Facing our demons

[Maverick1]

Quote from nitro:

To clarify, big size does not necessarily = great risk.



2) Exit if the trade does not go your way "immediately". Notice this is not the same thing as a stop loss mentality. By the time a typical stop loss is hit, you waited too long. This realization coupled with the realization that predictive trading is a losers game, _is_ the holy grail of profitable predictive trading. Notice that I don't mean that predictive trading is a losing game in a mathematical sense, only that in order to win in predictive trading, you have to realize that you start out assuming all your trades are losers. Only the market can turn it into a winner, but from your perspective, it starts out a loser the instant you put it on. Only market makers trades start out as winners from the get go. They pay millions of dollars for that privilege.

3) Or, if it looks like you have a winner, you may press and add size to the trade, but always keeping rule two in mind. This is why trading is so hard, it requires constant decision making on exits, which in turn is honed by the experience of watching the tape.


One last comment, because rule two comes close to saying that there is no real edge in any entry, except the decision to leave the trade on or take it off very "soon" thereafter. That is almost what I am saying!!!! In fact, if you master this rule, then just about any decent entry rule (assuming a proper timeframe with edge coupled with a tradeable instrument), like pullbacks, MA breakouts, Opening Only, etc, work!!! The real artistry is in the decision to exit. The entry can be mechanical.

nitro

Nitro,

There is great value in what you wrote above and the rarity of this advice/approach is what strikes me... Not many know about POP's concepts and even less fully understand/internalize/adopt them when they read them. I reckon that it takes massive pain/blowups/frustration to really understand the power behind rule one and two for most traders... If there is one consistent truth about winners it seems, it is that they are not afraid to trade and lose. What gives them that confidence? I think it is the alignment of their conscious and subconscious in the belief that any one loss has absolutely no bearing on them taking the next trade or trading well free of mistakes. There is no pain because the loss is contained extremely well (read: small) relative to the wins. There are some on this board who have argued that expectancy matters more than risk reward. And obviously there is truth in that for super high win % methods. But I just don't see how 95% of traders can survive daytrading when they barely take in on a winner what they would lose on a loser, because only an extreme minority have a method that lets them win more than 75% of the time consistently. You have to cut the loss extremely quickly if it doesn't fit the profile of a winner and move on with no regret, knowing that the next win will wipe the loss out and put you ahead by a decent/nice amount. That is what will give you the confidence to move on and not miss the next trade, which invariably always is a winner when you decide not to take it out of fear.

The only way to destroy fear is by having a proven backtested and forward tested plan and by making sure that your conscious and subconscious are in harmony. It doesn't matter if your written plan has a stop loss in it, if you don't really believe that that loss has no power over you, that lack of belief will be a major hindrance to trading well.

I also disagree with surfers comments, because it you read PTJ's comments, it is striking how many times he refers to the need to reduce risk and not increase it... he built a grubstake in the cotton pit by taking consistent but small risk after almost blowing out one time. If surfer is referring to his 87' trade, then I believe he is also mistaken, because had PTJ lost he would have not blown up in all likelihood or affected his ability to continue to be profitable. So whether it's using rule one at the micro level or managing a fund, respect for risk is the hallmark of the skilled survivors.

 

[marketsurfer]

Quote from Maverick1:

Nitro,

There is great value in what you wrote above and the rarity of this advice/approach is what strikes me... Not many know about POP's concepts and even less fully understand/internalize/adopt them when they read them. I reckon that it takes massive pain/blowups/frustration to really understand the power behind rule one and two for most traders... If there is one consistent truth about winners it seems, it is that they are not afraid to trade and lose. What gives them that confidence? I think it is the alignment of their conscious and subconscious in the belief that any one loss has absolutely no bearing on them taking the next trade or trading well free of mistakes. There is no pain because the loss is contained extremely well (read: small) relative to the wins. There are some on this board who have argued that expectancy matters more than risk reward. And obviously there is truth in that for super high win % methods. But I just don't see how 95% of traders can survive daytrading when they barely take in on a winner what they would lose on a loser, because only an extreme minority have a method that lets them win more than 75% of the time consistently. You have to cut the loss extremely quickly if it doesn't fit the profile of a winner and move on with no regret, knowing that the next win will wipe the loss out and put you ahead by a decent/nice amount. That is what will give you the confidence to move on and not miss the next trade, which invariably always is a winner when you decide not to take it out of fear.

The only way to destroy fear is by having a proven backtested and forward tested plan and by making sure that your conscious and subconscious are in harmony. It doesn't matter if your written plan has a stop loss in it, if you don't really believe that that loss has no power over you, that lack of belief will be a major hindrance to trading well.

I also disagree with surfers comments, because it you read PTJ's comments, it is striking how many times he refers to the need to reduce risk and not increase it... he built a grubstake in the cotton pit by taking consistent but small risk after almost blowing out one time. If surfer is referring to his 87' trade, then I believe he is also mistaken, because had PTJ lost he would have not blown up in all likelihood or affected his ability to continue to be profitable. So whether it's using rule one at the micro level or managing a fund, respect for risk is the hallmark of the skilled survivors.

nicely said, maverick--however, please understand-- I am not advocating disrespecting risk in any manner. risk must not only be accepted, it needs to be embraced at a level far exceeding what most traders are willing to do to make it big.

regards,

surfer

 

[Maverick1]

Quote from marketsurfer:

nicely said, maverick--however, please understand-- I am not advocating disrespecting risk in any manner. risk must not only be accepted, it needs to be embraced at a level far exceeding what most traders are willing to do to make it big.

regards,

surfer

Let's put it this way: you need to earn the right to make big bets which won't threaten your trading existence if you lose. If you can't earn that right by being disciplined and successful with small bets, you will and should never graduate to larger bets. That's what PTJ, Michael Marcus, Tom Basso etc all did.

 

[Old School]

Hello nitro,

It is a process:

1) First you do all the research in the world when you first start out.

- Yes, did that.

2) Then you trade small size and make money.

- Yes, did that.

3) Then you get confident and start trading bigger size and you make and lose money. But you are still doing ok, just not makin any real money.

- What's your definition of "real" money?

4) Then you really get confident and think you have overcomed your demons and trade real size. You are now in grave danger regardless of your skill. Now there are bullets wizzing by your head from all directions.

-Yes, but I felt more pressure/bullets when I was trading less money because more of my net worth was at risk. 110% actually, I even borrowed money to lose early in my career.

5) Then you blow out because in the markets when you do enough size to make a real living, there is always a bullet lurking with your name on it, no matter your skill. When you have gone through this process and know when to run before the bullet hits you, your education is complete. But you have no money to stay in the game.

-Blew out 3 times in 15 years of trading, but after the 2nd blow up, I always kept something for a rainy day. A little set aside over the years added up. Naturally, it took a final ass whuppin' to get rid of that demon though.
-You also forgot to add about the effects of a blow out to a marriage, family, friends, and all that other shit...

6) Now you have the right to talk about facing real demons.

-Seems you have a point to make here.
Since I do not know you, I'll just leave it at that. But you want to share for a ET newbie, I'd love to hear your story - PM's if not comfortable doing it publicly.

#4 coupled with #5 is the key to all trading. The realization that you are always walking on a high wire with no net when doing size is 90% of what dictates strategies.

-I disagree, we all have our objectives, expectations, desires, etc...

The happiest trader I met was a guy making a consistent ~ $125k/yr. His method was to trade the open and leave at lunch. He said throughout his career, when he looked at his sheets, he realized that he fell into the category of "make $ in the morning, give it back in the afternoon churn". He didn't need to be a billionaire. No need to be the next PTJ. Was very happy about his life. His trading strengths combined with accomplishing his personal goals determined his particular strategy.

Some of his critics have said,

"He wasn't trading up to his potential because he wasn't there if there was a big move in the afternoon. If you're not there, then you have ZERO chance of making money". To which I have said, there is no guarantee that he would have made money even if he was there. Perhaps he may have even lost money that he made in the morning...shit, did this already come up?

In the end, I believe a successful trader is a happy trader. One that is meeting his/her expectations, not somebody else's.

If there is one consistent truth about winners it seems, it is that they are not afraid to trade and lose. What gives them that confidence? I think it is the alignment of their conscious and subconscious in the belief that any one loss has absolutely no bearing on them taking the next trade...

We have a winner.
Well said Maverick1.
Yes, in the end, every trade's the same.


more to come...
Facing Our Demons Pt.2: The Nuts

 

[gdtrader]

I actually have no problems trading. Only demon is my fat evil bastard X girlfirend.

 

[Joma]

Quote from nitro:

To clarify, big size does not necessarily = great risk.

No, you ask? How?

1) Hedge the trade instantly. But since you are doing size and executed the initial trade at edge, you have "locked" in a decent profit. This is what market makers do. This is not predictive trading though. The repetition of these trades/hedges many times a day in the course of a year returns huge profits with very little risk.

2) Exit if the trade does not go your way "immediately". Notice this is not the same thing as a stop loss mentality. By the time a typical stop loss is hit, you waited too long. This realization coupled with the realization that predictive trading is a losers game, _is_ the holy grail of profitable predictive trading. Notice that I don't mean that predictive trading is a losing game in a mathematical sense, only that in order to win in predictive trading, you have to realize that you start out assuming all your trades are losers. Only the market can turn it into a winner, but from your perspective, it starts out a loser the instant you put it on. Only market makers trades start out as winners from the get go. They pay millions of dollars for that privilege.

3) Or, if it looks like you have a winner, you may press and add size to the trade, but always keeping rule two in mind. This is why trading is so hard, it requires constant decision making on exits, which in turn is honed by the experience of watching the tape.


One last comment, because rule two comes close to saying that there is no real edge in any entry, except the decision to leave the trade on or take it off very "soon" thereafter. That is almost what I am saying!!!! In fact, if you master this rule, then just about any decent entry rule (assuming a proper timeframe with edge coupled with a tradeable instrument), like pullbacks, MA breakouts, Opening Only, etc, work!!! The real artistry is in the decision to exit. The entry can be mechanical.

nitro

Very, very good, nitro ! I am for 16 years in the DAX / GERMAN BUNDS / BOBL /SCHATZ Markets and can only agree with your thread.

During this time I made the following experience :

1) You do not need to pick the highs or lows in the markets.
2) If you are convinced of a trade - do it in size and immediately place a stop.
3) Look for a reasonable time-frame in doing so.
4) Look for the most simpliest ways of breakouts / pullbacks / opening only - like nitro described it, to do so.
5) Look for the most simpliest way to exit your trade and place the simpliest stops !!!!

And as it is going to be my last thread in this forum I am going to tell you that it costed me 3 MIO USD in dammage to learn this lesson ! Nowadays I am making every single day profits in whatever market ! For 8 years right now.

It was a pleasure to have fun with you all !

Best wishes

Jose