Exponential growth

[Neoxx]

Quote from cnms2:

Check this. It's very true.

• 38-Steps To Be A Successful Trader by Anonymous
  
  1. We accumulate information--buying books, going to seminars and researching.
  2. We begin to trade with our 'new' knowledge.
  3. We consistently 'donate' and then realize we may need more knowledge or information.
  4. We accumulate more information.
  5. We switch the commodities we are currently following.
  6. We go back into the market and trade with our 'updated' knowledge.
  7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
  8. We start to listen to 'outside news' & other traders.
  9. We go back into the market and continue to donate.
  10. We switch commodities again.
  11. We search for more information.
  12. We go back into the market and start to see a little progress.
  13. We get 'overconfident' & market humbles us.
  14. We start to understand that trading successfully is going to take more time and more knowledge then we anticipated.
  
  Most People Will Give up at this Point as They Realize Work Is Involved.
  
  15. We get serious and start concentrating on learning a 'real' methodology.
  16. We trade our methodology with some success, but realize that something is missing.
  17. We begin to understand the need for having rules to apply our methodology.
  18. We take a sabbatical from trading to develop and research our trading rules.
  19. We start trading again, this time with rules and find some success, but overall we still hesitate when it comes time to execute.
  20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
  21. We feel we are very close to crossing that threshold of successful trading.
  22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
  23. We continue to trade and become more proficient with our methodology and our rules.
  24. As we trade we still have a tendency to violate our rips and our results are still erratic.
  25. We know we are close.
  26. We go back and research our rules.
  27. We build the confidence in our rules and go back into the market and trade.
  28. Our trading results are getting better, but we are still hesitating in executing our rules.
  29. We now see the importance of following our rules as we see the results of our trades when we don't follow them.
  30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
  31. We continue to trade and the market teaches us more and more about ourselves.
  32. We master our methodology and trading rules.
  33. We begin to consistently make money.
  34. We get a little overconfident and the market humbles us.
  35. We continue to learn our lessons.
  36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
  37. We are making more money then we ever dreamed to be possible.
  38. We go on with our lives and accomplish many of the goals we had always dreamed of.

That’s an interesting summary cnms2.

But I’ve decided not to head down that route.

In any endeavour, the majority will seek the holy grail of instant success and effortless mastery. It’s human nature. Seeking pleasure, avoiding pain.

So while many traders are searching for the perfect system, or seeing options as the nirvana, the shortcut to riches, (a myth perpetuated by marketing hype) my perspective is entirely different.

I believe that real success lies in discipline, unswerving commitment, and tireless hard work.

Baby steps up the stairway to heaven; before you know it you’ll be walking on the moon.

If you want inspiration, watch Gattaca. A celebration of the limitless potential of the human spirit. A timeless masterpiece.

I’ve spoken to some successful traders. They’re not interested in home runs. They’d choose consistent singles any day. And they pay little attention to ‘perfect’ systems or fancy indicators. They simply trade with the trend, cut their losses and ride their winners.

And that’s all I’m setting out to do.

I could illustrate this with so many analogies.

Take bodybuilding/weight-training. A passion of mine when I was younger.

Take the majority. What do they do?

Read the magazines, buy the supplements and join expensive, all-frills health clubs. They try to emulate the pros. Little matter that they’re not juiced, genetic freaks. They jump from one hyped system to another, always in search of the holy grail, that’s right, YOU TOO could have a body like this in six weeks. Just twelve easy payments of $39.95, and eventually quit after injuries, frustration and perhaps even forays into the world of underground pharmacopoeia.

They don’t take the time to find out what real life success stories do. They don’t enter the world of the genetically typical and drug-free. After all, why should they? It’s not glamorous and exciting. No bells and whistles.

There’s no avoiding the pain.

Guys love to boast about their bench-press.

Go to your local health club and just look at the benchpress rack. There’s usually a queue. A pecking order of guys lining up to prove their manhood, hoisting as much weight as their ego will bear, with awful, even dangerous technique.

It’s absurd.

Little matter that it’s the same struggle with the exact same weights, week in, week out. Month in, month out. No progress. Then they curse their bad fortune when they get a rotator cuff tear.

What do the real-life success stories do?

They have a sound training plan which they stick to religiously, eat a healthy diet with an excess of protein and calories, and keep a training log. Simple as that.

And they use one of the greatest inventions in the arena of progressive resistance. Microweights. Tiny plates for an Olympic bar. 1lb. 1/2lb. 1/4lb.

They don’t do a thousand sets of twelve different exercises to develop their chest. They do two sets on the benchpress. Once a week. They don’t try to add 20lb to the bar every workout. They’ll add 2lb a week, one tiny plate on each side of the bar.

I’ve actually seen people scoff when they see the tiny weights.

Now what happens?

The get-stacked quick crowd are plagued with injury upon injury. Their weights never increase. They get nowhere. At the end of the year, what have they got to show for it?

Nothing.

Meanwhile, the guy with the boring system and the tiny weights has gained 100lb on his benchpress in one year. And that’s just one year.

How many people do you know who have done that?

Probably none.

So you see these guys with their impressive physiques. They didn’t sculpt them overnight. Rome wasn’t built in a day either. Their physiques are the result of years of discipline, commitment and hard work.

But I digress. ;-)

Getting back to the point…

I’m implementing discipline and simplicity from day one.

I placed my first real trade on 7th December after paper-trading for a couple of months. I lost 14% on a 3.5K account, (limiting my loss to 1% on a losing trade) but having made 6% on what is now a 7K account (post small deposit), I’m 2% short of break-even.

I’m living within my means, and plan to add 1-2K a month to my trading account.

I’m aiming to increase my equity consistently, even if it’s only $100 at a time.

There’s no such thing as bad luck.

I believe that everyone makes their own luck.

 

[Cache Landing]

Does everyone subscribe to the following?

"A smart man learns from his mistakes. A wise man learns from the mistakes of others."

I agree that the world of trading mirrors the world of weight training. Mainly because both worlds are prone to fads. The interesting thing is that both worlds do actually evolve. That is, in the presence of all the fads, a greater understanding is developing and small advances are actually made, to the benefit of those with the proper mentality and discipline. Each of these REAL advances spurs a new group of fads from people that don't really understand, for people that don't really understand.

In the trading market 50 years ago, nobody used options like they use them now. I can tell you, I don't know how someone can actually get a consistent edge today without using a derivative of some sort. If you practice buy and hold strategies, you get buy and hold results. It's illogical to think that one can consistently beat the market that way. With that method you ARE the market. You can beat yourself.

However, there were some that truly realized the benefit of using derivatives to enhance returns. IMHO they were few. From their realization came a miriad of options schemes from those who were only half capable of understanding the truth. From them we get half truths (this would be most of the books that I have read on options) again being half understood by the people that buy into them. In the end, most go belly up because they don't have what it takes to give it one more shot.

Anyway, to anyone just starting out in options. Ironically, options can either be the most risky investment you'll ever make, or one of the most safe investments you'll ever make. I think that NEOXX has a good mentality. Try not to make the mistakes that everyone else has, and do your homework before buying into any particular strategy. By those who understand them, options are never meant to be a get rich quicky scheme. They are an equity enhancement tool.

 

[Rearden Metal]

Neoxx, I think you're smart enough to soon realize that you won't be making any money until you take that ridiculous 1% max loss rule, and multiply that by at least five.

 

[Neoxx]

Quote from Rearden Metal:

Neoxx, I think you're smart enough to soon realize that you won't be making any money until you take that ridiculous 1% max loss rule, and multiply that by at least five.

I'm risking 1% to make at least 2%, placing frequent trades, will freely tie up most if not all of my equity, and have a short holding period.

To begin with, I don't expect to make money quickly.

But I think in the long run, the absence of debilitating losses will more than compensate for this.

I should have blown my account so far. To leap headlong into options as my first foray into trading.

I've never traded a stock.

I didn't know what NASDAQ or technical analysis or options were before September. I wouldn't even have been able to tell you exactly what a stock was.

Yet a month into trading and I'm almost breaking even.

I've experienced the miraculous power of consistent daily improvement in various other avenues. It's truly a sight to behold. I've exceeded my own expectations in the past.

So I have faith I'll do it again.

 

[Ankle Biter]

Can you turn $10k into $15k in 3 months? Yes I know someone (closely) who has done that and more at least 4 times that I can count. But they followed it up immediately with a total blowout each and every time.

The difference in psychology was unbelievable. At $10k this person was slow, steady, conservative. At $50k they were wildly out of control with 20, 30, 40 times as many positions as they had at $10k.

In every case overextension due to greed was the cause of the blowout. It became clear to me over time that the methodology had nothing to do with it because this person had the same huge gains and ruinous crashes with widely varied trading methods.

I think there might be some difference between turning $10k into $15k and turning $100k into $150k as far as liquidity goes, but the difference in psychology is enormous. No matter how prepared or how emotionally stable you think you are, you're virtually guaranteed to discover things about yourself that you would rather not know. Your long-term success depends entirely on your willingness to successfully come to terms with your own emotional make-up.

For example, if you're greedy you either need to get control over that or you need to put systems in place that prevent your greed from destroying your account.

 

[riskarb]

The same condition responsible for the gain from 10-50k is also responsible for the decline from 50-10k.

 

[RichardRimes]

I might re-phrase that to say "a smart woman learns from her mistakes. A wise woman learns from the SUCCESS of others.

When I see success I try to dissect and analyze how that success is achieved and if it can fit into my mode/mentality. To be honest I don't really learn from other people's failures...I seem to only learn from my own.

Quote from Cache Landing:

Does everyone subscribe to the following?

"A smart man learns from his mistakes. A wise man learns from the mistakes of others."

.

 

[Cache Landing]

Quote from DonnaV:

I might re-phrase that to say "a smart woman learns from her mistakes. A wise woman learns from the SUCCESS of others.

When I see success I try to dissect and analyze how that success is achieved and if it can fit into my mode/mentality. To be honest I don't really learn from other people's failures...I seem to only learn from my own.

Interesting point. I guess the emphasis for you would be to make sure that those failures remain as small as possible. Myself, I've had both big and small failures in trading. I wouldn't say that I have many failures now. Losses are the nature of the beast. A failure would occur as the result of a poor analysis and failure to execute a proper trade. This would result in a larger draw down in my account for a single trade than I should technically be able to lose.

 

[Ankle Biter]

riskarb, please explain?

Are you saying that having sensible market exposure at $10k and totally unreasonable exposure at $50k had nothing to do with the losses becoming unmanagable? If he had continued to use the conservative money management that he started with at $10k, he still would have blown his accounts?

 

[Cache Landing]

Quote from Rearden Metal:

Neoxx, I think you're smart enough to soon realize that you won't be making any money until you take that ridiculous 1% max loss rule, and multiply that by at least five.

The above statement is partially true in my experience. You won't really make MUCH money if you only ALLOT 1% of your money to any single trade, especially in options. Unless your bank roll is huge, commissions would tear away a large chuck of what would've been profits. I say partially true because you can ALLOT more than 5% toward a trade without truly RISKING more than 1%. R/R is critical. In my account, I'm not concerned with how much I can make while allowing for frequent losses. I focus on how many losses I can prevent while still making money.

Many traders try to be right just slightly more than they are wrong(say 60/40). Then let the winners run while they cut losses short. IMHO, this is what wipes out most traders (stocks and options alike). Not that it is a bad concept, it is just very difficult to do in real life. One of the biggest complications is that a 50% loss requires 100% gain to recover (plus commissions). In options it is further compounded by the fact that you can be hurt by the underlying simply not making a move in either direction.

I'm not satisfied with my performance unless my ratio of winners to losers is closer to 4:1. Now I don't usually play strategies that will allow for unlimited (aka improbable) profit. I just want at least 75% ROE for each trade. Trades never take more than 7 weeks to play out. And I rarely risk more than 1-2% of my overall account value. This has a lot to do with having far more winners than losers.