Calling 'Em Like I See 'Em

Quote from K-Rock:

Any thoughts for today?:)
More...

Thanks for your interest. I had plenty -- just none I wanted to share. What started off seeming to be a good day... My thoughts, such as they were, were not something I felt like sharing, not even with my wife.

It has been noted by others that trading can at times be an emotional roller coaster. What's more, we tend to take our losses more emotionally than our gains.

When we make money, we are grateful. Note that word -- grateful. It has some sense of disassociation; we're thankful for having made the right decisions, and acknowledge that to some extent, we don't have full control. Indeed, this is how it should be. Arrogance is distasteful as a character trait, and detrimental to trading. Of course we recognize that our study/preparation etc. has something to do with it, but we humbly remember things could have turned out differently. In a general sense, one might say we give ourselves 60% credit.

When we lose money, emotionally we blame ourselves 100%. We clobber ourselves for our stupidity / lack of control / lack of insight / etc.

That's a 100 / 60 blame vs. credit ratio. You may disagree with my numbers -- they're hardly scientific -- but I think many will agree with the overall concept. The joy of a really good day, or even a string of them, doesn't even come close to the self-derision of a really bad one.

Thus, the emotional trendline of (even a) successful trader can easily be a downsloping one, which can take its toll, but worse it can and does effect our trading decisions. Mistakes such as taking profits too soon and letting losses get out of control -- which we know are the exact opposite of successful trading -- are likely due to our psycho-emotional reluctance to suffer the pain of losing, which overwhelms the elation of making money.

Many years ago I read somewhere how some successful trader refused to call his successful trades "wins." Winning, he said, carried the connotation of a game, and perhaps luck. One wins the lottery, or a hockey game. We would never say that a successful business owner "won" his earnings. It struck a chord with me, and I've never referred to my trading gains as "wins."

But of course, when I'm not making / earning money, I'm losing it. I don't know that there's even another word to describe the process. Losing, last I checked, is the opposite of winning, with all its connotations. You see what I'm getting at.

This realization is what makes many traders decide to go 100 % mechanical. They feel helpless to overcome the emotions.

Mechanical trading certainly has its advantages -- lack of emotion being high on the list. It's not something, however, that suits my style. I am simply not confident enough in any system, even if I developed and backtested it myself, to trade it blindly. Because some combination of indicators and candlesticks etc. turns on some red or green light...

The markets are dynamic. To be sure, they are repetitive, and to some extent we are trying to capture its repetitive elements. But, IMHO, that is only one aspect of successful trading, although by default it is the only aspect of trading that a mechanical system can hope to develop (neural networks carry the yet unfound promise of adaptivity). For me, at least, a great deal of my trading decisions are based on the ability I've developed to 'read' the markets, price action, etc. from day to day. I don't believe (and I may one day be proven wrong) that some of the 'feelings' and intuitions an experienced trader may use can be quantified. I think the experienced discretionary trader, assuming he can control his emotions, risk exposure, etc., will always have the advantage over the mechanical trader. For as long as I'm in the business, that's how I'll be plying my 'trade.'
 
hey,

i just want to say great journal, great thoughts about greed.. it is the bottomless pit...

i have a question: so you only enter 1ct at a time? up to how many cts if you don't mind me asking .. i agree w/ you that having a position in the market gives you more of an accute sense of movement.. but sometimes it ties you to the market too much, i think ..

good day to you, what country are you trading from anyway?

pom
 
I don't enter positions one contract at a time. What I said was that I OFTEN (far from always) start off with one contract; it gives me a more acute feel for where and how the market's moving. You can call it "putting out a feeler." My maximum contract size varies, depending on market conditions, account size, mood, which way the wind is blowing, recent trading history, what's for supper, and myriad other factors, some of them true, and many of them fictional.

I will say this: My maximum size is something that I have the broker input into the software. Not that I don't trust myself, just that, well, I don't trust myself. I'm liberal, according to some, about my (personal) margin requirements, but having my broker input the maximums keeps me from getting cute. True, it would only take an email, or a phone call, and I could have them change it, but that extra step (for me) is enough to get me thinking twice. Leverage, used judiciously, is a lethal tool. Used foolishly---it's lethal.

Quote from pomegranate:

hey,

i just want to say great journal, great thoughts about greed.. it is the bottomless pit...

i have a question: so you only enter 1ct at a time?
More...
 
In previous posts, I've occasionally written about 'eureka moments' when something suddenly clicked, that's made a permanent and noticeable change in one's (my) trading.

Here's one of perhaps the most critical, yet IMHO overlooked, eureka. (The present action in ES, and my reluctance to short it [yet?] is what made me think of this right now.):

"Only take a position when there's a compelling reason to do so."

There has been much written about the randomness of market behavior. I assume we're all here, putting our family fortunes at risk, because we believe markets are not random creatures.

Having said that, market behavior often is, or at least appears to be, random. When you take a position under such conditions, you are putting your money at risk for no justifiable reason; you may as well flip a coin. Remember, if you flipped a coin, you'd also get it right 50 % of the time. But in trading, after accounting for costs, slippage, and most of all human psychology, you will be a net loser.

Let me give an example: Have you ever entered a position 'on a hunch,' had it go against you, not known when to exit (hard to know when the hunch wears off isn't it?), sweated as the market went against you even more, etc.? Maybe at some point, you considered stopping yourself out, but after taking a look at your p/l column, you thought otherwise. "I can't afford to take that kind of a hit on such a silly trade... this was just supposed to be a short scalp..." At some point, on your charts or on your price ladder or whatever you use to gage the market, you see a pattern you really like; maybe a break below a trend line, breakout of an ascending triangle, H & S pattern, big numbers suddenly going off, whatever. Now you say (to yourself or to the market), "Here we come, now she's finally going to break down / up..." And you're right. The pattern was right. The market turns around, comes right back to your entry price, perhaps even surpasses it, and you exit with a small loss / gain / break-even... You feel vindicated, a little lucky, and grateful (see above). You are. But one thing you are not: smart. The smart guy is the one who saved his 'hunch money' (pun intended), and entered when the market compelled him to. He's got a nice hefty profit accruing in his account, he's not sweating and 'ready to call it a day' after stressing out, and he's still in his position when you've exited, because he's got a healthy profit to build on, and will only exit his position when the market tells him to.
 
Stopped out ES @ 1281.25

Stopped out ZN @ 106 115/320

Combined loss $700.00 (538.5 + 162.50)

Them's the breaks. I don't regret either trade.
 
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