The Wanderings of Tashkent

target reached but expecting little more

two long scalps. target almost reached

about 160 pips on this one, probably will just let it run, a free trade after all

long from 181.74
sl set at be. now time to lean back and watch

lucky trades of the week




and of course, the worst trade

most of the time people talk about how to win. personally for me, the most important question is how to lose.
here is an article about the art of losing

How to Take a Loss

There are quite a few books written on how to make money in the market. Some of them are even written by people who have made money as traders! What you dont see often, however, are books or articles written on how to lose money. Cut your losers and let your winners run is commonsensical advice, but how do you determine when a position is a loser? Interestingly, most traders I have seen dont formulate an answer to this question when they put on a position. They focus on the entry, but then dont have a clear sense of exitespecially if that exit is going to put them into the red.

One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser. At some level, many traders equate losing with being a loser. This frustrates them, depresses them, makes them anxiousin short, it interferes with their future decision-making, because their P & L is a blank check written against their self-esteem. Once a trader is self-focused and not market focused, distortions in decision-making are inevitable.

A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermores approach to buying stock. He would sell a quantity and see how the stock responded. Then he would do that again and again, testing the underlying demand for the issue. When his sales could not push the market down, then he would move aggressively to the buy side and make his money.

What I loved about this methodology is that Livermores losses were part of a grander plan. He wasnt just losing money; he was paying for information. If my maximum position size is ten contracts in the ES and I buy the highs of a range with a one-lot, expecting a breakout, I am testing the waters. While I am not potentially moving the market in the way that Livermore might have, I still have begun a test of my breakout hypothesis. I then watch carefully. How are the other averages behaving at the top ends of their range? How is the market absorbing the activity of sellers? Like any good scientist, I am gathering data to determine whether or not my hypothesis is supported.

Suppose the breakout does not materialize and the initial move above the range falls back into the range on some increased selling pressure. I take the loss on my one-lot, but then what happens from there?

The unsuccessful trader will respond with frustration: Why do I always get caught buying the highs? I cant believe they ran the market against me! This market is impossible to trade. Because of that frustrationand the associated self-focusthe unsuccessful trader does not take any information away from that trade.

In the Livermore mode, however, the successful trader will see the losing one-lot as part of a greater plan. Had the market broken nicely to the upside, he would have scaled into the long trade and likely made money. If the one-lot was a loser, he paid for the information that this is, at the very least, a range-bound market, and he might try to find a spot to reverse and go short in order to capitalize on a return to the bottom end of that range.

Look at it this way: If you put on a high probability trade and the trade fails to make you money, you have just paid for an important piece of information: The market is not behaving as it normally, historically does. If a robust piece of economic news that normally sends the dollar screaming higher fails to budge the currency and thwarts your purchase, you have just acquired a useful bit of information: There is an underlying lack of demand for dollars. That information might hold far more profit potential than the money lost in the initial trade.

I recently received a copy of an article from Futures Magazine on the retired trader Everett Klipp, who was dubbed the Babe Ruth of the CBOT. Klipp distinguished himself not only by his fifty-year track record of trading success on the floor, but also by his mentorship of over 100 traders. Speaking of his system of short-term trading, Klipp observed, You have to love to lose money and hate to make money to be successfulIts against human nature what I teach and practice. You have to overcome your humanness.

Klipps system was quick to take profits (hence the idea of hating to make money), but even quicker to take losses (loving to lose money). Instead of viewing losses as a threat, Klipp treated them as an essential part of trading. Taking a small loss reinforces a traders sense of discipline and control, he believed. Losses are not failures.

So heres a question I propose to all those who enter a high-probability trade: What will tell me that my trade is wrong, and how could I use that information to subsequently profit? If youre trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later.

Brett N. Steenbarger, Ph.D.

Everybody is simply trading the "HOPE" in the markets

a great video about trading from an experienced trader.

Trading Chaos: A New Map for Traders

Thanks Tashkent
Great video's

you are welcome. these videos were made about 20 yrs ago and still the most points are very actual. the presenter explains the solid philosophy behind the trading and also some technical aspects. lots of things to learn there

this is why may need to have a stop loss ("it's got some support here" does not always work)

Gem...

lately i have been thinking maybe uj has reached its peak in mid-term and probably will retrace to 101 level. at best it may make double top before the retrace.

Rock Paper Scissors

If you're not familiar with Rock Paper Scissors, check out Wikipedia or the World RPS Society website. That's right... there is a worldwide body dedicated to the promotion of this game, the standardization of its rules and to overseeing the annual International World Championships.

Essentially, Rock Paper Scissors is a game that is widely used for decision making or solving disputes. Two players simultaneously deliver a hand signal representing either a rock (clenched fist), scissors (as per rock, but with the index and middle finger extended representing the two blades of a pair of scissors) or paper (open palm facing down).

 

1. Rock breaks scissors.
2. Scissors cut paper.
3. Paper covers rock.

Typically, in an informal setting the winner will be determined by the best out of three throws, although you may from time to time see a single throw, sudden-death game. If you aspire to attending the World RPS championships, the winner is determined by the best out of three sets, each set being won by the best out of three throws.

If you're confused, don't worry - personal Rock Paper Scissors trainers are available.

So, how does Rock Paper Scissors relate to trading?

Let's first examine the nature of the game. On the surface the result of each game appears to be random. Basically a coin toss, but with three outcomes instead of two - win, lose or draw. On closer examination though you'll recognize that the reality is much different. Unlike a coin toss, the outcome of each game depends on decisions made by the human participants.

And human decision making is NEVER random, particularly when there are high stakes involved.

Your decision about whether to throw rock, paper or scissors, will largely be influenced by your beliefs about your competitors decision. If you know what they're likely to throw, you'll adjust your throw to ensure it beats their choice.

A great example of this is the following exchange between Lisa and Bart in The Simpsons episode #9F16.

 

1. Lisa: "Look, there's only one way to settle this. Rock Paper Scissors."
2. Lisa's thought: "Poor predictable Bart. Always takes rock."
3. Bart's thought: "Good old rock. Nothing beats that."
4. Bart's throw: Rock
5. Lisa's throw: Paper
6. Bart: "D'oh!"

The result in this example is far from random. Lisa has managed to win the game through awareness of her opponent's belief systems.

In fact, there appears to be a little bit of Bart Simpson in all of us.

The World RPS Society reports statistics from a number of Rock Paper Scissors sources. The one providing the largest sample comes from the Roshambull application on Facebook, which at the time of reporting had logged over 10 million throws from over 1.6 million games. Statistics in this sample show Rock being thrown 36% of the time as opposed to paper 30% and scissors 34%. It appears that rock is more often the number one choice of Rock Paper Scissors competitors.

If you doubt that psychology plays such a great role in Rock Paper Scissors, schedule a high stakes game against a family member or friend. Something harmless of course, but high stakes - maybe the loser has to wash the winners car each fortnight for the next 12 months. You'll find that your throws are not random at all, but rather you're trying desperately to anticipate your opponents move, exploiting any knowledge you have about the way your opponent thinks.

Before you schedule this game though, let's have a quick look at how you can gain an edge at Rock Paper Scissors.

Firstly, we know from the above studies that the distribution is skewed slightly in favor of rock. So, if we're playing against a novice, the initial edge is available through throwing paper, as paper covers rock. It's a very slight edge, but it's still an edge.

Of course, the strategy will have to change against someone with a little more experience, or in fact anyone who recognizes the non-random nature of the game. These people will be expecting that we'll throw paper, in order to beat their 'obvious' rock. As a result, they're more likely to throw scissors in an attempt to beat our paper. So, instead of paper, we'll throw rock to beat their scissors.

It's all about staying one step ahead of your opponents thought processes.

There's more... watch out for two throws in a row of the same type. People are very wary of being too predictable. If your competitor has produced two throws in a row exactly the same, their next throw is statistically more likely to differ. As an example, let's say they've had two rocks in a row. Not wanting to be too predictable, they'll most likely throw either paper or scissors on the third throw. So, your choice should be scissors, as it'll win against their paper, or draw against their scissors.

Another great option is to suggest a throw to your opponent. Imagine your reaction if we were competing and I said to you, "It's so easy to read you - your next throw is going to be paper." Subconsciously I've implanted in you a desire to avoid paper. You don't want to be predictable, so you'll be more likely to throw either rock or scissors. This makes my choice easier. The edge for me is in throwing rock as it will beat your scissors, or worst-case tie against your rock.

The opposite of this is to state your own intentions before throwing. I could for example say "I'm going to smash you on this final one. Get ready for my rock." The last thing you'd expect now is for me to actually be so stupid as to throw a rock. So you'd be expecting me to throw paper or scissors, leading to your likely choice being scissors in order to get a win or draw. So, I simply give the throw I mentioned - rock - beating your scissors.

Love it!

Of course, it's not all that simple. The World RPS Society website has a strategy guide for sale if you're interested in exploring this further. Remember though, you are playing against humans. Not only are their decisions not random, but they're also often irrational. So, although you might have an edge, you're still playing over a very small sample of games. Be sure to never bet what you can't afford to lose.

So, how is this a trading analogy?

Novices mistakenly think that Rock Paper Scissors is a game of chance.

As we've seen though, Rock Paper Scissors is actually a game of skill and strategy in which success comes from being able to read your opponent, adapting your game to profit from their likely actions. Success is not guaranteed in any particular throw, but if you can successfully get within the mind of your opponent you'll gain an edge which will see you to victory over a series of throws.

Likewise with trading...

Some novices believe it's a game of fundamentals. They'll study the company reports, PE ratios, dividend yields, or wider economic factors such as the retail sales or payroll figures. They aim to find a stock or instrument which is valued differently from what they believe is its true fundamental value. They'll then enter expecting the fundamental factors to push price to their perceived 'correct' value.

Other novices believe it's a game of technicals. They'll use indicators, which are simply a derivative of price, in an attempt to predict future price movement. As price moves in a particular direction the indicators will follow, eventually triggering our novice trader into the market. There is rarely any thought as to what caused the initial price movement, or whether or not the context of the current market supports continued price movement. They operate simply on hope, that the price movement which triggered them into the trade will continue in the same direction.

In fact, neither is correct. Trading is not a game of fundamental or technical analysis.

Like Rock Paper Scissors, trading is a game of understanding people and how they make decisions.

True, your competitor is not one individual. Rather, you trade against the collective market which is made up of millions of other traders and investors all making individual buy and sell decisions.

Price moves in response to the net order flow that results from all these individual buy and sell decisions. If the net order flow is bullish, price will rise. If the net order flow is bearish, price will fall. It's as simple as that. The fundamentals don't move price. They technicals don't move price. Order flow moves price.

So, the game of trading is one of identifying those areas where a significant number of traders are going to feel compelled to take action and then entering before they enter. It doesn't matter whether you use fundamentals or technicals or any other form of analysis. If you can achieve this on a consistent basis, you've got yourself an edge.

Know what other traders are thinking - and you can position yourself to profit from their actions.

There are numerous ways of achieving this. A simple example is the use of chart pattern failures. The more obvious the chart pattern, the better. A technically perfect head and shoulders pattern will produce a large order flow short as price breaks the neckline. But should that pattern fail there will be an even greater order flow long, as the bears scramble to cover their losses. Knowing how traders will act at the point of pattern failure, I can position myself to enter long at this point, to exploit the increase in bullish order flow.

So, examine your trading approach. Whether it's based on fundamental or technical or quantitative or astrological or any other means of analysis, ensure you consider the fact that the market exists because traders make trading decisions. It's not about the technicals or fundamentals. It's about knowing what your competitor is thinking.

Like Rock Paper Scissors, if you know the likely decisions and actions of your competitor, you'll know how to position yourself for a higher probability of success.

Lance Beggs

(c) Copyright 2009. Lance Beggs. All Rights Reserved.

That's good stuff! It got me thinking (not that I ever stopped )
Especially this last post...... It may not look like something important to most people, But I can assure you folks, PAY ATTENTION! Because when it comes to trading - THIS IS IT ! Game theory! This is the top end of speculation/trading and even business in general. You can apply this to any activity which requires strategic thinking. It's the absolute mastery, reserved only for the elite (the top 0.1%)!

Yes, AO, that article pretty much explains the action behind the charts... it is there, a few will get it, others do not