Hey everyone.. I read an interesting article on the Internet the other day but I forget where. Anyway, the article was about how in order to consistently lose money trading stocks, you must be doing something right. However, what you're doing right is losing money. Because if you think about it, you're not losing money wrong. So if you did the exact opposite, you'd make money. It's interesting if you think about it. What I'm trying to figure out is, what do people that lose money do wrong?
It is not always the case you can reverse something you do and make money with it. It takes first to have a systematic approach. In other words what you do [right or wrong] must always be done the same way. Otherwise it is not possible to calculate a reliable statistics about it [and eventually reverse the loss making behaviour]. This approach should also have some logic which makes sense with the way the market works. Let me take the example of something you may do wrong and loose money, you simply can not reverse just to be right. For one year, if you buy the dips on the nasdaq index, you lost a lot of money. let's say that's the system [buy the dips]. Now, you want to reverse it : so you sell the rallies. And it works (of course). You make a lot of money. Problem is, when the trend changes to bullish again, your 'strategy' starts to loose a lot. In fact, shorting you have a potential infinite loss [well. you will get broke first anyway]. Clearly, selling the rallies [I mean ALWAYS] is not a logical trading strategy. Of course, that example is obviously wrong, but that's the idea. Sometimes, trading strategies can not be 'inversed' to make them work. However, I have several of my setups I reversed because the probabilities did show that something else than expected [the opposite direction being OK in my timeframe and risk parameters etc...] would be better to do. For these tactics I reversed the trade and now they are constantly profitable because there are systematic. vpiNeo
You must differentiate trade rules from emotion. If youre stressed whenever your position is negative you may always panic and lose. I have taken several very bad Tradestation based trading systems and reversed the parametersfor but/sell. Never worked> Ron C
There are other things to consider too, such as slippage, commissions, and the other extra cost of trading. Overall this is something that can be done. This is why trading psychology is so important. rtharp
The big thing I should have posted before was not cutting losses as quickly. Taking trades that do not have an edge. If you do not know your edge you have none. The other big one is cutting profits too quickly. If you were to reverse your system completely it you must also reverse your pyschology. Most traders get out of winners too quickly (still my weakness sometimes) and let the losses get too big. http://communities.msn.com/rtharpsland rtharp
I believe that if you are a beggining trader and you find yourself consistently buying tops and selling bottoms, you can probably be cultivated into a very successfull intuitive trader. But only if you apply sound money management, and cut your losses. During the bull market is when I began trading, and after my initial large losses that every beggining trader has, I began to use disciplined loss cutting, and position sizing to manage my account. I still consistently lost money, but my trade timing was uncanny in how close I came to SELLING bottoms and BUYING tops. (It was also extremely frustrating! : ) After a couple of years, I finally was able to start reversing my performance. But its not something you can just flip like a coin. You cant just be loosing one day and reverse everything and be a success the next. Its a slow process and it is 90% phycological.
From few years of experience of working on the trading floor I know that the top traders will take any side of the market almost any time and still make piles of cash year after year. This point is properly emphasized in the books of Dr.Tharp and M.Douglas only.