I have received quite a few requests (to my suprise) to elaborate on a statement that I made to candletrader in a prior thread...So I figured I would reply to all with a thread... The satement; "It was only until I was able to shatter certain illusions manifested by our normal state of consciousness that I was able to lose myself and see this game for what it truly is..." Now before I elaborate a little on the statement I first want to say that 95% of the traders who will read this, will have an extremely difficult time understanding/accepting what I am going to say regarding the oneness of risk/reward... This is due mainly to the dualistic mode in which the human mind is locked into... The perfect way lacks difficulty; Save that it avoids picking and choosing⦠Let go of longing and aversion; And everything will be perfectly clear⦠A split hairs difference; And heaven and earth are set apart⦠If you want to realize the truth; Donât be for or against⦠The illusion of right and wrong; Is truly a sickness of the mind⦠Neglecting to grasp the deeper meaning; Will serve only to trouble your minds serenity⦠That is taken from an ancient zenrin poem and I feel it pretty much sums up the ideal mind state of a trader... Mark Douglas said in his book, Trading in the Zone, "The best traders not only take the risk, they have also learned how to accept and embrace that risk" I have learned to truly accept and embrace risk by coming to two realizations... 1) The markets in nature are random, and therefore each and every trade has an uncertain outcome... 2) The duality of risk and reward, right and wrong, profit and loss, on a mico-level (trade to trade) are illusions, a manifestation of the mind and not reality... The culmination of these two realizations(along with many others) have enabled me to play this game (90% of the time) virtualy void of all emotions... due to the fact that I am no longer trying to attain anything from the markets (at least on a micro-level)... Now I have to say I have a very hard time putting the state of mind that I reach in my trading into words and this is only an etremely brief attempt to open some doors so to speak... First off before I get into this I DO NOT want to have a discussion on whether the markets are random or not, as many traders have different opinions...but I do not think many out there will argue that the result of any trade has an uncertain outcome... Once you accept that the outcome of each and every trade is uncertain, than you have to accept that each edge will have a natural and random distribution of wins and losses... Once you realize that there is a natural and random distribution of âwinsâ and âlossesâ for any given edge, you begin to realize that âwinsâ and âlossesâ on a micro level are nothing more than manifested absurdities⦠They are abstract concepts belonging to the realm of thought, and as such they are relative⦠So relative, so polar, so inseprable, so identical in their differences; that they are in reality the same thing⦠Let me attempt to explain this a little further; An edge is a collection of set-ups or opportunities⦠Being that the markets are random in nature, each opportunity has an uncertain outcome⦠The uncertainty of the opportunity gives birth to risk and reward⦠Without either one the opportunity would cease to exist⦠Understand that they are not absolute experiences belonging to different categories, they are merely two different sides of the same reality; two extremes of a whole, which is opportunity⦠Once you can feel this polar relationship, you can feel the unity and oneness of the two⦠Once you feel this oneness the two cease to exist anymore and the only thing that is left is the opportunity⦠Hence the buhdist paradox that emptiness is form and form is emptiness⦠Once you can feel the polarity between risk and reward, you realize how rediculous it is to attempt to attain one by abolishing the other... and all of a sudden their is no more longing and aversion, and all of a sudden all is clear and you are empty... and all of a sudden you are at complete peace with the outcome of your trades and you have complete faith in your edge... the only thing you attempt to do from this point on is to be in the ideal state of mind to recognize your oppurtunities and carry them out to the best of your ability... That is a very quick attempt to explain a very small portion of what I meant by that statement... I hope it can open some doors... PEACE and good trading, Commisso oh and happy new year!
Trading is about overcoming your own psychological hang-ups... it is a never-ending internal battle against: a) complacency / fatalism b) anxiety c) hesistation d) a perverse desire to fail ... you heard that right! e) overconfidence f) underconfidence g) euphoria h) despondency By developing the psychological traits in the correct manner, a trader is better armed to: 1) trade with the trend 2) run profits 3) cut losses [In my opinion, 1) to 3) constitute the core definition of the activity of trading] Candle
Great post Candle! Love your comments as they are so SO true. Once you build a basic foundation, the mind is the real barrier to consistency. In my experience, having worked with a large number of traders over a long period of time, I'd like to add a maxim to your list... 2.1) Always wait to take profits who's size justifies the initial risk taken! People overuse the word discipline to talk about stop blowing. I believe it's most important role is to keep you in the trade, to allow you to stick it out to make the risk to reward ratios pay you for your risk assumed. Good luck and good trading! -Bo P.S. great thread idea commisso
The problem I have with most discussions regarding discipline and the "inner game" of trading is that this discussion assumes that the trader has a trading methodology that is profitable to begin with. Let me put it this way, a trader with a profitable trading method and average discipline has a chance to be profitable. A trader without a profitable trading method and perfect discipline has zero chance of being profitable. Don't get me wrong- I believe in discipline as much as everyone else and there are plenty of books on the subject matter already. It seems to me that most new to intermediate traders around here are looking for help with developing a profitable trading method, with everyone agreeing that discipline is of utmost importance. And while I agree with Candle on "trade with the trend, let profits run, cut losses short," unfortunately, that is too general to be useful to most traders who have not already found their preferred trading method. I'm not trying to be a party-pooper on discipline/psychology at all, just bringing up an observation.
Gee, we teach traders about the psychology involved in trading, but we try to keep it simple. If we spend too much time on the esoteric, we tend to lose focus (and money). Trading is more than a job or profession, it is a way of life, and only certain people have the mental makeup to succeed.
Excellent point dottom ! I wonna bring this point a step further and say that the only way for a new/intermediate trader to find a profitable trading method is through system development, endless work of backtesting, walking forward. Only then can he have a grasp of what his trading may bring under the best discipline. Through my limited experience of system testing, it is clear to see how difficult it is to find an edge.. if a new trader just jumps in with some half-ass knowledge he picks up from a few "technical analysis encyclopedia" books, he is almost certain to end up blowing his account, even with the utmost discipline. Because 99% of the textbook stuff DON'T WORK. And to a veteran like Candle, it is easy to trade with trend, cut loss and run winners, but inevitably for a developing trader will face the following questions: how to define a trend? how to run winner without giving back open profit? how to cut loss without being jiggled out of a trade prematurely? And a few weeks of paper trading will NOT answer the above questions, as you could only test a number of parameter combinations on a limited size of data sample. Unless a newbie can mimic somebody with proven winning methodology, his only chance to survive is to find an edge through relentless research. The tools are getting cheaper and better everyday, stuff like wealth-lab is wonderful... and if a newbie cannot realize that, he is certainly bringing a kitchen knife to a war where his opponents have satellite guided bombs. Again this is not to deny the importance of trading psychology, but to stress the importance of a good technical foundation.
Dozu and Dottom, I completely agree with both of you, you first need to develop an edge... without a proven edge there is simply no point to putting on a trade... Don, Im sorry you found my post too "esoteric", like i said before even getting into it, 95% would have a hard time understanding and accepting the the polarity that exists between risk and reward being that the human condition is so tightly bound in a dualistic mode... and thats fine, because at the risk of sounding rude or coming across arrogant (which is not at all my intention) in a game where 90% fail, if the average to mediocre trader did not laugh and immediately dismiss it, then it would simply not be the way... PEACE and good trading to all three of you, Commisso