GEMS: Rogue Trader

In the spirit of Tripacks thread in honor of the knowlege that trading bretheren Super_Ego was gracious enough to share with ET, I have decided to do one for a poster that had some real pearls of WISDOM...

Unfortunately this poster rarely makes new posts

His name is Rogue Trader and here are the posts!

Publias

 

Anyone who contemplates trading should ask themselves one simple question....."Why Do I Want To Trade?" There are many wrong answers to this question, and only one right one.....

"I Want To Find Out Who I Really Am"

When you trade your monitor will do a funny thing. It will become a mirror. A special type of mirror. A mirror that reflects your self-confidence, your self-esteem, your self-worth. The numbers and lines you see on your screen are just that, numbers and lines. Market information. At your choosing, when you decide to become part of those numbers and lines (putting on/off the trade) a sort of test begins. A test about you.

If you see the test as threatening, you will feel threatened. If you see the test as war, you will be engaging in war. If you see the test as one more failure, you will fail. If you see the test as the need to prove yourself right, you will administered the pain of being wrong. If you see the test as certainty, you will be rudely introduced to uncertainty. If you see the test as a battle of wills, you will sacrifice your soul. If you see the test as fear or loss of money, you will be giving away your scared money.

If you see and believe the test to be an exchange of information, you now become the one to confirm or deny information. If you believe the test to be one of giving up what you want in order to get it, you will get it. Get it?

There is an irony in trading of both price and time. It is exactly what you have to give of yourself in order to trade it with understanding.




P.S. There are only two types of traders, "Long Lived" and "Short Lived." Both know the markets well. The "Longed Lived" just choose know "Themselves" better.

 

The learning process can be painful. The unlearning process can be even more painful. In between the two is where the successful trader lies.


In trading, learning costs. You will never be paid for the learning you will do. The application of what you have learned will cost you even more. Learning simply gives you the right to unlearn. Most traders feel it necessary to learn all they can, everything they can. Learning becomes compulsory. Unlearning, if it is ever applied, or for that matter even recognized, is deemed a distant after thought. The learning trader believes what and how much they can learn will be directly proportional to how successful they will become. The trader becomes rigid with rules as a result of learning. What the trader learns becomes part of the trader. A little nearer, a little dearer.


Enter the market. The market can also learn. But who teaches the market? Why the traders do of course! But what the market does so much better than the trader is unlearn. With so many "teachers" and their agendas, the market continually evolves and evokes change. It is the trader with heightened awareness of markets who also unlearns, along with the markets. Learning costs. Unlearning pays.

 

Of all the paradoxes that exist in trading, the notion of “Back Testing” could quite possibly use some “Back Testing” of its own. The literal meaning of “Back Testing” is rather self explanatory and actually defines itself with little explanation. “Back” is referring to past occurrences and “Test”, is a trial of a model.

Regardless of the level of sophistication, rigidity, flexibility, or time frame of your model, you help to define it and ultimately accept it. You are simply testing a method against past occurrences and analyzing the results. Conventional wisdom supports that the result of such testing can be optimized, and
when applied to the future, produce a positive expectancy. None the less, one obvious fact still remains. The market, which is what your modeling into, remains a variable. Upon further scrutiny though, a less obvious change also occurs. Your perspective. Unknowingly, you have begun to reinforce in your mind what should happen as a result of your positive experience in literal backtesting.


Once satisfied with your results, your back tested model will still require one more trial. A trial by "The Here and Now.” You have learned the literal definition of back testing above. It is now time for “You the Trader” to learn the traders definition of
back testing. In the traders definition of “Back Testing”, “Testing” simply means to put on the trade, as dictated by the system of your invention. "Testing" remains constant and mechanical as a function of your system. “Back”, on the other hand, is actually a variable.


Now with everything to your satisfaction and your methods in place, your back tested system triggers a trade and your day of discovery begins. This is what you can expect to discover. Everything you thought your system to be, wished it to be, hoped it to be, ever dreamed or believed it could be is absolutely irrelevant under a trial by “The Here And Now”. Go back and read that again.


Enter “Back”, the variable of the traders definition of “Back Testing”. Under a trial by “The Here And Now”, once entered into a trade, you are given but 3 choices. But wait a minute. This is strange. None of choices are related to the literal definition of back testing, or the positive "perspective" from which you saw your trades resulting in. “Back” (traders definition) becomes to mean.....

1) Back Off 2) Back Down 3) Back The Hell Out.

Back Off: This refers to reduction of trading frequency.

Back Down: This refers to reducing your share or contract size.

Back The Hell Out: It means just that. Neither you nor your system are in the flow of the market. Get out and re-enter when
conditions improve. Both yours and the markets.


There in lies a paradox of back testing. From the traders definition of "Back Testing" you derive a finite and constant set of prepared responses on every trade, every time. From the literal definition of "Back Testing" you derive a deceptively skewed departure from "The Here and Now". You only see what should happen, not what could happen.


Now ask yourself this..... If the correct response to any trade is a constant, regardless of all the variable methods, signal generators, systems, and market conditions, where does one find a constant? The answer is quite simple. You become the constant, constant "WITH" the market.


It is one thing to say you trade the markets. It is something completely different to say you trade "WITH" the markets. If you have a bias, a belief, or behavioral response from the past, regardless of origin, of what the market will do, should do, or could do, you are not trading "WITH" the markets, you are trading your past perspective of the markets. The day you decide to trade the markets perspective in the moment, and not yours, is the day you will be trading "WITH" the markets.


Oh, by the way. There is one more definition of “Back Testing.” This one is provided to us courtesy of the markets. It is for all those traders who choose to ignore the traders definition of back testing. The markets actually re-structure “Back Testing” to “Backer Testing”. Backer testing occurs when you, the trader, have to go out and find new ”backers” to fund your account, the one you just blew up, as you chose to “test” your trading account for the sake of “Back Testing.” Literally, that is.

 

This game, like any other, is defined by its rules. The difference between this game and most others is that the rules of this game are player defined. But by allowing the players the option of changing their rules at any moment, for any reason, the game becomes undefined.


The game is undefined because a unanimous consensus to the rules and how the game should be played is never reached. Since no one can agree on the rules for any fixed length of time, the patterns which reflect the rules will only be in effect as long as the players rules that support those patterns do not change. Change the rules, change the pattern The result: A game that remains in constant motion with no beginning or end.

 

There you have 4 damn fine posts by a very wise trader...

1) This is only a test!
2) Backtesting paradoxically Speaking
3) Candle, a thought for you
4) The Game

Rogue come back and drop some wisdom please!


Publias