I just wanted to pass along some general observations about trader tendencies I have gleaned from some of the consulting clients I have taken on. Generally speaking, I try to filter prospects for ruinous baggage (incredibly self-destructive habits). If I get the sense that a prospect has one foot in the grave and sees me as a last resort, I won't take that client on. There is nothing worse than forcing trades out of fear and panic, and from my experience nothing good ever comes from forcing trades. Some common threads: 1. Some traders (especially those with a strong academic backgrounds) have an irresistable urge to add layers of complexity to a trade. In their mind, the holy grail is complex and mathematical. I have three clients who earn well into seven figures, and I am personal friends with several very wealthy traders here in the Chicago area. Let me say this: 98% of the people reading this thread would probably be shocked by how clean and streamlined their approach to the marketplace is. My first prop backer was David Ellis from DE Trading/ITG. Very wealthy guy and still a friend. All he ever did was buy or sell retracements and corrections in the same bias as the trend. If the market was up for the day and it came off a bit he bought it. That's it. Worth far and away well into eight figures. Dave did it in the S&P pit and he did it in the Eurex Dax on the screen. I lost count of the guys who IM and email me who really belong on the Wilmott Forum and who are having a hell of a time hanging on to capital, much less making any. 2. It is perfectly acceptable (and a preference for me, personally) to give up a chunk of a trading range for better signal confirmation and order flow momentum in your own favorite technical trading setup. Any model. Quit trying to buy the bottom or sell the top. Dial down the sensitivity - it increases your risk/reward skew by leaps and bounds. 3. When Tom Baldwin was in his prime twenty years ago in the Bond Pit, he could flip a coin heads for long or tails for short and still make money on the position. Charlie D. was much better yet. Everybody here concentrates so hard on deriving the holiest of entry signals that managing a position is an afterthought. Traders don't know how to scale properly, and worse yet they don't know when to work an edge versus going to market. Many automated traders don't properly assess the slippage they incur in the marketplace. I hear lip service and hommage to position management, but see very little skill evidence. Maybe it's the Pit mindset versus the Electronic mindset. 4. I see people doubling their size from one day to the next. No proper sizing plan or sense of risk/reward proportion. The sizing plan should be monitored in the trader's daily journal. 5. Nobody wants to keep a daily trading journal, and the thought never occurs to him that if he could reduce or eliminate mistakes that is capital retained in his account. Again, all the time is spent divining the magical entry signal. Bill Noyes was a monster NoB spreader in the pit and also a very good electronic trader. Incredibly wealthy man. He kept a daily trading journal. Just some common elements that I see far too many traders ignoring in favor of that one magical entry signal. I love my entry signals, and it's the very best thing I model at the moment. I have a tremendous amount of confidence in it. I make adjustments to my indicators as market conditions move between divergence and convergence behaviors. I increase and decrease sensitivity and time horizons to maintain resolution and granularity. I have constructed market scanners and automated spread order drivers. But if the market could be completely automated, I wouldn't have a job. I have an institutional consulting relationship with a 'black box' hedge fund. The problem with stat arb is always the exit. The exit rules are always more problematic than athe entry rules. And it is with the exit where the human element of trading makes it or breaks it.
I've worked with hundreds of traders in the past ten years. Two of the major human-nature mistakes everyone makes, only some survive long enough to learn better. #1: Small profits and larger stops do not work. That does not work now, it has never worked before and it will never work in the future. It simply does not work. Logically, the flailing traders think they can be right enough small enough often enough to make that negative skew work. They reason that the market will move a little in their favor often enough to overcome the relatively few times it won't Logic and reason will do very well to keep traders perpetually broke. If logic and reason worked in trading, everyone would be rich from day one and the markets destroyed into non-existence by now. Logic and reason are both less than worthless when it comes to trade decisions. #2: The best traders aren't perfect. They don't have 90% win rates, they don't win every day, they do have net-loss days, they do make mistakes, many mistakes all the time. Successful traders aren't perfect. They are adept at error management. The mistakes are minimized, the incorrect decisions cut short, the losses contained small. Then the correct decisions, the right acts are able to overshadow all else. === Cut losses short. Let winners run. Trade real money with a defined edge and nothing else. You'll know clearly well if you have a defined edge or not. Your account balance tells you so.