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The Foundations Of Trading Success

  • #81
  • Edited 4:13pm Mar 7, 2011 3:17pm | Edited 4:13pm
Quoting Herd_master
Nice posts medici, feel free to introduce the concept of non-duality if you like, and how it is relevant to successful trading. Though as you’ve indicated, it might be too much for most people.
Thank you, and thank you for your contributions to the thread Invaluable I look forward to your continued contributions here and elsewhere. And because of your arrival here, the pace of the discourse may accelerate slightly. Not exactly what I had in mind, which was the needs of the newbies, but so be it. Perhaps it's just what they need to hear.

Quote
I think that as a rule of thumb, people first have to suffer a lot to create a crack in their egos, and then through such opening, the meaning of everything is all of the sudden perceived from a whole new perspective. Harry Palmer wrote; "I experience what I believe, unless I believe I won't, in which case I don't! Which means I did."

Yup, if you don't thoroughly inquire and question yourself, the market will do it for you.

Quote
The best traders think differently than the rest of us, and are no longer susceptible to trading errors. They no longer see trading as a away to make money, but instead they use trading activities as a mirror of their own personal development.

So true, and very well put. I hope we get to explore the deeper meaning of that as we go along.
  • #82
  • Mar 7, 2011 3:24pm Mar 7, 2011 3:24pm
Quoting highlander2
Some very good posts in here now and obviously some very clever people as well

As I was saying earlier in this thread, the ability to analyse oneself and know when they are in a mindset that is able to make sound trading decisions or when they should stop, is one of the things I believe everyone needs to learn.

two weeks ago I saw a load of trades work out which I had avoided for whatever reason. I could have had 5 or 6 wins in a row.

Then when the market finally gave me what I considered a high probability setup, I took it....
Thanks highlander2, you are pointing the way Keep it up, please.
  • #83
  • Mar 7, 2011 7:48pm Mar 7, 2011 7:48pm
Quoting Intu
Mark Douglas is a writer, perhaps "trading psychologist", but...
I see no evidence of him being a successful trader..
The thing is that unless you sit next him, and will actually see him trade and see his results, then will always have a valid argument. After all, anything else will always be a second hand information from unknown source. It is prudent to approach any trading material with caution as you do, though it is also beneficial to be open minded and judging others work on the basis of the quality of information and insights, rather than dismissing it because such person initially failed as a trader.

Sure, he openly discloses that he started trading in 1978, and that within 9 months almost lost everything. The guy is honest trader, he is not afraid to admit his failures. He has been in the trenches so to speak. Such lessons are actually the best tuition we can receive at the beginning of our trading career. The worst thing is when traders start becoming profitable too soon.

Does initial trading failure mean that such people will be marred for the rest of their lives? Of course not. Actually Jack Schwager in Market Wizards comes to an observation, that “early failure is more the rule than the exception”.

What is also interesting to note, and also a segway back to the original context of medici’s thread, is that one of the common beliefs shared by top traders (which are described by Tharp) is that; “The universe has a purpose – it is evolving”. The usefulness of such belief is that catastrophic events can be perceived as turning points in one's lives, instead of reverting to victim role. Adapting such belief basically gives a positive purpose and meaning to disasters in one's trading career, as it forces the trader to evolve if he/she wants to stay in the business.

Obviously every belief is just a filter to our reality, and can be argued for and against from different perspectives. Therefore, what I think is important to understand, is that we have to constantly remind ourselves to focus on adopting new beliefs on the basis of the degree of usefulness that such belief brings into our trading.

Thank you for bringing up the doubts about Mark Douglas, hopefully I've cleared it up in a way that supports medici's original intentions with this thread.

PS; For those who want brief introduction to the basics of o trading psychology (without going into the deeper stuff) someone has posted on youtube seven videos of Mark Douglas being interviewed.
Inserted Video
  • #84
  • Mar 7, 2011 8:14pm Mar 7, 2011 8:14pm
Quoting medici
Hi Intu, and welcome onboard

Thanks for pointing that out...I agree and am very skeptical about this particular character.
Hi medici, Mark Douglas is brilliant, but rather than me defending Mark, I'll reply by quoting Mark's own words

The following are excerpts from Mark Douglas;
"Learning something new is often blocked by the way the energy is already structured inside of us. In other words, once we learn a belief, it will forever shape our lives unless we un-learn it."
"Every advancement in human civilization - whether it be cultural, scientific, or otherwise - came from someone who challenged the status quo by questioning what he had learned. The act of questioning opens us up to perceive the existence of other possibilities. If we assume that happiness and satisfaction exist as a possibility, then it is up to each individual to find that happiness and satisfaction by discovering these possibilities. To discover anything new, you have to be willing to question and look beyond what you have already learned to believe about what is true or available."

Even if he would have never placed a single trade in his life, I personally am very impressed with him.
  • #85
  • Mar 7, 2011 11:08pm Mar 7, 2011 11:08pm
Quoting medici
And that state of not knowing, or "that perfect state", is The Holy Grail.
^
Also known as the state of “being”.
A state under which trader’s mind is no longer preoccupied with the results of performance. Such state eliminates fear and greed (both trader’s worst enemies).

A state in which trader is no longer concerned with “having” things or “doing” things. This is why the best traders are no longer motivated by money. If they would be motivated by having more money, then the dualist mind would have to also be aware of the concept of not having. Their minds become empty.

Empty mind is no longer caught in the endless mental chatter and dialogues. Empty mind is the state of “being” at one with the market.

In the state of “being”, there is no past or future. It is “that perfect state” as medici calls it. Since in such state no past or future exists, there is only the “present moment”.

While being in the “present moment”, the trader is not burdened with what might happen next, or what happened in the past, this pushes aside his ego. It does magic for eliminating self-sabotage.

In this “perfect state” of “being”, the trader focuses on his internal state of mind. In such mental state there is no judgment placed on what is perceived. The mind is empty and therefore more capable of recognizing of what really is going on. This is how some the best traders develop their feel for the markets. It is not through analytically dissecting every possible information available, but rather by tuning in through an empty mind.
  • #86
  • Mar 8, 2011 4:54am Mar 8, 2011 4:54am
Herd master- more good posts, although for a newbie trader these concepts probably seem a million miles away.

Personally I have never been in a total care free state of mind when it comes to trading, I have nearly always experienced at least a little bit of fear, but what I have managed to do is to eliminate how fear affects my trading most of the time. Things like forceably removing myself from the computer to stop me from panicking.

Also like I stated earlier I have started to analyse myself on a regular basis, and decide if I am in a mindset the is suitable for making objective trading decisions. So long as I only trade when my mind is right I can make money, its when my mind is filled with frustration and fear that I make mistakes.

Perhaps this is the stage before we get to a total care free state, and I think this is something the average trader can aim for to begin with. Then when their trading improves, due to only trading when they are in the correct mindset, they may enter a more care free state or "zone".

I think most people who have traded for a while know when they are not in a good mindset for trading, but most people refuse to stop, they feel they will miss opportunities that will recoupe their losses. But its almost impossible to recoupe losses if our mind is distorted and full of emotion, no matter how good market conditions are.
  • #87
  • Mar 8, 2011 5:02am Mar 8, 2011 5:02am
Quoting highlander2
Herd master- more good posts, although for a newbie trader these concepts probably seem a million miles away.

Personally I have never been in a total care free state of mind when it comes to trading, I have nearly always experienced at least a little bit of fear, but what I have managed to do is to eliminate how fear affects my trading most of the time. Things like forceably removing myself from the computer to stop me from panicking.

Also like I stated earlier I have started to analyse myself on a regular basis, and decide if I am in a mindset...
I think there is a different reason why newbie traders get so emotional when it comes to trading:
They have no clue what they are doing.
Each time you are doing something and you have no clue what you are doing, then guess what, you are becoming pretty emotional. You will get less emotional and completely emotionless, once you know what you are doing.
Take emergency doctors for example: After their thousand's patient in the operation room, you think they still get emotional or do they already have so much routine, to be able to handle any situation.
Trying to handle emotions is the wrong approach. Try to get as much knowledge about the market as possible and lots of routine. That will then automatically handle your emotions.
Like in any job, in the beginning you are an emotional wreck. In the end of your career, you are a machine. And it never had anything to do with trying to be less emotional, it only had to do with more and more and more knowledge and routine.

Conclusion: Working on mindsets is irrelevant.
  • #88
  • Mar 8, 2011 5:17am Mar 8, 2011 5:17am
Quoting Custos
Try to get as much knowledge about the market as possible and lots of routine.
I would say "eperience" is a better choice of word, Knowledge suggests we need to know everything about the markets in order to make money, but no matter how much you know, you still cannot factor in the unknown.

Plenty people know a great deal about the markets, this does not make them a great trader.

You need to know more about yourself.

imho
  • #89
  • Mar 8, 2011 5:23am Mar 8, 2011 5:23am
Quoting highlander2
I would say "eperience" is a better choice of word, Knowledge suggests we need to know everything about the markets in order to make money, but no matter how much you know, you still cannot factor in the unknown.

Plenty people know a great deal about the markets, this does not make them a great trader.

You need to know more about yourself.

imho
well, I am a statistician, so for me knowledge applies more than experience. Knowing what works versus what doesn't.

But of course for people with less systematic approaches, experience applies better.

Well, and the unkown gets pretty much cancelled out by statistically validating patterns and then truly diversifying across instruments.
Of course, just talking from my perspective here.

cheers
  • #90
  • Mar 8, 2011 5:40am Mar 8, 2011 5:40am
Ok I see what your getting at. I have to use a lot of discretion so if my mind is wrong I can't do it, that's why I said I must know when I should and shouldn't trade.

Posting this with my phone- hope it works lol
  • #91
  • Mar 8, 2011 5:43am Mar 8, 2011 5:43am
Quoting highlander2
Ok I see what your getting at. I have to use a lot of discretion so if my mind is wrong I can't do it, that's why I said I must know when I should and shouldn't trade.

Posting this with my phone- hope it works lol
yep, I also agree on your points, if you rely on your own discretion/experience/brain to make trading decisions, then the state of mind is much more important.

I guess it really depends on from which angle you approach the market.
  • #92
  • Mar 8, 2011 6:00am Mar 8, 2011 6:00am
Quoting highlander2
Personally I have never been in a total care free state of mind when it comes to trading, I have nearly always experienced at least a little bit of fear, but what I have managed to do is to eliminate how fear affects my trading most of the time. Things like forceably removing myself from the computer to stop me from panicking.

Also like I stated earlier I have started to analyse myself on a regular basis, and decide if I am in a mindset the is suitable for making objective trading decisions. So long as I only trade when my mind is right I can...
It is normal to have fear, don’t beat yourself up. Try reducing your position size to match your comfort level. It takes time to rewire our minds, we’re all only humans and we’re flawed in every possible way, so don’t expect to become a robot. Removing yourself from your monitors is a step the right direction. (You can use alerts.)

I commend you on regular self-analysis. If you’re an intraday trader, you can try setting a beeper for every 15 minutes or so to remind yourself to refocus, you can get up from your chair and observe yourself from a disassociated state to create new perspective. Sounds odd, but it works.

I’d also recommend to buy Brett Steenbarger’s “The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist”, and daily do the exercises he recommends. It will help install new beneficial trading habits. You’re on the right path, it will take time, but the benefits are well worth it the effort.
  • #93
  • Mar 8, 2011 8:15am Mar 8, 2011 8:15am
Quoting highlander2
Knowledge suggests we need to know everything about the markets in order to make money, but no matter how much you know, you still cannot factor in the unknown.
Yes that’s the right. I personally also don’t believe that learning more about the market creates better traders. Sure some knowledge is essential, but at the end of the day, what it boils down to is a paradox.

In order to make sense out of the market, we would have to know all the psychological variables of what is going on inside the heads of not only the current market participants, but also of the future participants. Such information doesn’t exist. Therefore no matter how much we would immerse ourselves into studying the markets, we would end up with knowledge that only applies in some percentage of time.

I think seeking such knowledge usually comes from trying to have more control over the markets, and that’s impossible to achieve because it is dependent on external factors. It just takes one person to move the market. (it could be a head trader for large bank being involved in Merger & Acquisition). So we’re back to where we started, and that is back to realizing the importance of internal control.
  • #94
  • Edited 9:44am Mar 8, 2011 9:28am | Edited 9:44am
Quoting Herd_master
belief...
Belief is geared to empower attention to some things and not to others, allowing those empowered to be surrounded and explained with the rest of each one's natural environment. With or without belief, trading uses discovered or ready-made groups of objects that are tested in, and, if pass, conditioned with the leveragable environment. This is done for the objects' sensibility and their timed ability to cross paths with other environments, in such a way as to bridge across any discrepancies in flow (losses, non-method trades, broke r interrupts) that would otherwise initiate ego/emotion (vs. impression) and/or impulse (vs. flow).
  • #95
  • Mar 11, 2011 6:55am Mar 11, 2011 6:55am
Quoting highlander2
I think most people who have traded for a while know when they are not in a good mindset for trading, but most people refuse to stop, they feel they will miss opportunities that will recoupe their losses. But its almost impossible to recoupe losses if our mind is distorted and full of emotion, no matter how good market conditions are.
A step in the right direction for any trader is 'to let go'. This can take time but once recognised and addressed, it is an enlightening experience.
  • #96
  • Edited 12:15pm Mar 12, 2011 8:47am | Edited 12:15pm
I hope you all have recovered from the psycho-babble orgy and are enjoying the beautiful weekend, even though some up in Scotland, like highlander2, may be snowed in.

Since last I have received a number of thank you notes for this thread, and I thought it would be a good idea to get back to the original focus on supporting the less experienced trader.

A good operating metaphor for becoming a trader is that it is like committing to a lifelong relationship with somebody who doesn't care the least about what you think, feel or wish.

Unaware of this many beginners come to the market in the expectation of finally having found the place where their brilliance will be recognised and they will be rewarded with the lifestyle they think they deserve.

And you will indeed get what you deserve, but not what you thought you deserved. If you came for the purpose of breaking down your egocentric delusions, then you are in the right place.

But if you have dealt with those afflictions by other means and are no longer suffering badly from them, then the market could be a lifetime partner for you - if you are ready for the lifestyle of a 24/7 submissive...but don't worry, after showing your commitment you may get regular periods of time off if you serve well while attending to the market.

That's what it's like, yet many go from trading system to trading system much like some go from hooker to hooker in Amsterdam's red light district during a long weekend of too much Heineken and coffee shop inhalations. It isn't without reason that prostitutes use derogatory terms for their clients. They are losers after all.

Developing a relationship with the market is much like developing a relationship with someone you think may become a lifetime partner. Before making any long-term decisions you will need to get to know each other really well so that there is no doubt that you will live happily ever after.

And during this period of getting to know each other, it is advisable not to get too intimate. So don't start trading, demo or otherwise, before you are really familiar with each other. This for the same reason that it may not be advisable to have sex on a first date with someone you consider a possible life partner - it can cause deep emotional experiences that may get in the way of forming a long-term relationship. You may acquire habits of fear, over-trading, catching falling knives, and so on - habits that later may be costly to get over, if at all possible. So don't do it.

Only after getting thoroughly acquainted, to the point of feeling that the market is a friendly place, should you consider trading. And then your trading should be based on the character traits that you are most familiar with in the market - those that stand out to your perception as the most reliable and trustworthy. There are at least two reasons for this. One is that you will need all the trust and confidence you can muster when making trading your living. Another one is that unless you have the skills to test the statistical significance of your system's profitability, you will need a robust trading strategy that is less pervious to changes in market conditions.

So this means that you won't be trading some system you found on a website. Rather, you will be formulating your own system based on the single most reliable setup you have discovered. And, yes, to begin with start with one setup only and become proficient with that before you add other patterns/setups. Certainly, you may steal an idea or two here or there but it is imperative that your thinking remains independent and based on your own perception. And if you like you can use indicators that pass the same familiarity test, but the general rule, for the same couple of reasons or more, is that simpler is better. But not too simple of course.

Those are, simply put, the steps to take to get started in this business. And I am speaking based on my own experience. When moving from equities and futures I made the mistake of putting money on the line too early. Don't do it. Then I used old skills and was successful, but that wasn't impervious to the changes in market conditions in the fx market - I simply wasn't familiar enough with the market. Only when I took the time to spend months just observing the patterns unfolding, in addition to going over data from years back, did I find stable success.

All for now. Comments and discussion welcome, as always.
  • #97
  • Mar 12, 2011 9:46am Mar 12, 2011 9:46am
Hi medici, not snowed in....yet.

Thank you for another great post, although I'm afraid your level of wisdom is a plain above mine

I think what you are saying is the new trader should get to know the market before placing any trades, live or demo. This will prevent them from being affected by strong emotional feelings.

I think every one starts from a care free state of mind, not that they dont see there is a risk in trading, but they believe that they should easily be-able to deal with it, or be so good that there is very little risk.

I have seen many traders start on a demo account and post up huge gains in forums after a week or so, 200-300% and then ask why all the fuss?

The problem with demo trading to begin with is that they will develop an "I am a hero" attitude, and believe they are invinsible.

Those who go in with real money, especially a lot of money will probably have the opposite experience, and could be emotionally scarred for life, perhaps so badly they will never be-able to trade again.

So the solution is to just study and watch the markets for a long time, untill you understand what is going on and how it works.

Then perhaps when they feel they are ready they should try trading, and perhaps the best would be with a very small account. If they start with demo, the "I am a hero attitude could develop" or if they risk a lot, they could become emotionally scared.

They should only start when they feel the market is a friendly place, by this you mean that the trader has found a pattern or system they can rely on to such a degree that no matter what happens, they fundamentally know that they have the abillity to recover from any losses and move forward.

Is this what you are saying?
  • #98
  • Mar 12, 2011 9:55am Mar 12, 2011 9:55am
This will probally fit in here i picked it up somewhere else sometime ago.

Read this A rat was put in a Tshaped
maze with a few morsels of food placed on either the far right or left
side of the enclosure. The placement of the food is randomly determined,
but the dice is rigged: over the long run, the food was placed on the left
side sixty per cent of the time. How did the rat respond? It quickly realized
that the left side was more rewarding. As a result, it always went to the
left, which resulted in a sixty percent success rate. The rat didn't
strive for perfection. It didn't search for a Unified Theory of the T-shaped
maze, or try to decipher the disorder. Instead, it accepted the inherent
uncertainty of the reward and learned to settle for the best possible
alternative.
The experiment was then repeated with Yale undergraduates. Unlike the
rat, their swollen brains stubbornly searched for the elusive pattern that
determined the placement of the reward. They made predictions and then
tried to learn from their prediction errors. The problem was that there was
nothing to predict: the randomness was real. Because the students refused
to settle for a 60 percent success rate, they ended up with a 52 percent
success rate. Although most of the students were convinced they were
making progress towards identifying the underlying algorithm, they
were actually being outsmarted by a rat.


What this thing says that people always looking for the best setups the wanna beat the market. The market can not been beaten by no 1 you will have losers and when you willing to accept that you already wanna step ahead. See the market as a ocean sometimes it is beatifful to surf on everything is perfect sometimes it is wild. A surfer see the ocean and he will look at it and makes a decision if he wanna surf it. Some people have trouble to see the ocean (The Market) So they use tools to see if it is a good day to surf they watch there weather channels etc (indicators). And make then a decision. But there are many times they wrong or lets say Some percentage. And they will give you false signals. So thats why it is important to first know the ocean instead of llooking at all the weather channels (indicators). And then make a decision if they can give you some extra value.




Regards Ingmar.
  • #99
  • Mar 12, 2011 10:08am Mar 12, 2011 10:08am
Quoting highlander2
Hi medici, not snowed in....yet.

Thank you for another great post, although I'm afraid your level of wisdom is a plain above mine

I think what you are saying is the new trader should get to know the market before placing any trades, live or demo. This will prevent them from being affected by strong emotional feelings.

I think every one starts from a care free state of mind, not that they dont see there is a risk in trading, but they believe that they should easily be-able to deal with it, or be so good that there is very...
Hello, good to hear that things aren's as bad as they said on the Sky News forecast.

And, yes, as usual you've got it right. Exactly what I meant to say.

Thanks also for pointing out the dangers with demo trading, which are very real. I've seen somebody first hand have impressive success on demo and then load up an account with a few $K only to lose it all in a short span of time - leaving trading for good, scarred like a beaten dog.

Much better, as you say, to start with a very small account with real money.
  • #100
  • Mar 12, 2011 10:14am Mar 12, 2011 10:14am
Quoting ingmarforex
This will probally fit in here i picked it up somewhere else sometime ago.

Read this A rat was put in a Tshaped
maze with a few morsels of food placed on either the far right or left
side of the enclosure. The placement of the food is randomly determined,
but the dice is rigged: over the long run, the food was placed on the left
side sixty per cent of the time. How did the rat respond? It quickly realized
that the left side was more rewarding. As a result, it always went to the
left, which resulted in a sixty percent success rate. The rat...
Hello Ingmar, and welcome to the thread. Thank you for valuable contribution Interesting story and very much to the point. Hadn't heard that one before, but it fits well under the follow, don't anticipate umbrella. Many thanks
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