Dave,
I read your posts with near delirious fervor. Like you said, picking apart your post piece-by-piece would be ineffective, but I will highlight portions that really struck me and I have a response to. There isn't anything that I disagree with - just stuff to add.
Absolutely. The assumption is that an individual trader's problems are always in MM and psyche while the profitable system is the easy part. Well, I think that most everyone is doomed to the randomness of the market, some people just get to play longer because they can manage their (randomly occuring) wins and losses better.
Not only do most traders not have any concept of probability and statistics, but most people walking around on Earth exhibit no knowledge of the subject either.
Long ago I watched a presentation in a financial class during my undergraduate studies that always stuck with me. It introduced me to the concept that, given any large population of individuals trading financial instruments, just pure statistical happenstance is going to produce a few stellar, winning traders while the vast majority "support" those lucky few with their losses (given that the losses are collected by the winners in a zero-sum environment). The game has less to do with skill and more to do with the fickle finger of fate. Sure, there are things one can do to enhance their changes of success, but as we've already pointed out many of these things (MM & psychology) only prolong account blow-out.
I am convinced the problem is two-fold.
1) Once you mention the word "statistics" people shut off. No one wants to learn about something so hard and boring. RSI and ADX are much more interesting and sexy.
2) No one wants to hear that luck or chance can play a role (a big one) - we want things to depend upon our actions and skills. This goes on all the time - not just with trading. When we excel at work we praise ourselves for such a masterful command we have of our skillsets and how effectively we can employ them to meet a challenge. When we fail, we look for excuses because "had things been different" we would have succeeded (we are masters at commanding our skillsets after all, so we tell ourselves).
Also, look how many people view trading in terms of "earning pips." I see new traders thinking (and sometimes being taught!) to try to earn 10 pips at a time at first, and when one becomes "more skilled" to try to go for more than 10. This advice only looks bad to the trader who realizes that random chance plays a huge role in trading - otherwise this advice seems perfectly reasonable.
Fabulous point. Am I really to believe that the reason Enron collapsed was not because of mass accounting fraud but instead because management didn't have a "can-do" attitude?
That sounds good to me! No matter how large my account grows or shrinks, I always tell myself that I'm really only risking $300. I set that amount aside as "losable" money long ago to trade with and always try to think of it in those terms. So really, I have only $300 to lose, which I can handle. On the downside I am out 300 clams. Upside potential is great amounts of wealth. You can think of it as a $300 call option I purchased on my financial future!!
One more thing, I think you may want to pick up a copy of "Fooled by Randomness" by Nassim Taleb. I have a feeling you will not be able to put it down. When I read it, I finally felt like somebody laid out (empirically) what I had been thinking about all along regarding chance and randomness.
I read your posts with near delirious fervor. Like you said, picking apart your post piece-by-piece would be ineffective, but I will highlight portions that really struck me and I have a response to. There isn't anything that I disagree with - just stuff to add.
DislikedWhat I believe is that faulty MM or psychology will cause failure more quickly than an unprofitable method. ... Hence failure gets constantly attributed to faulty MM/psychology.Ignored
DislikedSpeaking of statistical validity, I fear that many traders have little understanding of the concept. ... Any trend-following system will deliver profit in a trending climate, hence the cliche "don't confuse brains with a bull market".Ignored
Long ago I watched a presentation in a financial class during my undergraduate studies that always stuck with me. It introduced me to the concept that, given any large population of individuals trading financial instruments, just pure statistical happenstance is going to produce a few stellar, winning traders while the vast majority "support" those lucky few with their losses (given that the losses are collected by the winners in a zero-sum environment). The game has less to do with skill and more to do with the fickle finger of fate. Sure, there are things one can do to enhance their changes of success, but as we've already pointed out many of these things (MM & psychology) only prolong account blow-out.
I am convinced the problem is two-fold.
1) Once you mention the word "statistics" people shut off. No one wants to learn about something so hard and boring. RSI and ADX are much more interesting and sexy.
2) No one wants to hear that luck or chance can play a role (a big one) - we want things to depend upon our actions and skills. This goes on all the time - not just with trading. When we excel at work we praise ourselves for such a masterful command we have of our skillsets and how effectively we can employ them to meet a challenge. When we fail, we look for excuses because "had things been different" we would have succeeded (we are masters at commanding our skillsets after all, so we tell ourselves).
Also, look how many people view trading in terms of "earning pips." I see new traders thinking (and sometimes being taught!) to try to earn 10 pips at a time at first, and when one becomes "more skilled" to try to go for more than 10. This advice only looks bad to the trader who realizes that random chance plays a huge role in trading - otherwise this advice seems perfectly reasonable.
DislikedI also read that a positive outlook is an important ingredient in success. I don't disagree, but would (yet again!) point out that in itself it's not going to overcome any inability of a system to overcome randomness plus costs.Ignored
DislikedI have nothing to lose, and the possibility of financial freedom - however difficult - seems a very worthwhile one.Ignored
One more thing, I think you may want to pick up a copy of "Fooled by Randomness" by Nassim Taleb. I have a feeling you will not be able to put it down. When I read it, I finally felt like somebody laid out (empirically) what I had been thinking about all along regarding chance and randomness.