Look at the facts

Discussion in 'Trading' started by Joe Ross, Jan 18, 2011.

  1. Have you ever made a small losing trade and thought, "It's all right; I'll win on the next one." The next trade comes along, and you lose. And then the next one is a loser, and so on, and so on...until finally, you are in a severe drawdown. You need to constantly monitor your progress, so that you never dig yourself into a hole that is virtually impossible to climb out of if you’re going to survive. Take a good hard look at the facts and make adjustments. Believe me, I know whereof I speak. I once lost 11 consecutive trades. The odds of doing that are astronomical as I later discovered. I don’t remember the exact figure, but it was something way more than a million to one.

    Humans are notorious for their eternal optimism. Who wouldn't want to think they were making a killing in the markets. When you aren't profitable it's easy to fall into a state of denial. In order to build up our egos, we ignore how poorly things are going and tend to look at the world through rose-colored glasses. There are times when it is useful to look on the bright side. To win in the markets, you have to truly believe that you can succeed. Focusing on your limitations or the inherent challenges the markets often pose may get you down. And when that happens, you may think it's impossible to master the markets.

    On the other hand, too much denial may prevent you from taking the steps you need to improve your trading performance. Denial can go too far. If you feed your account every month, you may not face the fact that your trading strategies just aren't working. Successful traders carefully monitor the process of trading. They keep a trade diary in order to identify those strategies that work from those that don't. They identify the specific market conditions that are optimal to their methods. They also report their moods in an attempt to isolate psychological factors from market factors. Some strategies just do not work under particular market conditions. And if you are bogged down with psychological factors, no trading method is going to produce a profit. It may be hard to face the facts, but unless you do, you'll never be able to identify your weaknesses, make midcourse corrections, and hone your trading skills.

    It's hard to not be impacted by images and feelings that enter our consciousness without knowing it. Humans have a natural affinity to attach emotional significance to inanimate objects, like a stock, or a particular futures market of a forex pair. It is helpful most of the time. When you hear about a product or services failing to perform at par, such as a new computer running too hot or an airline that tends to arrive late and misplace luggage, you instinctively try to avoid such companies in your personal life. You may similarly avoid the supermarket that fails to store its raw meat properly or the drug store that sells over-the-counter medications with expiration dates that end within a week. We feel uneasy when we experience such events in our everyday lives. Avoiding products and businesses that don't meet our expectations is a useful rule of thumb. Unfortunately, the same processes also work for pleasant events. When we see an attractive model of a car that everyone is buying, we tend to want to get one for ourselves.

    Don't be afraid to keep a trade diary. Identify what works and what does not. Don't let denial prevent you from taking a good honest look at what you're doing. You may be surprised to find that you are doing a lot right, and that by making a few minor changes, you can greatly improve your trading. The aware trader is the winning trader. By taking an honest look at your limitations, you'll be able to hone your trading skills, reach ever-higher levels of performance, and take home huge profits.
  2. check out T-Psych spiraling
  3. Visaria


    "I once lost 11 consecutive trades. The odds of doing that are astronomical as I later discovered. I don’t remember the exact figure, but it was something way more than a million to one."

    I've had a strings (yes , strings) of losers more than that and the odds were certainly not more than a million to 1.

    I read somewhere (probably in one of Schwager's books) that SAC's Cohen said his best trader wins only on 60% of his trades. Well that means he loses or breaks even on the other 40%.

    Let's say you're the equivalent of SAC's best trader (lol) and you have a loss ratio of 40%. Well, the odds of having 11 losing trades is 0.4^11 which equates to a 1 in 23,842 shot. So a lot more likely than 1 in a million.
  4. Your missing the point... its easy to be right on the market... its also easy to be wrong. The key is that when you are right that you make a killing!!!

    After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.
  5. Visaria


    Reread all the above posts. I think you're missing the point.
  6. No, they are not astronomical. For example, if you trade forex with 4 pips stop, the probability of having 11 losing trades is almost 1, the sure thing I guess. Your R:R in relation to the market volatility determines your win probability. If your win probability is too low, the probabilty of any number of consecutive losers is high. If for example you win probbaility is 0.1, you have 1 chance in 3 to lose 11 times in a row.
  7. These old tired trade axioms are simply rubbish.
  8. Actually it's not hard at all to lose money so consistently.

    you lose right from the moment you place the trade
    because of the bid-ask spread and commissions you have to make some profits just to break even.

    Compound this and repeat this
    and it's no wonder most traders lose money
  9. Roark


    Joe Ross is pretty much a hit-and-run poster. Makes a post or two and then runs off without addressing the vast majority of the comments responding to his post. I don't know why he bothers.
  10. Visaria


    Why do we bother to respond then? Waste of time.

    Latinotrader, in your above post, joe ross said that, not me. Pls take care when you quote others to make sure you are quoting the right person.
    #10     Jan 20, 2011