- Joined Sep 2006 | Status: ... | 8,090 Posts
Early on I realized that trading is 90% mental, the other 10% is in your head. Cliche, I know, but never the less it is true......
Seriously, though, IMHO a profitable strategy is an essential prerequisite. The more confident one is that the strategy is profitable, the less psychology becomes an issue. At least that's the way it is for me.
David
- Joined Sep 2006 | Status: ... | 8,090 Posts
Isn't confidence a psychological issue ;-)
My thoughts on EAs, MM and discipline here
David
- Joined Nov 2005 | Status: EURUSD Quant FREAK | 3,197 Posts
amazing how many times this simple point has to be made.
bravo, david.
bravo, david.
If the only barrier is psychological, then simply use an EA that makes random entries and exits.
- Joined May 2005 | Status: Member | 1,494 Posts
I believe psychology to be the most important aspect of trading. If you do not know yourself then regardless of back tested percentages; 8 losses in a row is going to have you questioning the system and 8 wins in a row is going to have you thinking a loss is due or that your invincible.
An EA is touted as the fix for this and I disagree. If you do not know yourself 8 losses in a row on an EA is going to have you questioning the EA, the programmer, etc. 8 wins, and your gonna think your invincible.
[NOTE: I see trading with an EA as a form of delusion (its not real)- I'm still working on the theory and may publish a paper someday; probably just a post in the Members area to get the "click and grow rich crowd" riled up on the next slow trading day. ]
The key is to know yourself. There is nothing wrong w/ questioning the system or yourself after 8 losses or wins, if you understand that it is your nature and that in this type of situation this is how you are going to feel and react emotionally. If you know to expect this then you will know how to control it. If you can be sure that there is nothing wrong with the 'driver' (yourself), and you can be certain that the system is OK, then regardless of your emotions you can trade through the losses and as importantly the wins.
An EA is touted as the fix for this and I disagree. If you do not know yourself 8 losses in a row on an EA is going to have you questioning the EA, the programmer, etc. 8 wins, and your gonna think your invincible.
[NOTE: I see trading with an EA as a form of delusion (its not real)- I'm still working on the theory and may publish a paper someday; probably just a post in the Members area to get the "click and grow rich crowd" riled up on the next slow trading day.
]The key is to know yourself. There is nothing wrong w/ questioning the system or yourself after 8 losses or wins, if you understand that it is your nature and that in this type of situation this is how you are going to feel and react emotionally. If you know to expect this then you will know how to control it. If you can be sure that there is nothing wrong with the 'driver' (yourself), and you can be certain that the system is OK, then regardless of your emotions you can trade through the losses and as importantly the wins.
In trading, there is no bullshit. You either make money or you don't.
- Joined Jun 2007 | Status: Member | 1,124 Posts
If the only barrier is psychological, then simply use an EA that makes random entries and exits.
BTW: i think is a good time to ask if my signature has errors. Should i correct something?
sorry, i have a bad English.
- Joined Sep 2006 | Status: ... | 8,090 Posts
I believe psychology to be the most important aspect of trading. .......
The system I'm currently trading is very discretionary, but I believe that, provided I stay within its general principles, it will continue to remain on-balance profitable. I've visually back-tested enough setups to convince myself that this is the case. If I encounter eight successive losses, then I'll try to establish if/how/why current conditions are markedly different from those that I tested. And I've seen enough losses in the testing to know that, even after eight successive wins, it's far from invincible!
So, for me, it's not so much a case of knowing myself, but rather knowing the ins and outs of my system, and understanding how it exploits momentum, trends, S/R, etc in the market. As long as I continue to believe the underlying principle is sound (and I keep risk-per-trade well within my comfort zone, and trade only with money that I can afford to lose) then I'll happily continue to trade it.
Anyway, that's my approach, for whatever it's worth.
Rosscub, agreed, one will almost surely deplete an account faster through faulty MM and/or indiscipline, than through an ill-conceived method.
Giraia, nothing wrong with your signature, IMHO, except possibly the spelling of "discipline".
About EAs. The smiley after my note above was supposed to indicate that I was being playfully obtuse. But if EAs are unprofitable, then it’s only to whatever extent that (i) they lack the ‘intelligence’ and adaptability of a skilled trader; (ii) they rely on over-optimized indicators, as opposed to robust principles; and/or (iii) they’ve been back-tested across poor quality data. None of these problems are completely insurmountable. It will be very interesting to see how the face of trading changes over the next decade.
David
- Joined Sep 2006 | Status: ... | 8,090 Posts
I strongly agree with David and Tdion, as I've stated more and more times. Maybe it's time to suggest one more time the reading of this post.
), thanks for the link.I think he possibly contradicts himself though.....
Compare "Myth #2: Anyone, with dedicated effort, can get to the point of trading for a living." with his later comment "It takes concerted practice and the cultivation of skills at reading and acting upon market patterns."
The first statement seems to suggest that successful traders are born rather than made; the latter that one can get there with sufficient practise. Even after re-reading the article, I don't think I'm quoting him out of context.
The following makes good sense to me: ".....emotions can interfere with concentration and performance, but that doesn’t mean that they are a primary cause. Indeed, emotional distress is as often the result of poor trading as the cause. When traders fail to manage risk properly, trading size that is too large for their accounts, they invite outsized emotional responses to their swings in P/L." ...... "The main cause of trading failure is a lack of an objective edge in the marketplace, trading random patterns that have never been tested out for success."
I think much depends on whether one is a system trader or a discretionary trader. The former is able to "detach" more from his trades, as any losses are the result of his "system". Whereas the latter is completely dependent upon his own trading nous - any losses are personally attributable to himself. Hence I agree with 300%mark that mechanical strategies are preferable, provided that they have the intelligence to discern genuinely profitable trading patterns. Mechanical systems have the additional benefit that they can be objectively tested.
Thanks again,
David
I think he possibly contradicts himself though.....
Compare "Myth #2: Anyone, with dedicated effort, can get to the point of trading for a living." with his later comment "It takes concerted practice and the cultivation of skills at reading and acting upon market patterns."
The first statement seems to suggest that successful traders are born rather than made; the latter that one can get there with sufficient practise. Even after re-reading the article, I don't think I'm quoting him out of context.
Really, I'm not just joking.
Hence I agree with 300%mark that mechanical strategies are preferable, provided that they have the intelligence to discern genuinely profitable trading patterns. Mechanical systems have the additional benefit that they can be objectively tested.
Well, the point here is: when I try (on demo) to trade the same identical systems manually (on the same pairs) I lose money. People would say that I'm not disciplined, that I have psychologic problems and so on. The reality is that my systems work on 15 minute bars and that they have a lot of inbuilt rules. It is simply impossible to monitor all that stuff for 6 pairs 24 hours a day for 5 day a week, unless you are strongly trying to get crazy.
On the other side I know that there are other ways of trading. Some discretionary systems do not require to trade so many pairs, or to monitor the markets so strictly. Maybe it is because I've always been a programmer and the programmer attitude is too strong and innate in me, but, really, so far I've never been able to master any discretionary system. They simply seem to be too much against my nature. I like things that can be programmed and automated. And this is also the only way to be able to scale your systems without hiring people to work for you. When your assets grow just add 6 more pairs to trade, or stocks, or futures... You know, that has always been my dream about trading. Now I feel more close to it than if I had embraced a discretionary path.
.Ubeee.
- Joined Jun 2007 | Status: Member | 1,124 Posts
I think he possibly contradicts himself though.....
) is not the most important. But i was reading yesterday a post form Dopey (author of the post Ubee sent) saying that mindset is the most important thing in trading .i am not arguing, i have more doubts than answers. I respect too much Dopey, Ubee, you Tdion.
but i need to say that make conclusion based in comments made by experienced members (i don't like to use the term "trader" too much) is impossible. I was going to extend but i think will be off topic.
Hence I agree with 300%mark that mechanical strategies are preferable, provided that they have the intelligence to discern genuinely profitable trading patterns.
but one thing that i can't understand is people that use Tradestation, Metastock or any other software to test they systems and then trade it manually... If the system can be tested, it is mechanichal, if it is mechanichal why trade it manually??? I really can't understand this. Merlin said that even if he has a mechanichal system he prefers to be there to push the botom... i can't understand it.
but one thing that i can't understand is people that use Tradestation, Metastock or any other software to test they systems and then trade it manually... If the system can be tested, it is mechanichal, if it is mechanichal why trade it manually??? I really can't understand this. Merlin said that even if he has a mechanichal system he prefers to be there to push the botom... i can't understand it.
1) Bugs. Despite how well you can test a system, there could always be some bugs left in your code that could cause you loss of money. If you think about aviation, for example, usually even when airplanes are able to make some manoeuvres on their own, there are usually three computers running at the same moment and they have to agree on what to do otherwise the control of the plane is given back to the human pilot.
2) Connectivity problems. The connection to your broker could break at unpredictable moments, maybe during a stop loss update and your position could remain without stop loss.
3) Exceptionally rare and unforeseeable events of big magnitude that could strongly confuse your system causing you huge amount of losses (big terrorist attacks, huge natural disaster, astonishing market crashes like the one in 1987, and so on...)
4) Semi-automated systems, that means, the system is totally automatic but you, the human, decide if the current market conditions are ok for the system to run (systems that work only in range trading conditions, or in trend following mode, and so on...)
.Ubeee.