Now Documented: Brain Kills Profits

Discussion in 'Psychology' started by PetaDollar, May 31, 2003.

  1. PetaDollar

    PetaDollar Moderator

    You want a great contrarian indicator? Me + a NOT gate. Hah!
    Check this out..

    I trade with a simple moving average system, no gimmicks.
    I should say, I developed one, and tried to put it into practice.
    Along the way, I make various "judgement calls"-- open a trade
    a little earlier or hold on a little longer than the method calls for.
    Here are the results for May (just went over my statement):

    Method: 20 trades, gross $1380.00, net $1262.00 after commissions.

    Method + my tweaks: 50 trades (yes, fifty), gross $400, net
    $102.50 after commissions.

    I am shocked. FIFTY trades, 2.5 times more than the method called for. The surprising thing-- along the way, I just thought
    I was tweaking it a little bit here and there. hahahah!

    Ok. Note to self: Don't mess with the method.
  2. now go lock yourself in a room and beat yourself :D
  3. Care to tell us a little more about the system and your tweaks so we can all learn?
  4. If you want to be a methodological or systematic trader, you should try to remain one. Sounds like what you are doing is you HAVE a methodology that appears to work, but you are not USING that methodology. You are actually trading your account discretionary, believing in your mind that you are merely tweaking the system along the way to make it better. So, the truth is, you are at least partially fooling yourself.

    What happens when traders stray from their systems, is they then become less confident about their entries, and therefore become weak handed when it comes time to exit their positions. You doubt yourself more and are more prone to exit early with a small profit when you would have held for a bigger gain using your system, or you hold onto a loser too long because your mind wants to believe the trade is going to come back your way. Both are examples of a trader holding a position he was not confident in to begin with.

    I'm just throwing this out as a possibility, but obviously you would have had a much happier month if you had stuck strictly to your system. Next month, try not to get fancy and override your system so much. See what happens. I suspect that at the very least you will feel more confident in your trading.

  5. ***^^^***
    Some prefer shorter time frames ; others prefer longer time frames. Sounds like you are in latter group.

    Freshwater trout prefer high oxygen water. Same pattern Dr. Van Tharp [ Jack Schwager -Top Trader]mentioned walking it helps feed the brain oxygen.
    Medical Doctor mentioned trout & oxygen pattern recently.[Month of 5/31/20 03]:cool:
  6. PetaDollar

    PetaDollar Moderator

    simple moving average! Just 1! no crossovers! You gotta backtest it on whatever you're trading first to learn about how much profit to take and what the drawdowns are.
    And it doesn't work for day trading. That's why so many people here don't believe it works at all. You gotta hold overnight.
    You have to deal with a small win/loss ratio. Not many people can. You saw how I screwed it up.

  7. You cannot backtest a moving average system. Moving averages are lagging indicators and the curves seen on past charts may not have looked that way at the time they were forming. Same with stochastics. Lagging indicators look great when looked at on past charts but in real time they don't work as well. I'm surprised how infrequently this is recognized or spoken about. You simply cannot accurately backtest any technical indicator that is based on evolving price action. This realization is painful to acknowledge for many traders who think they have found the holy grail based on these kind of indicators. One can of course test these indicators in real time to see their efficacy. If that is what you're doing ...................never mind.
  8. jem


    Would you explain this futher I brought this up once but did not remember the authors reasoning so I did not try to defend the point. However, I will say that during the day a particular moving average will not have touched price but later it will look like it stoped the move cold.

    Here is my question with say a 10 ema. Based on the fact that the most recent one pops in and the oldest one gets dropped does the moving average freeze in space on the close of the bar or do future bars influence the placement of the moving ave. Both objectively (price) and subjectively (curves?)

    Now what about stochs and macd.

    I agree with your point -- from my own observations-- I would just like to see the math.
  9. This is not true when you use closed bars for your backtesting and trading. When you trade before the last bar is closed you obviously will see something else than when the last bar is closed, but when it is closed things will not change. So you then trade the next bar and the same way you should backtest your system that is applying its rules to the next bar versus the closed one.
  10. PetaDollar

    PetaDollar Moderator

    What you are saying is on the current bar, the moving average
    varies. Now consider this: after the bar has closed, that part of the moving average no longer changes. So if you take your signal off a closed bar (like I do) you CAN do a backtest that makes sense and is executable in real time.

    This surprised me, but I am getting the exact same fills that the historical chart says I shoulda got.

    Anyway, this is a psychology thread, I brought up my experience of the past month so we could talk about psychology.
    #10     May 31, 2003