Want to start a thread to throw around and discuss some big ideas in trading. I'll start with some of my thoughts.
1. Hope v.s. Wishful Thinking
The dictionary defines 'Hope' as "a feeling of expectation and desire for a certain thing to happen."
When such expectations are grounded in objective reality, hope is good. Otherwise, hope is dangerous and is in fact wishful thinking. The difficulty of trading is in telling objective reality apart from subjective thoughts.
When someone first starts out as a trader, he or she has a lack of trading knowledge. There is no telling what information is useful and what isn't. Later on, as a trader becomes more knowledgable, he or she falls prey to the opposite problem: now everything seems informative, how do we weigh one piece of information against another?
The trap here is to use meaningless evidence to sustain wild beliefs about what we expect to happen in the market. I am sure we have all done that before. Some of us, many many many times.
To succeed, traders have to learn the skill of "arriving at hopelessness" quickly. Take too long, and your account gets blown. Once we arrive at hopelessness, we are at a powerful place to make good decisions. We stop clinging on to the past and we can start anew. Good traders somehow have learnt to do this almost instinctively.
2. Bayesian thinking (aka context matters; the present also matters.)
For many traders, the trade ends once it has been placed and a SL and TP is set. Some call this the "Set and Forget" method. No doubt this can appear to be effective, but, at least in theory, it is not the best option.
Set and forget completely disregards any new information and relies completely on the original analysis a trader makes. This cannot be the most effective way because new information do matter. News releases or even just random market events and order flow changes can affect the market and behaviour of market participants. The reality is, we do not know when a trend will end regardless of the timeframe, but when a trend is ending, we can see it happening and acknowledge that it has happened.
You may see that every time frame from D1 to 4H to 1H to 15min to 5 min is in a strong downtrend, but when the 1 minute chart starts reacting strongly at a key level, do you disregard it? What happens when it turns into a uptrend on the 5 minute? Do you still disregard it? The answer is that it depends. It depends on what time frame you are operating on and how you weigh the different probabilities in your trading model.
Adding onto this line of reasoning, it is plain ridiculous to think that any specific "entry method" based on a series of candle patterns or any particular indicator will create profits on its own. Every market situation is different. It is the sum of all the contextual information and changing based on the stream of present information coming in. A trader's job, at least how I see it, is to interpret this stream of information in light of the context and make decisions that best reflect the existing probabilities. Most of the time the decision would be to stay out of the market and do nothing because the odds are simply not that good.
What are your thoughts on big ideas in successful trading?
Thread summary on 29/05/16: http://www.forexfactory.com/showthre...05#post8950805
1. Hope v.s. Wishful Thinking
The dictionary defines 'Hope' as "a feeling of expectation and desire for a certain thing to happen."
When such expectations are grounded in objective reality, hope is good. Otherwise, hope is dangerous and is in fact wishful thinking. The difficulty of trading is in telling objective reality apart from subjective thoughts.
When someone first starts out as a trader, he or she has a lack of trading knowledge. There is no telling what information is useful and what isn't. Later on, as a trader becomes more knowledgable, he or she falls prey to the opposite problem: now everything seems informative, how do we weigh one piece of information against another?
The trap here is to use meaningless evidence to sustain wild beliefs about what we expect to happen in the market. I am sure we have all done that before. Some of us, many many many times.
To succeed, traders have to learn the skill of "arriving at hopelessness" quickly. Take too long, and your account gets blown. Once we arrive at hopelessness, we are at a powerful place to make good decisions. We stop clinging on to the past and we can start anew. Good traders somehow have learnt to do this almost instinctively.
2. Bayesian thinking (aka context matters; the present also matters.)
For many traders, the trade ends once it has been placed and a SL and TP is set. Some call this the "Set and Forget" method. No doubt this can appear to be effective, but, at least in theory, it is not the best option.
Set and forget completely disregards any new information and relies completely on the original analysis a trader makes. This cannot be the most effective way because new information do matter. News releases or even just random market events and order flow changes can affect the market and behaviour of market participants. The reality is, we do not know when a trend will end regardless of the timeframe, but when a trend is ending, we can see it happening and acknowledge that it has happened.
You may see that every time frame from D1 to 4H to 1H to 15min to 5 min is in a strong downtrend, but when the 1 minute chart starts reacting strongly at a key level, do you disregard it? What happens when it turns into a uptrend on the 5 minute? Do you still disregard it? The answer is that it depends. It depends on what time frame you are operating on and how you weigh the different probabilities in your trading model.
Adding onto this line of reasoning, it is plain ridiculous to think that any specific "entry method" based on a series of candle patterns or any particular indicator will create profits on its own. Every market situation is different. It is the sum of all the contextual information and changing based on the stream of present information coming in. A trader's job, at least how I see it, is to interpret this stream of information in light of the context and make decisions that best reflect the existing probabilities. Most of the time the decision would be to stay out of the market and do nothing because the odds are simply not that good.
What are your thoughts on big ideas in successful trading?
Thread summary on 29/05/16: http://www.forexfactory.com/showthre...05#post8950805
Build good relationships with others.
). Do not get too involved with TFs or the word trend, at least do not build your ways around those terms. Those are my ideas.
) ... lol
No doubt it's a very "psychologically" attractive way to think that once it's in profit it's fine. But with my experience trading the shorter TFs, I find that given the uncertainty inherent in markets, it always makes sense to "take some off" at key levels where the opposite trade may be favourable. More often than not price will come in and you get a chance to add your initial size back at a better price. IF it really blasts through the key level (which happens about 10% of the time), you can always add on the quick retraces.
