Repeating your mistakes over and over again....

Discussion in 'Professional Trading' started by retaildaytrader, Jun 1, 2010.

  1. I read this from a random blogspot blog. I would post the link, but the site appears to have a newsletter service for a whopping $200 a year and I dont want to appear like I am bumping the blog which is against the rules of the site here. So I will reprint these wise words of wisdom and you can go ahead and find it on your own.

    So, again, the below passage isnt mine and I cant post the link without breaking the rules on here. I just thought it was a good read and worthy of a reprint here...

    "Now here is the challenge. Look at your portfolio since 04, and be honest with yourself. Has your investing strategy produced at least a 200% gain in that period? Have you even made money in that period? Have you consistently lost money?"

    "If you haven't made any money and have just been spinning your wheels, or even worse you've lost money (I suspect over 90% of retail traders are going to be in this category) Then ask yourself why do you continue doing something that time has proven not to work? Do you think the market is all of a sudden going to change and your flawed strategy is going to finally start producing big profits?"

    "BTW of the 10% (I'm being generous) that have made money virtually none of them have even come close to 200%. Because traders absolutely must control risk and that necessarily means small positions size, anyone doing 15-20% a year is an exceptional trader. And it takes a 20% return for 6 years in a row to increase ones portfolio by 200% in 6 years."

    "That means one would have had to ride the entire bull, correctly spotted the bear market, correctly navigated one of the most volatile periods in stock market history and again spotted the end of the bear and rode the cyclical bull. That's asking a lot from anyone to spot and trade through all those different market conditions successfully. I can guarantee there were very very few people who did."

    "There are several reasons why people choose a trading strategy. First and foremost, although very few people will even admit it to themselves, the vast majority of retail traders are motivated by a gambling addiction. All in all not a very healthy way to make money."

    "Second, most traders are deathly afraid of draw downs. They simply can not stand to see their account decline. Even if they rationally understand that their position is a winning position (as virtually all precious metal positions are at this time) they still require the market to do what they want when they want. If it doesn't adhere to their time schedule they are willing to take a loss instead of holding their position until the market decides to come around."

    "Third, most traders are under the delusion that they can in fact correctly navigate the future and in so doing immensely increase their profit above and beyond a simple buy and hold strategy. (I think most of you, if you honestly accessed your success or failure over the last 6 years have by now come to the conclusion that the dream of vastly superior returns by trading is a chimera that will never materialize.)"

    "So why do we continue to do something that doesn't work, over and over again?"

    "Many traders are like the proverbial mouse in a maze who keeps running down the same path again an again never getting the prize."

    "Every once in a while though a mouse will come along who breaks the pattern and chooses a different path. That's the mouse that gets the cheese."

    "If what you have been doing hasn't been working, then maybe its time to look for the cheese down a different path."
  2. Seems pretty vague.

    I will guarantee you that one way to have poor results is to ignore drawdown, in the belief that the markets are wrong and you will be proved correct if only you take enough pain. I would say the thing that really separates moneymakers from losers is the ability to ditch a position that is taking gas. I read somewhere that Paul Tudor Jones strives to have returns that are three times drawdown. He doesn't do that by sitting on losers or letting winners erode.

    I read an article recently about Steve Cohen. He takes half a trader's stake away from him if he has a 5% drawdown. Ten percent and they get canned. Harsh? Sure, but it shows you how the best in the business produce superior returns.
  3. The title of the blogger's entry that I took it from was "Mouse Trap". I am guessing he is implying that 90% of the traders out there are like mice caught in a trap.

    Price will pull back when the trend is up and everyone will sell... then price moves back up making the trader look foolish...then comes a time when the trader thinks that its just another pullback, waits for the stock to recover but the recovery never takes place... like a mouse caught in a trap. Only a few mice ever make it out and get the cheese...