Hey TS Not exactly sure what you mean by point value Sir (specific price targets maybe??) But anywho & fwiw â Hereâs a synopsis of my entry/ exit thought pattern Entries â I always enter on what I think price is likely to do Losers â I know â to the penny- where I will exit⦠(I know exactly how much I am willing to risk/ lose on each trade â I know the point where a trade failed to materialize they way I thought) Profit â I think I have an idea where price could go/ may want to go (and often times I have more than one)⦠But I always allow price to tell me what it ultimately wants to do â and I never argue - Because I know price will do what price will do Regards RN
Here's a great article regarding psycology and trading, enjoy! People who become interested in trading for a living are often drawn to trading because they want freedom and they are interested in multiplying money. While initially most traders are drawn to trading because of the promise great monetary gains and freedom from the rat race, most traders come to realize that trading is essentially a balance of risks and rewards. Each trader must decide whether or not a particular trading system or money management system is appropriate for his risk level. For every trader the question remains "how do I maximize my returns?" I would like to present three ways that you can increase your trading returns. Of these three methods, I believe that only one is appropriate for the majority of traders. It's up to each individual traders to decide which method, if any, they are willing to employ in order to maximize trading returns. So, let's begin with the first method of maximizing your trading returns. 1. Take a Large Position This is the simplest, and most well-known method of increasing returns. Many traders understand that if the trading system has a positive expectancy (the system will make money in the long run), that it is possible to take larger positions and see increased profits. This method only works if the trading system has a high win percentage. Taking a large position will spell disaster if the trading system experiences too many losing trades. Taking large positions with a trading system that loses often (50% or more) will not work. Either the account will lose all or most of the money during a drawdown, or the trader will pull the plug on the system, or both. Emotional hurdles are most likely to pop up when the risk per trade moves beyond the comfort level. When risking a high percentage of the account on a trade, if the trade goes in the wrong direction the trader may second guess the trade and decide to pull the plug on a losing trade early. Even if the trade goes in the expected direction, the trader may decide to stray from the original plan, by exiting the trade before the profit target is achieved. Most traders will eventually run into psychological issues when risking too much. Some traders may find it difficult to hold on to trade, knowing that there is a large percent of the account at risk. Most traders will eventually run into psychological issues when taking large positions, and for this reason this method is not recommended. 2. Increasing the Frequency of Trades Another method of increasing your returns is to simply trade more often. While this method is not as well known as the first method many traders are aware of the fact that taking more trades may mean greater returns. Increasing the frequency of trades is one way that traders can accelerate time. An example may best illustrate how increasing trading frequency can accelerate time. Let us suppose that two trading systems - the gap system and the runaway system - have identical statistics. Both trading systems are expected to yield 2 dollars for every dollar risked. Let us also assume that the gap system takes 5 trades per day and that the runaway system takes only 5 trades per month. Overall, we would expect that the gap system will make much more money over the long run than the runaway system, simply because the gap system trades more frequently. In fact, if the runaway system made 3% after two months, we would expect that the gap system would make the same 3% after two days. This is an extreme example, but it illustrates the point - if all things are equal, the system that trades more often will make more money than the system that trades less often. While it is true that trading more often might lead to higher returns, it is also true that many traders will run into problems when trading frequently. Trading frequently means spending more time in front of the computer, as it is generally more time consuming and difficult to trade a higher frequency trading system. Sooner or later most traders will decide to either automate this type of system or suffer from burn out from spending so much time manually trading such a demanding type of system. Most traders are attracted to the freedom and the money that is possible when trading for a living. A trader loses this freedom when constantly managing a high frequency trading system. 3. Find Trades With Greater Reward Than Risk For most traders the best method of maximizing returns is to find those trades that have a reward that is much greater than the risk. Waiting for these high reward to risk trades may be ideal for most traders because this method of trading does not have the negative aspects of the previous two methods. Trading high reward to risk setups does not involve the strong emotions that are common when taking large positions that risk a large percentage of the account. Likewise, the extreme vigilance that is necessary when trading very frequently is not needed when trading high risk to reward setups. In fact, many high risk to reward setups take a while to unfold, and thus the trader is not tied to the computer. For most traders, waiting for these high reward to risk trades is probably the best approach to drastically increase the returns on a trading account. Most traders have the psychological wherewithal to stick with a trading system that provides big rewards. The common traps that are associated with taking large positions (emotional distress during drawdowns) and high frequency trading (burnout and overtrading). So, this is by far best of the three techniques traders may use to increase their account size. Walter Peters, PhD is a professional forex trader and money manager for the DTS private fund. In addition, Walter is the co-founder of Fxjake.com, and often coaches other traders. If you would like to learn more about Walter's trading strategies, take a look at Walter's upcoming webinar. Success Is A Choice, We Need Identify Your Goals To Achieve It, metoo
Only had to glance at the article attribution to confirm, what a load of crap. (a Forex dude, go figure). Increase trade frequency? What happens to those in Vegas who just have to keep on playing once they hit it big? I only agree partially with #3, go for the biggest reward. Meaning, TRADE LESS. Go for the porterhouse steak trades.
I believe as in any field of endeavor, market knowledge and backtesting knowledge plays a huge part in degree of percentages of Psychology. When one is just starting out in Trading, Psychology is 99% and Mechanical is 1%. As one's skills increase in knowledge, Psychology % goes down and Mechanical goes up. At some point, usually losing money, one figures that well backtested and forward tested methods can increase profits, so that if traded as tested and method was profitable in testing, Psychology % should be less. After 28 years of trading, I don't think about the Psychology at all, this is a numbers game, put the trade on and the platform does the most. But for me it comes down to a well back/forward tested method over fifteen years of data.
Wow, this is great. Finally someone who says exactly the same things I've been writing for many posts. And if you say that after 28 years of trading chances are we are both right.
travis, indeed, the order of the factors up for discussion is paramount. As is the order of the general factors of trading that one should consider. Let me therefore propose a possible order that the three elements of trading might be grouped into (in order of consideration). 1. Money Management (risk profile and equity): I would submit that one's risk profile and approach to money management should come before all other considerations. The relation of equity to order size to stop size should be determined first. As we discussed, if order sizes are small relative to equity, psychology will play less of a role in trading. If, in addition, stops are placed further away from a position (while still keeping order size low), a trading edge could be quite dull and still be profitable in the long run. Traders with less capital can often compound nicely without the need for day-trading or taking large risks. In short, the questions that should be answered here are: How much capital do you have to trade? And how much ROI do you wish to receive on that capital? Once these goals have been set, we can move on to the technical aspects of trading to fit the profile we have just specified, 2. Edge: This is where we determine whether to go with a discretionary or automated approach and whether short-term or long-term trading should be implemented. Again the sharpness of an edge depends on ROI goals and the risk profile specified above. The possibilities here are almost endless as there are many approaches that can be taken there. The goal should be to find an edge that lasts as long as possible given a particular risk profile. At this point paper trading and back testing might come into play and developing an edge. 3. Psychology: Once the risk has been set and we have determined to a profitable edge (either via automated or discretionary trading), we can determine how much time should be spent on psychological considerations. In many cases, this issue will be come almost mute. If the strategy chosen is rather aggressive and discretionary, some mental hardening might be necessary. However, in most cases, dealing with these issues in the beginning is a waist of time, since this issue usually ends of taking care of itself. I therefore think that putting a percentage relevance on each factor is less useful than the order of their consideration. And in the end, it is only logical that psychology finds its place at the end of the list. Once the order of the above three has been fixed, then their relevance can be determined.
Yeah... I don't mind your outline, and certainly right now I can't find a better one. Those three elements are all important. However, let me point out some problems I personally see with it, point by point (but it could be due to my own ignorance of English): #1 "Money management": I have a problem with this term, because it's unclear to me what it exactly means (it is used so broadly by everyone), so I wouldn't use it. #2 and #3 "Edge" and "psychology": I wouldn't put discretionary and automated trading together, because they are so different, as far as edge and psychology. They are different edge-wise because with discretionary trading you don't have a clear and univocal set of rules to follow (aka "method"), so it would also be debatable whether you have an edge (that lasts), don't you think? They are different psychology-wise, as far as my experience goes (but it could just be me): psychological work for me as a discretionary trader will never be enough, because I just have too many issues to overcome before I'll manage to become profitable. My picking the wrong entries (top and bottom picking), and my inability to exit at the right time (cut profits, and can't cut losses) is connected to many psychological problems, which I may never solve. On the other hand, as an automated trader, I feel that I will probably solve them, because they are much fewer (let the system run, and not try to help it with my discretionary "intuition", which makes me blow out my account instead). If I had to draw a quick and superficial outline of my own personal experience, it would begin like this: 1) Discretionary trading: BAD (no psychology will ever be enough for me) 2) Automated trading: GOOD (all I see is advantages) But I can't develop it any further right now. Nice discussion though, the thread is staying on topic, and it's staying serious.