firstly i gotta say i'm not as experienced and well verse in trading as many of the veterans here. hopefully the comments would be kind and constructive but any advice would be greatly appreciated i used to be a mechanical trader but over time (especially recently) i've become discretionary (largely due to the inspiration i got while reading this http://www.eminiplayer.com/2009/06/learning-to-become-successful-trader.html) in the sense that i don't take every trade that fires which has helped me greatly. results as a "more" discretionary trader have been much better. so far everything is fine but i can't keep a worry out of my mind when human judgement is involved, there is bound to be more mistakes? and lack of consistency... at least thats what i think. i was just wondering how could someone be able to constantly "read" the market with great accuracy for long periods of time? i somehow feel that this "method" of trading would be prone to many psychological ups and downs since discretionary trading is largely subjective? (for me its just picking which signals to trade) any advice would be greatly appreciated.
1) The mechanical-side of your brain wants "consistency". 2) Your mechanical-brain may have trouble accepting the notion that your discretionary-brain will be able to learn/adapt to the future market environment.
What you need is confidence. This can come from either understanding a fundamental truth, or having blind faith. This of course relates to strategic (R&D) thinking, you still need tactics (execution, money management, risk control, discipline, etc). I submit to you that in the end you need both to identify a fundamental truth, and accept that things change but you may not know they have changed on you for quite some time and thus you need blind faith when things look dodgy (i.e. you are in a significant draw-down, perhaps even exceed a Max Historical DD). If you are trading without understanding how you make money, then you are operating on 100% blind faith. This may work for your entire career (presumably lengthy), or you may be out of business in very short order. Some people "just believe". I believe these people are accidents waiting to happen. Find your fundamental truths (edges), learn how to identify when they are going away (permanently or cyclically), and you will sleep like a baby. Even a pure discretionary trader can monitor his/her stats and develop KPIs to indicate when their style is not working and thus they have to size down, sit out, or switch styles. So this is not all about mechanical trading per se.
hmm i pick the trades by identifying when it is going to chop/whip saw. i don't think i can quantify it so i'm not sure how do i find the "edge" in that rather than instinct? really have no clue how to understand the fundamental truth on that "edge"
Hello guardian - I am so sorry you used to be a machine. That must of been very difficult. Imagine not using your brain. imagine buying stocks that you didn't even know what they did! I'm not going to hit that link but why would you turn to emenem for inspiration? he's just a punk and his music stinks. In fact this is the core of your problem. Are you listening to music while you trade? You should be. may I suggest the Manic Street Preachers? Bit of an old band but I would use them. Now as to this " worry you can't keep out of your mind... " that your human side will fail you." Don't worry most robots feel this way after they have been re plugged in to the real world. take a moment and breath the air. Touch a tree. A computer can't do that! Go look in the street what are people doing; what cell phone are they using, which food chain is busiest what fashion statement is in? There are investment ideas all around you. Being human is fine. The Automatrons have nearly brought our financial system to it's knees. You have freed yourself from their icy grip stop looking in the rear view mirror and start wondering who makes that mirror... When human judgement is involved there is an extra layer of security. On a battle field you do not want a robot from IRBT firing at you; a robot they may not of been programmed to recognize a white flag... If you lie in bed and watch the symbols go by on the ticker for long periods over many years you will begin to program your brain like a machine. You will still have the tactile sensations and be allowed to have human sex but you will be machine like in your confidence that you can beat the market. So go ahead turn the manic street preachers up high (just not Ocean Spray that song makes me cry) stop just picking your nose and get down to business.~stoney
erm i do know what they do. i use my own strategy with all custom indicators. and i do know why they work because i made them based on my ideas. but what i'm saying is if i don't just follow the signals blindly i can avoid chop and whipsaw... =.=''
if you're the guardianangel and don't know wtf's going on, can you tell us who the guard-ee is and what his mental state is currently?
So if you are purely discretionary, life is a b#*@h and then you may blow out. I'm not saying this is a certainty, but I am saying you are in rarefied air if you last more than a few years without doing something along the lines of what I am about to recommend. This is why you are losing sleep because your subconscious is warning you that this might be a temporary run and then the rug might be pulled on you. The only solution I can offer you assuming you stick with your current approach, is to collect every imaginable stat on yourself as it relates to trading. I mean everything even if it seems irrelevant. Throw this in a spreadsheet/DB, and then continue about your merry way. Once you have a decent amount of history (say, a few thousand trades), work with that data systematically much as you would designing a mechanical trading system (considering all the pitfalls of data mining, curve fitting, correlation is not causation, etc etc etc). Then you can see whether you (since you are the system!) are operating according to historical norms, or if you have started to go off the reservation (i.e. one example would be over trading), or if your approach is broken. Best of luck to you and your endeavor.
Every now and then, I realize I did not know something. The set of "unknowns unknowns" is never empty. Your statement: "i was just wondering how could someone be able to constantly "read" the market with great accuracy for long periods of time?" Implies that the market is efficient, meaning the expectation of the speculator is zero (no edge) on average. In other words, no edge overall, and not more than 50% can have an edge.