How were you able to create a healthy balance in confidence and restraint?How did you develop a mechanism to avoid being overconfident and taking on excessive risk?
It's all in the numbers. Massive amounts of backtesting make the rules of the game crystal clear. Follow the rules or lose your ass. How hard is that?
Prepare to put in 5-7 years of hard work and 50-150k in cumulative losses before you make any consistent money. Staying many years under water with only losses to show for it will shape and form the personality traits you need to be successful in this biz.
Defined a set of statistical edges, back-tested them manually, defined rules for entry/stop/target that placed the edges further in my favor (risk:reward), micromanaged the system instead of simply trusting and trading it, got really frustrated by the fact that my daily post-market analysis consistently demonstrated results 200% better (at minimum) than my discretionary results, and finally gave up trying to have 100% perfect trades and just traded the system, knowing that even the #1 team has wins, losses and ties. As for restraint, I use a protective stop on every trade and I trade size that allows a "black swan" event to result in as much slippage as 100x my max stop loss (I believe that would be a limit down move) without reversing more than a couple months profit. That mechanism was developed early on when I was sometimes overconfident and took on excessive risk. At that time I was not a consistently profitable trader. When these disastrous trades were closed, I studied the charts to find clues as to why what I was so certain would happen failed to materialize. These really bad trades were all swing trades and all counter-trend; my day trading was always just fine because it either worked or didn't during the course of the day. I found I was entering a trade based on the intraday chart and price action, when my intention was to hold for a longer term move. When I studied the daily charts, I found that I was putting on these counter-trend swing trades at levels where the trend was consolidating for the next push or was showing no sign of a reversal whatsoever. So, I wanted to learn how to be the trader on the other side of my bad trades. I wanted to be the one sitting on an unrealized gain of $2000, $4000, $6000 or more, not holding a loss that size and just hoping to get back to break even. I learned to recognize trends and trend continuation signals (I was mistakenly interpreting these as signs of weakness in an uptrend or strength in a down trend), and eventually learned how to trade with the trend. When you trade against a trend, you're fighting the #1 team. I imagine that's why so many traders gravitate toward this high risk tactic. It boosts our ego to try and beat the overconfident #1 team, to be able to say, "Look at these dumbasses buying way up here, I'll show them who the smart guy is." Counter-trend, you're making the assumption you know approximately when price will turn based on indicators such as Keltners, Bollingers, stochastics, "it's too f*cking high to go any higher", etc. It can work beautifully for a long time, giving you a sense of invincibility, of having mastered the market. You come to believe that when price becomes overextended by at least X%, Y will always follow. You become so confident you put on excessive size, or continue to average down as price runs further. This is where that one bad trade can wipe out everything you've gained (or worse). When you trade in the direction of a trend, the strongest team has your back. The moves are stronger and longer than counter-trend pullbacks, offering the opportunity for larger profits as well. The best part is the risk management. If you're positioned against the trend, price can remain overbought or oversold for days, weeks, even months before a strong pullback or a reversal occurs. This is a biggest danger of counter-trend trading. But in a trend, there are lines in the sand beyond which a trend reversal or very deep pullback is likely. You take your remaining profits (or a small loss, if you were late to the party) at these levels and wait for the next setup.
NoDoji: So, I wanted to learn how to be the trader on the other side of my bad trades. I wanted to be the one sitting on an unrealized gain of $2000, $4000, $6000 or more, not holding a loss that size and just hoping to get back to break even. I learned to recognize trends and trend continuation signals (I was mistakenly interpreting these as signs of weakness in an uptrend or strength in a down trend), and eventually learned how to trade with the trend. When you trade against a trend, you're fighting the #1 team. I imagine that's why so many traders gravitate toward this high risk tactic. It boosts our ego to try and beat the overconfident #1 team, to be able to say, "Look at these dumbasses buying way up here, I'll show them who the smart guy is." Counter-trend, you're making the assumption you know approximately when price will turn based on indicators such as Keltners, Bollingers, stochastics, "it's too f*cking high to go any higher", etc. It can work beautifully for a long time, giving you a sense of invincibility, of having mastered the market. You come to believe that when price becomes overextended by at least X%, Y will always follow. You become so confident you put on excessive size, or continue to average down as price runs further. This is where that one bad trade can wipe out everything you've gained (or worse). When you trade in the direction of a trend, the strongest team has your back. The moves are stronger and longer than counter-trend pullbacks, offering the opportunity for larger profits as well. The best part is the risk management. If you're positioned against the trend, price can remain overbought or oversold for days, weeks, even months before a strong pullback or a reversal occurs. This is a biggest danger of counter-trend trading. But in a trend, there are lines in the sand beyond which a trend reversal or very deep pullback is likely. You take your remaining profits (or a small loss, if you were late to the party) at these levels and wait for the next setup. Everything anyone ever needed to know about successful retail trading operations is stated right there above.
Develop method that meets your personality. Be disciplined to follow it. Peserve capital and hit home runs when probabilities favor. Your method (an edge) makes money over time.
I beg to differ. There is no quantity of massive amounts of backtesting, regardless of how many decades of backtesting conducted that could be equated to one live on line short or long order placement. Been there done that. Furthermore, regardless of how many years of backtesting you researched and conducted, it could never provide you guarantee that when you place your next real time order, the same evnironments and circumstances occurred back then, would remain the same. Anything and everything not anticipated would happen as you place your first real money order. Hence comes the disclaimer that every brokerage house puts forth in bold type.... that past performance, even in real time and real market, is no guarantee.... That does not mean to say that one oughts not do some backtesting at all either. There are aplenty of trading platforms and systems out there advertised for sale, all claiming substantial proof based on backtesting that the system would yield 70%, 80% profitability. Would any avid traders like to own any of them? Probably NOT, Never. If anyone aspires to be remotely successful in trading, rollups your sleeves and starts digging into mountainous amount of trading info on the net, focusing on only one single product and one trading approach that you dutifully selected. Apply what you know and what you learn from other traders on what you selected for twenty sessions or a calendar month.... and see if you could achieve a 55% profitability level. For a newbie a 55% win result within 20 trading days could equate to scoring 150 on a nonverbal IQ test. To become a sustained successful trader is like a race car driver, you got to do the laps, thousand upon thousand of laps.... similar to training yourself day in and day out, month after month, staying in focus in front of your trading screen.... even then.... at the end of six months, your sim acct might still be in the red.... LOL However, if you have the time and patient, do not give it up yet.... seek out some traders who have been doing it for a few years, to assist your learning to trade for profitability....; is my humble opinion. Good luck, good fortune and good trading, everyone. Respectfully submitted
Trading is not an exercise in emotive balances. Trading is math. Only math can provide confidence and restraint. Qualitative assesments lead to ruin regardless of any emotive balance. Trading offers no room for a substitute to math. Those that think the solution lies on emotive balance do so because they lack the math skills.
Asking wildebeest such esoteric questions - its too much even for me. I can promise you that not a single wildebeest who enters this thread, eats wildebeest meat. Only lions, leopards and cheetahs do. The odds of any one of the 3 entering this thread are 1 to 100 million. I don't count, I'm just the messenger.