I will not reveal my trading system
or give any trade signal (entries or exits)
[myfxbook]
Profile
Account History
Total amount lost to the market: Probably around 7K SGD or more
Accounts blown up: 4 or 5
Total amount spent on courses: 12K SGD
Broker
Current: Oanda
Past: Citi Index, IG, InstaForex.
Other 'Investments'
Soccer Betting
Trade Review/Lessons Learnt From Recent Trades
2017 - July Lessons
1. Exit 50-75% of trade positions at moderately strong levels.
2. Conservative entries are usually better than aggressive ones. Safety at the possible cost of missing trades over getting into risky trades.
3. Trade market reaction (of hitting strong levels), not (predict) what happens after the reaction.
4. Improve on position sizing. Risk less amount.
Progress on July 2017 Goals
1. 'Exit 50-75% of trade positions at moderately strong levels.'
Change: Close out much of position at untested, strong levels.
2. 'Conservative entries are usually better than aggressive ones. Safety at the possible cost of missing trades over getting into risky trades. '
Yes, trading based on this concept.
3. 'Trade market reaction (of hitting strong levels), not (predict) what happens after the reaction.'
Yes, trading based on this concept.
4. 'Improve on position sizing. Risk less amount.'
Done
July 28 Lesson
1. Prior to big news - set big targets (technical levels)/leave trade to run infinitely.
Aug 02 Lesson
1. Trust your strong level even though it is close (like 20-40 pips) to your nearest tested level.
2. Started adding strong levels from the daily chart.
Aug 05
1. Testing if I can get away with using 50-60 pips stop loss in my trades instead of 100 pips stop loss.
2. Think of ways to capture big moves caused by major news.
Aug 10 (Pt 1)
1. Incorporated Retest Trading
2. Incorporated Multiple Time Frame Strong Levels Analysis
Aug 10 (Pt 2)
1. Retest Trading worked well
2. Used technical levels to determine optimal stop loss levels. Was able to use tight stop loss (10-20 pips) in live trading as a result of this.
Aug 11
1. Missed the main big move, due to lack on focus on strong levels on the daily chart.
2. Kept making small mistakes everyday that undermine overall trading performance.
Aug 16
1. Successfully incorporated tight stop loss into trading (even during news period) which eliminates the possibility of huge running losses.
Early Sept
1. Move up time frame focus to Monthly time frame
2. Added new currency pairs to trading list
Sept (Late Entry)
1. Stopped trading indefinitely, after my position went bad in a set of trades.
My positions were too big, and my account got into a drawdown due to the loss.
2018
Feb
1. Soccer punting has been my main focus for the past few months, and will still be now.
2. Went back to check my account out of the blue.
Haven't looked at a single chart for months.
Had to unlock my inactive account with Oanda's assistance.
3. I still have interest in trading in general, but I no longer see it as a reliable way to make money.
Or should I say, trading should never be emotionally linked to money for good reasons.
4. Placed a set of trades (limit order), ultra conservative swing trade based.
With a really small position size.
Didn't care much on the outcomes of the trade.
Absolute indifference.
Rules
1. This is not a thread for debating my ideas/theories.
Feel free to create threads of your own on any of the controversial ideas I have listed.
If you try to start an argument on this thread, I will ban you.
Meine Theorie
Theories that I derived from personal experience in trading.
- If you are able to get into trades with decent/good entries and manage your trades properly, you will get decent risk-reward ratio most of the time.
- Entry: Seek to get into a new trend direction in the earliest phase possible.
- Exit: Exit trades at the best price possible (within your ability)
If everyone knows that the trend is up, it is already too late to get into a long position. (down-short)- Develop your own trading system. Refrain from using another person's system.
- The reliability and worth of a trading system is inversely correlated to the number of traders using it.
- Free information is not free. You pay more than you bargain for through losing trades.
- Create your own beliefs about trading and the market through your own experience and observation. Refrain from adopting beliefs from elsewhere blindly.
- People who teach their systems for money know that their systems' only worth is materialized through tricking people into paying to learn them.
- Small stop loss greatly increase the chance of getting a losing trade, and it is usually at the worst price at that given moment. Exit your trade manually at the optimal level. Every pip saved is a pip earned.
- If your trading/technical ideologies/setups are similar to that of most typical retail traders, you are set to be destroyed by the market.
If the price is only 10++ pips away from your stop loss. Do your account a favour, take your loss right now by clicking the close trade button.- A potential good trading system is one that goes along with the flow of the market, and is able to adapt to various market conditions with the trader's proper discretionary trading decisions.
- Taking a series/streak of small losing trade might seem tolerable every time a loss happen. They add up to one huge loss eventually.
- It is crucial to identify the signs that your trading positions have become bad trades. And seek to deal with them smartly asap, by exiting at a good price (usually still a small loss).
- Trading systems that allow losses to run out of control, notably up to 100 over pips or more, is a tell tale sign of extremely high risk styles of trading and maybe also the trader's unwillingness to accept losses.
Leave 5 to 25% of your trading positions to run (TP using 4H/daily chart) after you have scaled out a major portion of your trading positions at your profit target(s)- The market tends to behave in a way that makes (most if not all) systems fail over time.
- Consistently profitable traders are very rare at retail level. (I am not a CPT. Have been a losing/struggling trader for many years.) Never believe a trader is profitable if it is not verified with P&L statements.
- Trading with small position size (account percentage) allows one to trade with a calm, clear mind with minimal emotion attached.
- Understanding and getting with the flow of market behaviour is one of the keys to good trading.
- Buy on fear, sell on greed. Buy on the rumor, sell on the news.
- Improve your profitability either by improving your trading performance (in terms of pips gain) or increasing your capital/account size, NOT BY increasing your position size/risk!
- Habitually taking huge risk with huge position size guarantees a trader's fate of blowing up his account in the near future.
- Peak Performance is in fact Pip Performance literally.
Myths
The following are conventional ideas/theories that I find to be overrated, based on personal observation/study.
Stop Loss Related
- 'Stick to predetermined stop loss'
- 'Use tight/small stop loss'
'Move (tighten) stop loss to protect profit when you are in a profitable position.'
Loss Related
- 'It is okay to have many losing trades, as long as you keep them small.'
Position Sizing
'Risk at most 2% of your account for any given set of trades.'
Trend Related
- 'The trend is your friend.'
Others
- 'Keeping a trading journal is important.'
Trading Proverbs
A trader should look at a chart for what it is, and not for what he want it to be.
Trade within your ability and risk tolerance. Increase size and frequency when ability and tolerance permits it.
The more you mentally prepare and accept loss the less psychological capital it takes.
After talking to a guru or anyone with the holy grail, I always take a hot shower, burn the clothes I was wearing, and drink them out of my mind.
Focusing on the result (making money), makes winning more fun but less frequent.
Move on, understand what happened in the past but do not have an emotional attachment to it.
Fighting yourself is like robbing your own bank.
A trading plan is just words until you act on it
If every trader is the long there is no money in being long unless you were first.
Just because the market is open does not mean you have to trade. Cash is a position too.
Your worth as a trader is today’s trading statement, it is re-calculated daily.
Having trading discipline is the beginning; keeping discipline is the progress; staying discipline is the success.
Be honest with yourself, if or when you fail the change of direction will not kill you.
Put yourself in the best position or you will not have a position come tomorrow.
Bend your view to the charts, not the charts to your view.
If the base of your trading was built on weak grounds, it is not a matter of if you fail but when you fail.
Any trader can take risk, a great trader can do it with purpose and use it to their advantage.
Move past your losing trades don’t erase them, just forget how you felt.
If you make money by making a mistake, it is loan with a very high defualt rate.
Find yourself and trade that way.
Not accepting a failure is to not learn from it.
If you lose you are not necessarily a loser, if you call yourself a loser no one will be able to change your mind.
Don’t risk more than you cannot look at positively later.
Eventually you will run out of money if you run from your losses.
You may not understand it fully right now but the market is always right.
If you are thinking about getting out, your competition is already flat.
The view of trading changes after a loss it is your job to get it back to where it was.
If you do not respect the market it will not respect you.
If you understand and accept risk, you will never risk too much again.
"Chaos isnt a pit. Chaos is a ladder", (Game of Thrones, Littlefinger)
Favourite Questions
Is trading gambling?
What criteria must be met to qualify one as a consistently profitable trader?
How to attain peak performance in trading?
Links
TradingSchools.org (https://www.tradingschools.org/)
Site exposes scammers from real profitable traders. I do not necessarily agree with everything that Emmett Moore says. Good for fun read.
Trading Books
Personal view: I do not believe trading books can help turn traders into profitable traders. Readers must be smart enough to decipher useful information from useless information, and also not let oneself be over influenced by what the authors say. Do not believe everything blindly. Think and question everything that looks/sounds questionable.
Alan Farley - The Master Swing Trader (2000)
Alex Nekritin - Naked Forex (2012)
Ari Kiev - Trading To Win ~ The Psychology Of Mastering The Markets (1998)
Benjamin Graham - The Intelligent Investor ~ The Definitive Book On Value Investing (1949)
Brett Steenbarger - Psychology of Trading ~ Tools and Techniques for Minding the Markets (2002)
Brett Steenbarger - The Daily Trading Coach ~ 101 Lessons for Becoming Your Own Trading Psychologist (2009)
Curtis Faith - The Original Turtle Trading Rules
Edwin Lefvre - Reminiscences Of A Stock Operator (Jesse Livermore) (1923)
Elder Alexander - The New Trading for a Living (2014)
Jack Schwager - Market Wizards (1989)
Jack Schwager - The New Market Wizards (1992)
Joel Greenblatt - The Little Book That Beats The Market (2006)
John F. Carter - Mastering the Trade ~ Proven Techniques for Profiting from Intraday and Swing Trading Setups (2012)
John J Murphy - Technical Analysis Of The Financial Markets (1986)
Josh DiPietro - The Truth About Day Trading Stocks ~ A Cautionary Tale About Hard Challenges and What It Takes To Succeed (2009)
Kathy Lien - Day Trading and Swing Trading the Currency Market (2009)
Kevin Davey - Building Winning Algorithmic Trading Systems , + Website ~ A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading (2014)
Marcel Link - High Probability Trading (2003)
Mark Douglas - Disciplined Trader, Developing Winning Attitudes (1990)
Mark Douglas - Trading in the Zone (2001)
Mark Tier - The Winning Investment Habits of Warren Buffett & George Soros - Harness the Investment Genius of the World's Richest Investors (2004, 2006)
Mike Bellafiore - One Good Trade ~ Inside the Highly Competitive World of Proprietary Trading (2010)
Mike Bellafiore - The Play Book ~ An Inside Look at How to Think Like a Professional Trader (2013)
Michael W. Covel - Trend Following (Updated Edition) - Learn to Make Millions in Up or Down Markets (2009)
Michael W. Covel - The Complete Turtle Trader (2009)
Nassim Taleb - Fooled By Randomness (2001)
Robert C. Miner - High Probability Trading Strategies ~ Entry to Exit Tactics for the Forex, Futures, and Stock Markets (2008)
Steve Nison - Japanese Candlestick Charting Techniques (2001)
Steven Achelis - Technical Analysis From A To Z (2000)
Suri Duddella - Trade Chart Patterns Like the Pros (2008)
Thomas N. Bulkowski - Encyclopedia Of Chart Patterns 2nd Ed. (2005)
Thomas N. Bulkowski - Getting Started in Chart Patterns (2006)
Van K Tharp - Trade Your Way To Financial Freedom (1998)
Van K.Tharp - Super Trader (2009)
Van K.Tharp - Trading Beyond the Matrix (2013)
William O’Neil - How to Make Money in Stocks (2009)
Trading Books - Best Of
Here I will mention what I find useful out of the trading books I have read. This is not a summary of their contents. I have deliberately left out stuffs that I find useless/redundant.
Mark Tier - The Winning Investment Habits of Warren Buffett & George Soros - Harness the Investment Genius of the World's Richest Investors (2004, 2006)
Seven Deadly Investment Sins (Chapter 2)
Sin #1. Believing that you have to predict the market's next move to make big returns.
Sin #2. The 'Guru' belief: if I can't predict the market, there is someone somewhere who can - and all I need to do is to find him.
Sin #3. Believing that 'inside information' is the way to make really big money.
Sin #4. Diversifying.
Sin #5. Believing that you have to take big risks to make big profits.
Sin #6. The 'System' belief - somebody somewhere has developed a system that will guarantee investment profits.
Sin #7. Believing that you know what the future will bring - and certain that the market must 'inevitably' prove you right.
Van K Tharp - Trade Your Way To Financial Freedom
Understanding Expectancy and Other Keys to Trading Success (Chapter 6)
1. Reliability: Win-loss rate
2. Risk-reward ratio
3. Cost of an investment/trade: Commission, spread...
4. How often do you get the opportunity to trade?
5. Capital/account size
6. Position size
Ryan Mallory - The Part-Time Trader - Trading Stocks As A Part-Time Venture
Chapter 2: How Did I Become a Full Time Trader?
A Simple Step for Controlling the Emotions
Know beforehand how much you are willing to risk on a single trade and across multiple trades at once. After you determine that, there is no reason to follow the profit or loss you are incurring on a given trade. It will only stir up the emotions. Furthermore, don't look at your profit or loss until after the trade is completed. Emotions are killers in a trade...
Chapter 4: Don't Quit Your day Job... SERIOUSLY!
The Right Position Size
So if you are watching the dollars far too much, realise that you are probably trading with a dollar amount per trade that is probably too much for you to handle on a steady and consistent basis.
Your money is emotional. What you do with your money is often based on an emotion of what you 'feel' that you need, want, and desire. The problem with the stock market is that there is no room for any of that if you wish to be successful as a trader. The less important the dollars are to you, the better you will become as a trader. Far too often, people trade beyond what they can afford to lose, and if that is the case, no matter how well you understand technical or fundamental analysis, you will more than likely not make it in the long term. The less important to your future the capital you are trading with becomes, the better it will be for your overall trading
Money and our attachment to it is usually what stands between us and profitable trading.
Position Sizes Dictate Emotional Depth - Why don't we trade big?
Big returns = Don't come as easily
Big portfolio = Increased anxiety
Big positions = Big losses
Bigger position = Bigger cash losses on big percentage losses = More need for significant winning trades
- What should I do?
If you are watching the profit and loss on your active trades more than the actual price movement of the stock itself, then you probably need to take a step back from trading and figure out how much you need to reduce the position size of your trades.
You may say, 'But I wont' make as much money.' But you won't lose as much either, and the goal here is not how rich you can get off of the market (the fool's draw to trading) but how you can equalize your emotions toward the capital that you trade in such a way that the trading you undertake is as close as possible to emotionless. If you do this, the profits will take care of themselves.
Because you trading with reduced position sizes, you will likely see your returns go up as you are not making as many mistakes and bad decisions in your trading and are able to trade with less stress and less fear and anxiety.
Chapter 5: The Essentials to Your 'Workplace Trading Desk'
Social Media and Workplace Trading
Twitter
@shareplanner @zerohedge @stocktwits @slopeofhope @drudge_report @foxbusiness @bloombergnews @cnbc
@sp_trades @fuinhaz
Chapter 8: Flying Below the Radar
Good System, Bad Environment
Often, traders will buy someone else's system for trading at a premium price thinking that because the system works for that individual, it will most definitely work for them as well and eliminate any doubt otherwise. However, within that system are all sorts of complicated elements that the original trader to the system understands and is comfortable with, but nearly every person who tries to duplicate his efforts fails miserably. Assuming that the system is legitimate and not some sham (like many of them are), the most likely cause for the failure lies in the purchaser of that system because the system does not fit his environment, personality, or risk profile (in some cases all three).
Chapter 10: The Best Way to Trade at Work
More About the Management, Not the Stock
Our long-term success as a trader is not going to be dictated by how well we pick winning stocks, and stocks that make us huge profits. Instead, it will depend on how well we manage those trades that we are given.
Count the Dollars Later
Once you start asking yourself, 'If the stock goes up $5 per share, that means I will have made 'X' dollars', you have already lost on the trade. Like Kenny Rogers said in the song The Gambler, 'You never count your money when you're sitting at the table, there'll be time enough for countin' when the dealing's done.'
Expecting the Worst
I expect the trade to go wrong. I never take it for granted and enter the trade with the predisposition that the trade will result in being a loser... it has everything to do with my approach to trading stocks, and my concerns not with whether I will win in a trade, but how I will manage the trade in any and all situations that I am confronted with.
Chapter 11: Trading Habits You Will Want to Avoid
Do Not Do It for the Money
For the Love of the Game
One of the main reasons why so many traders fail is that they enter the profession for the money. Their passion is not for the financial markets and specifically he craft of trading. Instead their passion is for the money. Those kind of people are better off in Las Vegas because they'll probably end up losing their money just like they most certainly will in the stock market, but at least they'll be able to stay in a five=star hotel and get free drinks in the process.
Your Heart Has to Be in it
As a trader, then, you have to ask yourself whether your motivation for trading is to make money or to really be a great trader.
When losing money becomes too painful on individual trade, and that happens primarily with those whose focus is on making quick money, they will not take the loss on the trade like they should and instead pull some crazy stunt like doubling or tripling down on a position or remove their stop losses, and allow a short term trade to turn into a long term investment. In the end, they wind up broke and without a chance.
Chapter 15: Take This Job and Shove It
Self Revelation
There is a good chance that until you become a trader, you will never know just how greedy, fearful, and materialistic you are about your own money and the need to make more of it a result.
In many ways, trading has a refining experience to it because if you do not learn to control these emotions, you become fearful of missing out, greedy in the need to make more than you have, optimistic when you should be pessimistic, and lacking faith when the truth is set before you. Then you will come up short in your aim to become the best trader you can be.
Jack D. Schwager - The Little Book of Market Wizards
Chapter 3: Trading Your Own Personality
'If I try to teach you what I do, you will fail because you are not me. If you hang around me, you will observe what I do, and you may pick up some good habits. But there are a lot of things you will want to do differently.' Colm O'Shea
Chapter 4: The Need for an Edge
Money management cannot save you if you don't have an edge. It is helpful in mitigating losses and preserving capital only if you do have an edge.
Monroe Trout: 'Make sure you have the edge. Know what your edge is. Have rigid risk control rules...'
Chapter 7: The Worst of Times, the Best of Times.
...handling difficult losing periods
1. Reduce your trading size
2. Stop trading
... The worst drawdowns often follow periods when everything seems to be working perfectly.
Marty Schwartz will reduce trading size, just as he does after particularly bad losses, because he notes, ' My biggest losses have always followed my largest profits.'
Chapter 8: Risk Management
'I know where I'm getting out before I get in' - Bruce Kovner
The Market Wizards I interviewed, generally agreed that money management (risk control) was more important to trading success than the trade selection methodology. You can do quite well with a mediocre (i.e. slightly better than random) entry methodology and good money management, but you are likely to eventually go broke with a superior entry methodology and poor money management.
... you have to be willing to allow enough risk for the trade to work. O'Shea;, 'you need to decide where you are wrong. That determines where the stop level should be. Then you work out how much you are willing to lose on the idea. Last, you divide the amount you're willing to lose by the per-contract loss to the stop point, and that determines your position size. The most common error I see is that people do it backwards. They start with position size. Then they know their pain threshold, and that determines where they place their stop.'
An alternative to stops is option trading
Risk Management at the Portfolio Level
Blue Crest's flagship fund, run by Michael Platt
Annual returns in excess of 12% over 13 years
Annual drawdown under 5% for the period.
Each calendar year starts with a clean slate. Each manager is allowed to lose only up to 3% before his allocation is cut by 50%. If the manager lose another 3% on the remaining assets, the entire allocation is withdrawn for the year.
(total drawdown is less than 5% because the second 3% loss is incurred only on 50% of the assets)
While the risk control rules encourage the fund's managers to be very cautious at the outset, managers can take increasingly greater risk as they build a profit cushion.
Capital preservation which allowing upside potential by allowing greater risk taking with profits.
Cohen 'My best trader makes money only 63% of the time. Most SAC traders make money only in the 50-55% range. Better to make sure your losses are as small as they can be, and that your winners are bigger.
The Trader's Dilemma
Say you have a position that is going against you, but you still believe in the trade. On the one other hand, you don't want the loss on the position to get any worse, but on the other hand, you are concerned that as soon as you get out, the market will turn around in favour of the liquidated trade.
Steve Cohen: 'If the market is moving against you, and you don't know why, take in half. You can always put in on again. If you do that twice, you've taken in 3/4 of your position. Then what's left is no longer a big deal.
Taking partial loss is much easier than liquidating the entire position and provides a way to act instead of procrastinating. Can be used multiple times on the same position.
Underappreciated Reason for Avoiding Large Losses
Another consequences is its impart on the trader and result in missed winning opportunities. In this game, you want to be there when the great trade comes. In trading 80% of your profits come from 20% of your ideas.
Larry Hite (Mint Investment): 'The very first rule we live by at Mint is: Never risk more than 1% of total equity on any trade. By risking 1%, I am indifferent to any individual trade.'
Chapter 10: Independence
If you listen to anyone's opinion, no matter how skilful or smart the trader might be, it is going to end badly.
Chapter 11: Confidence
Confidence -> Success (Vice versa)
Seeking advice is a sign of lack of confidence.
Chapter 12: Losing Is Part of the Game
Good trade: Follow rules, Winning/Losing trade
Bad trade: Not follow rules, Winning/Losing trade
A good trade follows a process that will be profitable at an acceptable risk if repeated multiple times, although it can lose money on any individual trade.
Chapter 13: Patience
'There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time.' (Reminiscences of a Stock Operator)
The Power of Doing Nothing
Jim Rogers, 'One of the best rules anybody can learn about investing is to do nothing, absolutely nothing.'
The Market Wizards wait patiently, doing nothing until there is a sufficiently compelling trade opportunity. if the conditions are not right, or the return/risk is not sufficiently favourable, don't do anything. Beware of taking dubious trades born out of impatience.
Doing nothing is harder than it sounds because it requires resisting the natural human tendency to trade more frequently - a consequence of the addictive nature of trading. William Eckhardt, who trained the Turtles along side with Richard Dennis, explained why trading is addictive. 'It is found that intermittent reinforcement - positive and negative dispensed randomly(eg. the rat doesn't know whether it will get pleasure or pain when it hits the bar - is the most addictive alternative of all, more addictive than positive reinforcement only.
The Wisdom of Sitting
Patience is not only essential in getting into a trade, but also critical in getting out of a trade. Reminiscences of a Stock Operator: ' I've known many men who were right at exactly the right time, and ... they made no real money out of it. Men who can both be right and sit tight are uncommon.'
William Eckhardt cited
'You can't go broke taking a profit' as one of the most wrongheaded adages about trading. 'That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.' The problem, is that human nature seeks to maximize the chance of gain rather than the gain itself. Eckhardt believes that the desire to maximize the number of winning trades works against the trader by encouraging the premature liquidation of good trades. In effect, the need to ensure that a trade will end up in the winning column leads traders to leave a lot of money on the table, thereby severely reducing their total gain in order to increase their winning percentage - a misguided and detrimental goal. The success rate of trades is the least important performance statistic and may even be inversely related to performance.'
The message is that regardless of your methodology or the time frame of your trades, you have to allow the good trades to work to their reasonable fruition if you want to pay for the losing trades and still leave a good margin of profit.
'If you don't stay with your winners, you are not going to be able to pay for losers.'
Patience is a critical quality for a trader - both in getting into and in getting out trades.
Chapter 14: No Loyalty
For a trader, loyalty is a terrible trait. Loyalty to an opinion or position can be disastrous. The absence of loyalty is flexibility - the ability to completely chance your opinion when warranted. Michael Marcus: 'I am very open-minded. I am willing to take information that is difficult to accept emotionally.... When a market moves counter to my expectations, I have always been able to say,' I had hoped to make a lot of money in this position, but it isn't working, so I'm getting out.'
By having the flexibility to recognize his worldview was wrong and reversing his market directional bias, Colm O' Shea achieved a profitable year, even though his original market outlook was totally incorrect.
He cites George Soros as a paragon of flexibility, he says, ' he has the least regret of anyone I have ever met. He has no emotional attachment to an idea. When a trade is wrong, he will just cut it, move on, and do something else.'
'When I am wrong, the only instinct I have is to get out. If I was thinking one way , and now I can see that it was a real mistake then I am probably not the only person in shock, so I'd better be the first one to sell. I don't care what the price is.' - Michael Platt
Good traders liquidate their positions when they believe they are wrong; great traders reverse their positions when they believe they are wrong. If you want to succeed as a trader, you can't have loyalty to your position.
Don't Publicize Your Market Calls
If you announce what you believe a market will do, presumably to impress other with your market acumen, you will tend to become invested in that prediction. If the evolving price action and market facts seem to contradict your forecast, you will be more reluctant to change your view than you might otherwise have been. You will find all sorts of reasons why your original forecast might still be right. Paul Tudor Jones is very cognizant of the danger of letting prior market pronouncements affect trading, ' I avoid letting my trading opinions be influenced by comments I may have made on the record about a market.'
Chapter 15: Size Matters
The Power of Size
Ed Thorp's fund Princeton Newport Partners, achieved an annualized gross return of 19.1% (15.1% after fees) over a 19-year period. Even more was the extraordinary consistency of return: 227 out of 230 winning months and a worst monthly loss under 1 percent. A second fund, Ridgeline Partners, averaged 21% annually over a 1-year period with only a 7% annualized volatility.
'By analogy to blackjack, trading larger for higher probability trades and smaller, or not at all, for lower-probability trades could even transform a losing strategy into a winning one.'
Michael Marcus cited varying position size as a key element of his success. He did better on trades when the fundamentals, the chart pattern, and the market tone (how the market responded to news)
The Danger of Size
Overtrading was also inherent in a disastrous trades. Bruce Kovner believes most novices trade too large. He advice: 'Undertrade.' Whatever you think your position ought to be cut it at least in half. Successful traders were discipline in sizing their positions correctly. A greedy trader always blows up.'
The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgement and experience.
Howard Seidler, ' you can't win if you're trading a leverage size that makes you fearful of the market.' ' Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.' He advised waiting until you had at least doubled your capital before beginning to trade larger.
Chapter 16: Doing the Uncomfortable Thing
The Outperforming Monkey
William Eckhardt believes that the natural human tendency to seek comfort lead people to make decisions that are worse than random in trading. 'What feels good is often the wrong thing to do.'
Common comfortable habits
1. Counter-trend trading
2. Taking early profits - impede the ability to earn large profits
3. Holding on to bad trades - hoping the price will turn around in trader's favour
The Inadvertent Experiment
[Investors] did much worse than random in selecting stocks from our prescreened list, probably because by avoiding the stocks that were particularly painful to own, they missed some of the biggest winners. - Joel Greenblatt
Behavioral Economics and Trading
Eckhardt ties in human biases to the tendency for the majority of market participants to lose. 'There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication is that to win you have to act like the minority. If you bring normal human habits and tendencies in trading, you will gravitate toward the majority and invariably lose.
Why Emotions Affect Even Computerized Trading
The more a system has been optimized to improve its past performance, the less likely it is to perform well in the future. (A form of comfort seeking)
Conclusion
The inclination to make comfortable choices in trading will lead to worse than random results. Resist the temptation to make trading decisions that fell good. but are wrong on balance.
Chapter 17: Emotions and Trading
Lara Logan (correspondent) asked Honnold, 'Do you fell the adrenaline at all?'
'If I get a rush, it means that something has gone horribly wrong.' - Alex Honnold (famous free solo climber) '... The whole thing should be pretty slow and controlled.'
Expensive Excitement
'I don't trade for excitement; I trade to win' Larry Hite
The market is an expensive place to look for excitement.
You Can't Win If You Have to Win
Impulsive TradesMarty Schwartz warned against the danger of acting impulsively to recover trading losses. 'whenever you are hit, you are very upset emotionally. Most traders try to make it back immediately; they try to play bigger. Whenever you try to get all your losses back at once, you are most often doomed to fail.'
Impulsive decisions
1. Putting on an unplanned trade.
2. Taking profits on a position before either the target objective or the stop loss is reached.
3. Implementing a trade based on other's recommendation.
Don't Confuse Intuition with Impulse
'The trick is to differentiate between what you want to happen and what you know will happen.' - Anonymous
Intuition - objective synthesis of the available information based on past experience, unhindered by emotional distortions. (subconscious)
Chapter 18: Dynamic versus Static Trading
Traders who are successful over the long run adapt. - Colm O'Shea
Scaling versus single-Price Entry and Exit
Scaling in/out.
Trading Around Positions
The position size of a trade would be reduced on a profitable move and rebuilt on a subsequent correction. Any time a position was lightened and the market retraced to the re-entry point, a profit would be generated that otherwise would not have been realized.
Chapter 19: Market Response
Bullish news -> Bearish behaviour => Look to Short (Vice-versa)
Chapter 20: The Value of Mistakes
Review your trades
Identify and learn from your mistakes
'Do more of what works and less of what doesn't - Steve Clark
Chapter 23: Love of the Endeavor
'Market analysis is like a tremendous multidimensional chess board. The pleasure of it is purely intellectual.' - Bruce Kovner
'[The markets are] one big, three-dimensional puzzle... But this puzzle is not one in which you can spread out the pieces on a great big table and put them all together. The picture is always changing. Everyday some pieces get taken away and other get thrown in.' - Jim Rogers
'[Trading] is like a giant treasure hunt. Somewhere in here [he pats a weekly chart book] there is going to be a big winner, and I am trying to find it. - David Ryan
'I thought I was playing a video game, and I couldn't believe I was getting paid to do it. I enjoyed it so much that I would have done it for nothing.' - Steve Clark
'I can retire today and live very comfortably off the interest for the rest of my life. The fact is that I like to trade. When I was a kid, I loved to play games. Now I get to play a very fun game, and I'm paid handsomely for it. I can honestly say that there isn't anything else I would rather be doing. The minute I don't have fun trading, or I don't think I can make a profit, I'm going to quit.' - Monroe Trout
For the Market Wizards, trading is not a matter of work or a matter of getting rich. Rather, trading is something they love to do - an endeavor pursued for the fun of the challenge. Interviewing the Market Wizards, it becomes clear that they are drawn to trading because they love the challenge of winning what in their eyes is a complex game.
On what determines success as a trader. Colm O'Shea said' Frankly if you don't love it, there are much better things to do with your life... No one who trades for the money is going to be any good. If successful traders were only motivated by the money, they would just stop after five years and enjoy the material things. They don't...'
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Character Profile (F.F. Ver.)
Level 1: Apprentice
Level 3: Initiate [3 months net profit]
Level 2: Veteran [6 months net profit]
Level 3: Specialist [1 Year net profit]
Level 4: Captain [2 Year net profit]
Level 5: Commander [3 Years net profit]
Level 6: Master [5 Years net profit]
Level 7: Grandmaster [10 Years net profit]
Notable Individuals On F.F. (Alphabetical Order)
Cubbybgood
Honest, helpful, tactful, well mannered, transparent trading
MoneyZilla
Great sense of humor, humble, honest
VEEFX
Truth seeker
Shares many same ideas as mine
List of Profitable Traders on F.F.
NONE so far
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