I question how it is that if I take any big move in the markets, say the stock market since 2009, so few seem to take anything close to what was potentially available.
"Life is a banquet, and most poor s.o.b's are starving to death."--Patrick Dennis, author of "Auntie Mame".
At first I thought this was rubbish and didn't make sense like some of the comments below but the more I thought about it and my own experience the more brilliant I realised his Insight is and why he has set up trading tribes and how those groups work. The key to the insight is that winning traders are already making the equation that all Traders have to make work which is the value of total winners has to be greater than the value of total Losers. Until losers made the adjustments that winning Traders have already made, in whatever form that takes, to their process and their approach then they will remain losing Traders. Winning Traders by contrast will identify parts of their equation and their process which are not working and make modifications to the approach until they are successful. Even though the equation of total value of All Winners greater than the total value of all losses sounds quite vague it is actually very specific and should be applied to every Traders assessment of their own performance because it allows for the differences in style and approach that different Traders invariably take. So as an example if you are making lots of Trades that are all winners but your transaction cost for the round trip of both buying and selling is greater than your actual profit from the trade then you either need to lower your transaction costs or identify trades which can generate more profit. If you have a lot of losing trades and one big winner but the value of the big winner is less than the sum of all the losers then you either need to reduce the number of losses by more accurately identifying early on in the trade what makes them losers or possible characteristics which they have in common that the winner does not. An example of this might be you identify a trade setup which you like and sometimes goes on to produce a massive winner but many times the setup fails and the price drops back into the range then a possible solution is wait till the setup that you identify has already moved a certain percentage in your favour before you even actually buy which means you are going to miss out on profit but it also means that you will cut out a lot of losers and so then the total sum of loses will be less than the reduced value of your one winner. Everyone will have a different style and find a different combination of indicators which tell them when to put on and take off a trade but the ultimate result is that either way you have to find a combination of process and approach which yields a satisfactory answer to the total value of Winners greater than total value of losses. The other brilliant Insight which I believe this quote implies is that many Traders can actually do this analysis quite easily on their own portfolio and historical trades if they are committed to put in the time and secondly they can also describe in very general terms the solution that is required to fix the problem and even suggest some possible ways of approaching that solution. The will to take the time and go through the unglamorous and boring process of analysing your historical trades and collating facts and different types of analysis on your historical trades is also something that a winning trader will possess, so what he is saying, is that if you have the will to go and conduct that sort of research then it will likely contribute to your success and the people who do not have that commitment will remain Losers. Finally he has also recognise that many of our failures to follow through on corrective action is not so much due to our inability to recognise the value of that action but a range of emotional and social roadblocks which for whatever reason have stopped us up until now from making the corrections that will turn us into successful Traders. That's why he set up trading tribes and describe the specific processes which in his own experience have contributed to his self reflection and his ability to take corrective action in not only his trading but all aspects of his life. If you already have an account and are doing some sort of trading then I would strongly suggest writing down some summary statistics about all of your previous trades. This might be something like total number of Trades percentage of Winners percentage of losers average draw down on Losers average draw down on Winners and there are many filters that you could had such as: was the 200 day moving average sloped in my favour when I put the trade on? was the initial move made with a volatility breakout? was there a large spike in volume on the day I put the trade on? etc etc These are all different things to prompt you to think about how you decide when to put the trade on and when to take it off. The more consistent you can be around your process then the more valuable you or backtesting will be in indicating your future results. If your results tell you that you should be making lots of money and you are not then it's definitely worth investigating how you did your backtesting and also how you deviate from the back tested process in your current trading
This is one of my favourite comments in markets and it is incredibly profound. My own interpretation is that he is talking about needs at a deep psychological level and the meeting of these needs. Abraham Maslow talks about every human having these unconscious needs. These ascend from deficiency needs, (needs we may be lacking) such as psychological needs and physical needs like food, shelter, security. Once these needs are met we can move on to higher needs such as love, affection, companionship, friendship, and then the highest deficiency need esteem that includes respect, approval, recognition. Very few people however are able to achieve the highest need where you can reach attainment of your full potential - Your Actual Authentic Self. (Self Actualisation). By The way great traders exist at this place. At the core of everything we do and achieve are the meeting of needs. Our basic needs are mostly met by Society. Thus we move to the senior ‘deficiency need’. - Esteem, respect, approval of others, particularly of those we look up to and respect. There are lots of sub-components of this. One of which is the need to be right, correct , proved, justified. We have spent our whole lives seeking this from our environment, getting energy and inspiration from this, but subconsciously it is pulling the strings. When it happens we get a surge of feeling of goodness, of power, of self-approval (smugness). But when we are wrong we feel shame, embarrassment, humiliation, perhaps disgust, we’ve failed, we were wrong. By the way this need can force us to take profits too quickly. In trading and investment, everyday we are judging ourself as Right/Wrong against price action and our own actions. I should have been long/short, I should have stayed with it/got out, I should added more, cut/early, rebought/resold, should have known, should have been more aware. - The market is a tough unforgiving teacher. Our desire to ‘not to be wrong’ is powerful and plays into our fears. - Fear of bring wrong/regret/missing out/rejection etc. Fear has a purpose. It’s there to keep us from harm, hurt, pain. So we fight the things that cause us fear, ‘being wrong’. In order to ‘not be wrong’ we make excuses, blame others, project on to others, do not accept responsibility. By not being wrong, we continue being ‘right’ in our minds, and thus your needs will be met, you will get your validation from the market. So your conscious need, to make money profit is not being met, but your real unconscious needs are. - Hence the quote. Win or lose, everybody gets what they want from the market.
Here's another Ed Seykota quote to wrap your mind around. “A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.”