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Adventures in being wrong

  • #1
  • First Post: Jan 21, 2024 1:59pm Jan 21, 2024 1:59pm
This thread is a celebration and examination of the times we were wrong about a trade but turned things around without getting twisted out of shape.
A place to reflect on why being wrong is so painful and why being right is so important to us. In trading, anything can happen. It shouldn't matter if we are wrong or right, and yet many people struggle to let go of losing trades when they are wrong and are too quick to take profits when they are right.
This thread will help give people a dedicated space to reflect and rethink their relationship with being wrong and help us to become better traders.
After reading Best Loser Wins by Tom Hougaard, this subject has become deeply fascinating to me. I recommend reading his book if this subject interests you.
The more comfortable I have become with being wrong, the better I have gotten at trading; it is almost comical when I think about the countless hours I spent trying to do everything right, yet I often lost money because I couldn't handle being wrong.
Being wrong ought to be a coherent aspect of any trading approach.
  • #2
  • Edited 3:30pm Jan 21, 2024 2:02pm | Edited 3:30pm
Rules:
1. Be respectful. Attacking members for being wrong defeats the very point of this thread: embracing being wrong and removing the stigma about making mistakes in trading.
2. Be humble. This is not the thread to brag about how good you are and how you always get it right.
3. Posts. The posts I am most interested in and will be sharing are those where a trader was initially wrong about a trade and managed to put it right, either by getting out and taking a loss or taking a trade in the opposite direction. In a sense, this thread is really about change. Being able to change and flow with the market to succeed despite our mistakes. We succeed because of how we recognise and respond to our mistakes.
  • #3
  • Jan 21, 2024 2:11pm Jan 21, 2024 2:11pm
Being wrong creates new directions.
Closing a losing trade gives a sense of completion and prepares the ground for whatever shows up. At that point, you have more energy and clarity to respond to what happens next, so you can respond more effectively when opportunity knocks.

In the first trade, looking to buy a minor support level, the trade failed, so I switched to short as soon as the candle closed lower, showing strength. The next trade won, although I made a mistake in closing at the bottom of the redistribution structure as the candle broke through it to the next support level.
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However, the next trade was fantastic, buying the major support level and winning over 300 pips.
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There was a time when the first two trades would have annoyed me, and I'd likely have lost a lot more on the first, perhaps adding to the loser. By taking the loss and not losing the flow of the market, I was ready to respond to the bigger opportunity later.

I would love to see examples like this of trades you got wrong but could keep calm and continue. It's far more interesting and real to me than when everything goes to plan.
  • #4
  • Jan 21, 2024 2:31pm Jan 21, 2024 2:31pm
Assuming there is right and wrong action, should I be right to short if I was wrong to buy? This is often the case. Should I have known beforehand what was right? Perhaps. Sometimes. Often, however, it is irrelevant. Whatever standards apply to a ‘good’ trade and a ‘bad’ trade, the truth is that many so-called ‘good’ trades will fail. The problem is with our reaction. Do we think, ‘Oh shit,’ for a moment and set about changing, or do we meltdown and start moving stops and adding to losing positions. Because a good setup happened to fail.

Predictions are not the truth.
Considering the unpredictability of future events, it becomes difficult to define certain actions as right or wrong. Rather than supposing the truth is knowable and trying to do everything right to uncover it, focusing on what we know is wrong and our reaction to error is perhaps easier. Learning to think differently in situations where we are objectively wrong helps us to get back on track more quickly.

Beware of winning.
Everything can be meticulously planned out to get a win as if losing were death. The reaction many of us have to losing is intensely negative. We take it personally. Losing means not only has the trade failed but that we, the trader, have also failed. You suck. You are no good at this. You tell yourself you will never make such a stupid mistake again. But you must understand that, like losing, winning is meaningless. Pushing for winning trades is only natural, of course, but your wins don't make you a good trader. They may even hide faults with your trading - such as taking profit too quickly or getting into trades to fulfil emotions rather than following a signal generated by a logical setup. For good traders, a loss has positive connotations; in the first instance, it is a relief to get out of a losing trade, but it also indicates opportunity. By eliminating what we don't want, we maintain control. Not only that, but a loss can start the process of getting into a winning trade.
  • #5
  • Jan 21, 2024 2:33pm Jan 21, 2024 2:33pm
Most successful traders utilize the Stop Loss to take care of when their predicted direction goes wrong. Of course, the opportunity then presents to recalibrate and decide what the market wants to do that they initially missed: and so I guess this is where the adventure you talk about begins.

One's initial misteps in fact quite often opens the doorway to a clearer picture - since further candlestick pattern unfolding occurs in time.

Quite often one gets stopped out not for lack of reading the overall direction sentiment correctly, but rather due to haven entered the trade a little too prematurely following which a change in course will eventually occur in the desired path.
I see Beasts. I drop my scalpel and beckon to theatre nurse: "Charts!&
RubiconFund Return Today: 84.8%
  • #6
  • Jan 21, 2024 3:16pm Jan 21, 2024 3:16pm
A point to note: A "Winning Trade" is never forged in Absolution - market sentiment can change at moment's notice. For this reason some would prefer trades with a short shelf life (Scalping) knowing full well that sudden change in sentiments do occur.


Others who are long-termers utilize minimal leverage exposure and wider stop losses that can accomodate large noise swings - all in the belief that the bigger picture market trend will hold sway in the end, despite the odd disruption here and there along the way.
I see Beasts. I drop my scalpel and beckon to theatre nurse: "Charts!&
RubiconFund Return Today: 84.8%
  • #7
  • Jan 21, 2024 4:02pm Jan 21, 2024 4:02pm
Quoting surgeon
A point to note: A "Winning Trade" is never forged in Absolution - market sentiment can change at moment's notice. For this reason some would prefer trades with a short shelf life (Scalping) knowing full well that sudden change in sentiments do occur. Others who are long-termers utilize minimal leverage exposure and wider stop losses that can accomodate large noise swings - all in the belief that the bigger picture market trend will hold sway in the end, despite the odd disruption here and there along the way.
Thanks, Surgeon. You have made some excellent points.
  • #8
  • Edited 6:04pm Jan 21, 2024 5:54pm | Edited 6:04pm
Quoting Bainbrito
This thread is a celebration and examination of the times we were wrong about a trade but turned things around without getting twisted out of shape. A place to reflect on why being wrong is so painful and why being right is so important to us. In trading, anything can happen. It shouldn't matter if we are wrong or right, and yet many people struggle to let go of losing trades when they are wrong and are too quick to take profits when they are right. This thread will help give people a dedicated space to reflect and rethink their relationship with...
Hi Bainbrito

Why do you feel comfortable being wrong?, that’s a losers mindset.
How do you feel when you are right, uncomfortable?

I am not trying to be negative with my comments, just trying to understand your mindset.
Trading thin liquidity at the boundary of the charts
  • #9
  • Edited 3:42pm Jan 22, 2024 1:35am | Edited 3:42pm
Quoting RickM
{quote} Hi Bainbrito Why do you feel comfortable being wrong?, that’s a losers mindset. How do you feel when you are right, uncomfortable? I am not trying to be negative with my comments, just trying to understand your mindset.
Hi RickM,
As this thread matures I hope my mindset will become clearer but in short it can be expressed by the saying “Cut your losses short and let your winners run,” however I also appreciate that this is not as easy or simple as it sounds.
Before a trader can cut their loss they must recognize that they are wrong however the experience of being wrong comes later when they realise they are not on solid ground. Until then it feels like they are right, why else would they get into the trade? Bring wrong represents a deviation from external reality, how quickly can a trader recognise that deviation? Many traders are so uncomfortable with being wrong that they go about moving their stops and adding to losing positions under the delusion of getting in at a better price.

I am in no way uncomfortable with winning, however the experience of being wrong is very interesting to me and reveals a lot about why traders fail. It is a fact that the vast majority traders cannot cut their losses short or let their winners run. Surgeon has said that successful traders will let their stops take care of the losers, which implies that they are comfortable with taking the loss, or at least indifferent, but most traders aren't successful. I believe that being uncomfortable with losing is a loser's mindset and winners are comfortable with both losing and winning, and in some cases are actually indifferent as individual trades are statistically unimportant to them.

There is also a moral dimension to being wrong which is worth exploring but this post is long enougha and I have an idea for a future post that's more in-depth. Thank you for your question.
  • #10
  • Jan 22, 2024 3:17am Jan 22, 2024 3:17am
Quoting Bainbrito
{quote} Hi RickM, As this thread matures I hope my mindset will become clearer but in short it can be expressed by the saying “Cut your losses short and let your winners run,” however I also appreciate that this is not as easy or simple as it sounds. Before a trader can cut their loss they must recognize that they are wrong however the experience of being wrong comes later when they realise they are not on solid ground. Until then it feels like they are right, why else would they get into the trade? Bring wrong represents a deviation from external...
Hi Bainbrito

This is a subject I have also been studying for the past 18 months as well, that's how to accept losses quickly why also letting your winners run hard.
So we are both looking for the right solution to achieve that " traders ideal mindset " that can lead us have a real trading edge.
I believe I found the answer 6 months ago which has allowed me to obtain better trading profits than ever.
You mentioned you like Tom Hougaad book "Best Loser wins" and I will also admit I liked it too as I have read it at least 3 times already. I really enjoyed his book - however I now believe Tom has it all wrong on his losing theory.

Can I ask you an unusual question which will lead me to the explain the correct theory I believe a trader should have.

On September 11 when you first heard about the twin towers attack, can you tell me what room you were sitting in or your exact location at the time.?
95% of people can answer this question, can you?.
The reason behind my question will become clear if we explore this line further.


Cheers Rick
Trading thin liquidity at the boundary of the charts
  • #11
  • Jan 22, 2024 4:09am Jan 22, 2024 4:09am
Winning and losing is part of the game.
Setting realistic goals is crucial to being successful in the markets and they need to be aligned with our financial condition, risk tolerance and market experience.
All of this takes time to align, for some it takes years, for others it never aligns.

Cheers
Uncertainty of the market must be embraced and accepted.
  • #12
  • Jan 22, 2024 5:04am Jan 22, 2024 5:04am
2023 was an awesome year for me because it gave me a whole lot of exposure to trading. I remember when I just got into trading. I always felt bad for every loss, even on demo accounts. Most of the time, we traders have that mindset of winning all the time and just wish we could have it all to ourselves, but late last year, I was opportune to attend a forex seminar, and the whole idea being talked about was gaining experience in the financial market and becoming a profitable trader in the long run. Then my whole perception of the market changed because my mindset going into trading was learning how to make money instead of being a consistently profitable trader.
2024 is my second year in this trading industry, and I must say that it has been an interesting one. Trading itself has taught me about life.
Life is all about winning and losing and most importantly, patience is also a virtue
I look forward to gaining more experience and being more profitable in the market.

Cheers
  • #13
  • Jan 22, 2024 8:00am Jan 22, 2024 8:00am
Quoting RickM
{quote} Hi Bainbrito This is a subject I have also been studying for the past 18 months as well, that's how to accept losses quickly why also letting your winners run hard. So we are both looking for the right solution to achieve that " traders ideal mindset " that can lead us have a real trading edge. I believe I found the answer 6 months ago which has allowed me to obtain better trading profits than ever. You mentioned you like Tom Hougaad book "Best Loser wins" and I will also admit I liked it too as I have read it at least 3 times already. I...
Hi Rick,
I like Tom Hougaard a lot however I'm trying to avoid aping his approach and explore the subject independently. I can't deny I am inspired by him and think his success speaks for itself. Even so, I am definitely open to learning about different perspectives and have no problem with being wrong about being wrong so to speak. With so many threads and posts focused on how to do things right, I thought it would be interesting to start at discussion about getting things wrong. Certainly there is a psychological dimension to this but also hope to get into practical examples of how different people deal with losing, for some traders this will be very eye-opening who may not have seriously considered being wrong as a serious category of experience worth studying. I hope more experienced traders will pass on their own insights and practices.

I remember 9/11 vividly, I had just got in from school and went into the sitting room to switch on the television. At first I thought I was watching a movie and was awed by the special effects, then my awe turned to horror as I realised that it was a real event taking place.
  • #14
  • Jan 22, 2024 2:58pm Jan 22, 2024 2:58pm
Quoting Bainbrito
{quote} Hi Rick, I like Tom Hougaard a lot however I'm trying to avoid aping his approach and explore the subject independently. I can't deny I am inspired by him and think his success speaks for itself. Even so, I am definitely open to learning about different perspectives and have no problem with being wrong about being wrong so to speak. With so many threads and posts focused on how to do things right, I thought it would be interesting to start at discussion about getting things wrong. Certainly there is a psychological dimension to this but...
Hi Bainbrito

The reason you remember 9/11 so well is because your brain received a shocking emotional moment, which was fixed into your brain forevermore. Therefore the secret in shaping your mindset into becoming a trader that focuses on the important aspects of trading is to attach powerful emotions to you trades.
My research after reading countless books by many famous trading Authors is that you must fix a winning mindset into your brain by CELEBRATING winning trades with extreme emotion, while giving losing trades little emotional memories.
That means you will remember how to win better and forget quickly how to lose quickly.
This will allow you to seek out winning setups in your subconscious and become a winning trader who knows how to win, while forgetting how to lose.

It’s a mind trick, so you should scream with delight like the Wolf of Wall Street every time you win.
You should not bother to be comfortable with losing, just neural.

Cheers
Trading thin liquidity at the boundary of the charts
  • #15
  • Jan 22, 2024 3:57pm Jan 22, 2024 3:57pm
The more I get away from directional trading, the happier I am about trading in general. I trade iron condors alot - the ideal pa scenario for an IC is price just ranges within the short strike limits of the IC until you close the trade in profit. It's kind of a misnomer to call that "non-direction" - no direction is of course also a direction. But, I know that at least one side of the trade will most likely come off in good profit. I also know that time will continue to pass, and so the values of short options will continue to decrease, just because of time decay, and nothing can stop that. So, I'm always right about those two. That's consolation for the trades where I am wrong about a non-directional assumption. Really though, I never maintain such an assumption with more than a grain of salt. I rather assume that one side of the iron condor will be attacked and that I will be rolling that side to escape loss, for additional credit, if possible. Sometimes, if there is a very hard move against one side, you can get full credit on the other side and just close the challenged side for a small loss, which means your profit might be small on the whole trade. So, for ICs, I generally don't care too much how the underlying moves.

I trade other, directional strategies, where I am invested (including emotionally) in market direction. I've gotten to where I don't need that drama. Besides, I am usually wrong in my directional assumptions. Or, I am right and my timing is off.

Anyway, there are ways to trade where being "wrong" doesn't matter that much.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #16
  • Jan 23, 2024 7:44am Jan 23, 2024 7:44am
Quoting The Fool
The more I get away from directional trading, the happier I am about trading in general. I trade iron condors alot - the ideal pa scenario for an IC is price just ranges within the short strike limits of the IC until you close the trade in profit. It's kind of a misnomer to call that "non-direction" - no direction is of course also a direction. But, I know that at least one side of the trade will most likely come off in good profit. I also know that time will continue to pass, and so the values of short options will continue to decrease, just because...
Thank you, this was such an interesting read, I am not familiar with options trading and have never heard of such a strategy before. It seems complex to grasp but once you understand how to effectively manage the scenarios on each side of the IC then it looks like a nice process to follow to ensure profitability no matter what the underlying market throws at you, and all without being wrong.

I scalp trends on fast time-frames so directionality is key and what has helped me most is being extremely fussy about what which market I am trading. I see a lot of traders trying to make grand predictions in very choppy markets, like cable, and yet over last few months the Dow Jones has been trending up relentlessy. Arguably they are both bullish, but it is far easier to be right in both directional assumptions and timing when the underlying market is relatively smooth.

Dow Jones:
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Cable:
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  • #17
  • Jan 23, 2024 7:55am Jan 23, 2024 7:55am
Quoting RickM
{quote} Hi Bainbrito The reason you remember 9/11 so well is because your brain received a shocking emotional moment, which was fixed into your brain forevermore. Therefore the secret in shaping your mindset into becoming a trader that focuses on the important aspects of trading is to attach powerful emotions to you trades. My research after reading countless books by many famous trading Authors is that you must fix a winning mindset into your brain by CELEBRATING winning trades with extreme emotion, while giving losing trades little emotional memories....
Thank you for sharing this, Rick.
  • #18
  • Jan 25, 2024 4:25pm Jan 25, 2024 4:25pm
Forgiveness:
I don't know if anyone else can relate but when I was in a losing trade I used to get into this circular logic where I would feel bad that I was losing the trade and because I felt bad that must mean it is my fault, therefore if am losing a trade it is my fault and I ought to feel bad. It follows that if I lose a trade and I feel bad, then I must be bad, or stupid, or both, whereas really I am just trying to survive by following a process where I will not always experience what is good for me. Now if I lose a trade I do not feel bad, I just try to work out why and am much kinder to myself so it's not a double injury. It's just a trade that didn’t work out.

Why didn’t the trade work out?
The best case scenario is where I cannot detect any slips or mistakes. It just failed, and I will chalk it up to the statistical certainty that not all trades are going to be winners. I am okay with such a loss and will carry on following the process unperturbed.

Slips and mistakes.
If I can detect slips or mistakes, I will not stop at attributing them to human error on my part but consider how I can prevent them from happening again by making improvements to my trading plan.
Designing the process to be more forgiving, to minimise errors of execution and perception; and improve decision making by using checklists and decision trees.

Slips.
Slips are anything you did which you didn’t intend to do. It means acting without thinking, placing an order incorrectly, using the wrong position size unintentionally. Change settings to minimise improper use of controls. Changes to how you perceive the chart can help limit the range of possible actions. Clean it up.
Slips are often a result of getting distracted or interrupted. Make sure you have a plan that provides a clear orientation so that you can focus your attention on what you have to do.

Mistakes.
Mistakes are typically borne from improper perception of what is happening, leading to bad decisions. Improve situational awareness; minimise noise; use checklists and decision trees.
If a trade fails due to lack of knowledge spend more time training your strategy, use demo or small stakes until the process clicks.

If a trade doesn't go to plan, don't beat yourself up. Go back to the process and consider how to improve it, if that is even necessary. It helps to consider both winning and losing trades as part of a large statistical set. I hope to delve deeper into statistics when I have more free time.
  • #19
  • Jan 26, 2024 1:49pm Jan 26, 2024 1:49pm
Lies, damned lies, and statistics

Leave all hope, you who enter.
My interest in statistics probably comes from my grandfather; I treasure his copy of Facts from Figures by M. J. Moroney which begins with the quote
'Lasciate ogni speranza, voi ch'entrate.’ - Dante; before warning that "in a society where statisticians thrive, liberty and individuality are likely to be emasculated."

For a book first published in 1951, that statement is incredible today. The author explains in this introduction that because we can do very precise arithmetic, there is a strong tendency to believe "the accuracy of our arithmetic is equivalent to the accuracy of our knowledge about the problem in hand", leading to 'delusions of accuracy' - the cause of our suffering and abandoning of hope.

With statistics, "all who depend on its conclusions for their welfare are damned."

It's not the most welcoming introduction to a book about understanding statistics, but it's brutally honest. Before getting into the subject proper, the writer concludes that statistical analysis is, at best, a last resort, and, like a surgical dissection of uncertain suppositions, one must guard very carefully against false incisions.

Stats are interesting and useful to a point, but it is almost impossible to interpret them without deep knowledge of statistical techniques, and even then, one should be very careful as it is easy to become despondent reading into them. So much is subjective about trading, and although we are looking for a statistical edge, I'd argue that statistics is probably the last place to begin searching for one. Still, for the purpose of this thread, it is worth coming to terms with the fact that losing is a statistical certainty, and perhaps we can use some knowledge of statistics to flip this disadvantage into a positive.
  • #20
  • Edited 2:09pm Jan 26, 2024 1:54pm | Edited 2:09pm
Probability and Profitability

Theory

Probability is often measured on a scale from zero to one, with zero representing an impossible event and one representing a certain event.

Unity, marked 1, represents absolute certainty
It is absolutely certain that some trades will succeed.
p=1 (the letter p stands for probability)

0 represents absolute impossibility
The probability that every trade will succeed is zero
p=0

1 Absolute Certainty
0.9
0.8
0.7
0.6
0.5 (50:50 chance)
0.4
0.3
0.2
0.1
0 Absolute Impossibility

A Priori Probabilities
These are probabilities which we feel certain we can specify in magnitude from consideration of the very nature of the event.

For example:
The probability that a coin will come down heads is p=½
The probability that the coin will come down heads or tails is p=1
The total probability p=1 may be shared equally between the two possible results.
p=½ for a head, and p=½ for a tail.

Empirical Probability
Counting the number of times the event occurs in a certain number of trials.
A long series of trials will give a closer indication of the probability than a short series.
Short series are easily upset by ‘chance’.

Probability = Total number of occurrences of the event / Total number of trials
If we take 200 trades following a specific process and lose 60 of them, the probability of loss is
p= 60/200 = 0.3

Assuming our typical loss is equal to or smaller than the average win, then this is a damn good strategy. Even so, we must be okay with losing occasionally, or we will mess it up by revenge trading, cutting the winners, etc.

Addition Law
Add up the probability of each of the ways in which an event may occur.
The probability that an event will occur in one of several different ways is calculated as the sum of the probabilities of the occurrence of several different possible ways.

Let us say our strategy is to take trend-continuation trades. From any point in a trend, the price will continue, trade sideways in a range or reverse, but there are many different possible ways these events will occur. The occurrence of the event in one way excludes the possibility of its occurrence in any of the other possible ways on the occasion in question.

A pullback in a strong trend is a good point to enter as there are relatively few outcomes.
Pullbacks begin as an attempt to reverse the trend; if the reversal attempt fails, the price will continue in the intended direction, and the upside could be huge if the trend is strong, but if the reversal attempt succeeds, the loss will be small if the stop is positioned correctly. Once the direction is clear, adding to winning positions is possible, only risking open profits. More on this later.
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