Great point. Let me clarify. When I trade the plan, I'm trading the entry stop and target, and when I don't I am gambling. Your post has made me go back to the definition of gambling... gam·ble ( P ) Pronunciation Key (gmbl) v. gam·bled, gam·bling, gam·bles v. intr. To bet on an uncertain outcome, as of a contest. To play a game of chance for stakes. To take a risk in the hope of gaining an advantage or a benefit. To engage in reckless or hazardous behavior: You are gambling with your health by continuing to smoke. I have always looked at gambling through the context of the last definition..."to engage in reckless or hazardous behavior". That is what I do when I don't have a predetermined entry, stop and target. Thats is what I do when I go to Atlantic City. When I'm gambling I don't have a plan. I suppose that based on the definition...trading is viewed as gambling..regardless of whether or not we have predefined entries and exits. However, the properly planned trade does not help us control the outcome of the trade, but helps us to manage and deal with the outcome of the trade. Thanks for the exchange coffeezoo.
...And Greetings to You Seth- I will be attending, TradingScience will not be attending. Hope to see you there.
A good solution applied with vigor now is better than a perfect solution applied ten minutes later. - General George S. Patton As traders we cannot possibly eliminate risk, but we seek to minimize risk by having and using a trading plan. The only way to eliminate risk is to not trade. (which can also be a position ) Sure it's gambling, but so is farming. Trading a good plan minimizes the gamble. One day Alice came to a fork in the road and saw a Cheshire cat in a tree. "Which road do I take?" she asked. "Where do you want to go?" was his response. "I don't know, "Alice answered. "Then, said the cat, "it doesn't matter." - Lewis Carroll
Well said. Each and every word reflects your experiance RAMOUTAR. Such a nice post. Sometimes I feel It is really a my story.
I join too. BTW about repetition : http://www.elitetrader.com/vb/showthread.php?s=&threadid=14264 John Wooden, considered one of the greatest coaches of all time at any sport once remarked, "The four laws of learning are explanation, demonstration, imitation and repetition. The goal is to create a correct habit that can be produced instinctively under great pressure. To make sure this goal was achieved, I created eight laws of learning-namely, explanation, demonstration, imitation, repetition, repetition, repetition, repetition, and repetition."
I agree globally except for the outcome. You said "We can never plan the outcome of the trade" but you can estimate the probability and in the equation of expectancy and growth the probability plays an equal part with the reward/risk.
Harrytrader has a very good point. He talks about clear determination of a physical R:R ratio. You don't sound like that. You say: "Unfortunately... backtesting... Probability from my experience is more closely compared with the repetition of cycles... Since these are stocks that I watch day in and out, I have a clearer perception of the probability in the stock's move, compared to someone who watches it less frequently..." You sound like you are yourself extremely discretionary in your approach to determining R:R ratios! I think this is a bit of an irony, considering the amount of effort you put into declaring the importance of due diligence (which I fully agree with). If you didn't get it yet, I'll make my point clear: I am a "discretionary" trader, too, yet have I still tested every possible R:R ratio in very arduous and time-consuming backtesting, so that when I apply them discretionary, I have "in my head" what would be the probable outcome. It isn't just perception. Now to really make the point finer: I trade futures, and I preferably fully focus on 1 index at a time. I like to trade 1 issue, and completely specialize, so I know and understand every single breather that index does. With so much "experience", would you say I "could have a clearer perception of the probability of the move?" Well, you probably would, but I still say it's not sufficient. You really need to hand-test and crunch your ratios IMO, or you won't be able to top-perform. You seem to apply lots of discretion here, but I suppose that's because you're trading stocks. If you were into futures, you would realize that so much "discretionary tolerance" wouldn't be welcome there at all. It's a very tough and competitive market, and you bet every kid there knows their ratios in and out! While this may not matter so much in the very inefficient stock markets, I think it would still make a considerable difference to improving performance. For example, why not test all the R:R's on all the issues you trade and only focus on those 10 issues that deliver the highest R:R's on a regular basis? Just my 5 cents, anyway. I think harrytrader had some good points. As for plumlazy: Awesome quotes! I am quite plumlazy myself, so I hope you don't mind me stealing/borrowing them for my signature to remind myself? Thank you, I'm sure no one will notice, anyway. You are a legend, plum!
Hey plumlazy, in exchange for your quote, here's one from my collection. This is one of my absolute favorites: I've missed more than 9,000 shots in my career. I've lost almost 300 games. Twenty-six times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed. - Michael Jordan