomenon.
    It shows how and why the desire to be right takes a whole lot of traders out of the market each and every day.
    They focus on % correct (profitable) trades and % false (losing) trades instead of other much more important trading statistics.
    Generally you have the choice between
    • being wrong more often than being right and achieve large profits relative to the losses (Math driven), or
    • being right more often than being wrong and achieve large losses relative to the profits (Ego driven).
    So not the number of trades which are profitable but the SIZE of the profitable trades are relevant.

    More on the desire to be right:
    For a lot of "investors" the desire to be right unconsciously is one of the core motivations to invest in the stock or futures markets.
    That's why the crowd loves to trade according to predictions (either their own or the predictions of the currently available market gurus).
    If they are right, they are happy, no matter what amount they win when they win, no matter what amount they lose when they lose.
    They even accept a negative expectancy as a result of there ego-driven behaviour.

    By Thomas Pflügl, 2000
  2. maxpi


    There is actually a plane of outcomes you can calculate that only require your percent wins and win/loss ratio to produce.. it's most instructive to do that and to simulate a hundred different accounts with monte carlo stimulus, you will find that you can go down into the 35% winners area and be profitable if your gain is a few times bigger than your losses and you can have smaller wins than losses if your win % is big enough... You also will find that at completely random outcome, 50% winners and wins = losses that of the 100 accounts you simulate, some will be doing great and some will have busted at nearly the outset.. the random set of winners is where the glowing testimonials for trading systems come from, and possibly the disparity between backtested systems and realtime applications of the same system as well...
  3. I run about 95% winners but damn its a lot of work and doesnt always scale well.
  4. cashonly

    cashonly Bright Trading, LLC

    You are so correct on the impact of the "must be right" mindset.

    Whenever a trader feels they MUST be right is when they lose money.

    I've worked with hundreds of traders and those that have this attitude rarely survive. You MUST be able to take a loss to win.

    This is all good for daytrading and if your time period is 15 seconds - 2 miniutes. But ulimately you have to be right more than wrong in a longer timeframe.

  6. yes. because there, on a longer timeframe, the real factor comes into play with a heavier weight. YOU. YOUR LIFE, YOUR INCOME, KIDS ETC. You can't break even on a yearly basis ...

    good observation