I bet the best traders on ET do this...
- Thread starter chrisdunn
- Start date
Thanks.
What leads us to think it's all about psychology, like I once thought, too, is the following faulty logic.
For example, you do not apply a stoploss, and you'll make a lot money for a few days. Then one day, because of not applying a stoploss, you'll lose everything or almost. That day you will forget about all the times you made money because of not using a stoploss, and you will only remember that last trade that blew out your account. You will blame yourself, "why was I so irrational and suicidal as to not use a stoploss?", and "what is wrong with me, why did I do it again?". But you'll be forgetting that you almost never applied a stoploss, and that is why you won so often.
Indeed, unless we want to argue that anything that involves thinking is a "psychological issue" (but then every human activity is psychological), the issue is not a psychological one. The issue is not that you don't have enough self-control to use a stoploss, as you'll be mistakenly assuming. The issue is that subconsciously you got to the conclusion that you can only make money if you do not use a stoploss, but you still do not fully realize what "method" you are using and that sooner or later you will lose everything because of it. If you were aware of it (aware of your method), you would realize that it cannot work, because the method of leaving trades open until they go your way does work most of the time, until one day it blows out your account.
So this is only an example, but it's a clear example of how we tell ourselves it's about psychology and self-control, whereas it's about finding a precise method that is proven to work. If you don't even know what method works or what your method is, how are you going to use it consistently? How are you going to be disciplined when you don't even know your rules? To have discipline you need rules, but you don't have rules, because you make money by not respecting the "famous rules" (stoplosses, let your winners run, cut your losses). Deep inside we all know that if we applied (in our discretionary trading) stoplosses we would end up losing money overall. So we do not use them, and sooner or later we get screwed.
To find out what the optimal stoploss level is (and all the other rules) and to pull that trigger when you need it, you need back-testing combined with automated trading. Indeed, it is not about psychology, as you will never possibly develop a good enough mind to compute all statistics in your mind on what the optimal stoploss is, and you will never develop enough self-control to pull that trigger when you need to and at all times (all you need is to fail to do it once, and you may lose all your money).
So you should stop trying to develop intelligence, rationality, self-control enough to trade like a computer, and let your computer trade in your place. In this sense, it is not a psychological issue at all. The majority of humans can only achieve profit in trading via automated trading. But the majority of humans doesn't have the energy, time, skills and patience to do so.
What leads us to think it's all about psychology, like I once thought, too, is the following faulty logic.
For example, you do not apply a stoploss, and you'll make a lot money for a few days. Then one day, because of not applying a stoploss, you'll lose everything or almost. That day you will forget about all the times you made money because of not using a stoploss, and you will only remember that last trade that blew out your account. You will blame yourself, "why was I so irrational and suicidal as to not use a stoploss?", and "what is wrong with me, why did I do it again?". But you'll be forgetting that you almost never applied a stoploss, and that is why you won so often.
Indeed, unless we want to argue that anything that involves thinking is a "psychological issue" (but then every human activity is psychological), the issue is not a psychological one. The issue is not that you don't have enough self-control to use a stoploss, as you'll be mistakenly assuming. The issue is that subconsciously you got to the conclusion that you can only make money if you do not use a stoploss, but you still do not fully realize what "method" you are using and that sooner or later you will lose everything because of it. If you were aware of it (aware of your method), you would realize that it cannot work, because the method of leaving trades open until they go your way does work most of the time, until one day it blows out your account.
So this is only an example, but it's a clear example of how we tell ourselves it's about psychology and self-control, whereas it's about finding a precise method that is proven to work. If you don't even know what method works or what your method is, how are you going to use it consistently? How are you going to be disciplined when you don't even know your rules? To have discipline you need rules, but you don't have rules, because you make money by not respecting the "famous rules" (stoplosses, let your winners run, cut your losses). Deep inside we all know that if we applied (in our discretionary trading) stoplosses we would end up losing money overall. So we do not use them, and sooner or later we get screwed.
To find out what the optimal stoploss level is (and all the other rules) and to pull that trigger when you need it, you need back-testing combined with automated trading. Indeed, it is not about psychology, as you will never possibly develop a good enough mind to compute all statistics in your mind on what the optimal stoploss is, and you will never develop enough self-control to pull that trigger when you need to and at all times (all you need is to fail to do it once, and you may lose all your money).
So you should stop trying to develop intelligence, rationality, self-control enough to trade like a computer, and let your computer trade in your place. In this sense, it is not a psychological issue at all. The majority of humans can only achieve profit in trading via automated trading. But the majority of humans doesn't have the energy, time, skills and patience to do so.
*sheesh* this may qualify as one of the top 10 stupidest things ever said on ET.
95%+ people will never "get the technical side down." And 99% of the rest will never do this in 30-120 days. An edge is the most difficult thing, quite the opposite of what you said.
I am not sure about the statistics, but I sure agree with TraderZone that many people never get the technical part done up. Partially depends on level of aggressiveness. If you get a statistically rigorous 55% of the time right one trade a day strategy, I would say that is not bad. However, if you are looking for a multi-month strategy, it is much easier. Nonetheless, it still takes a lot a lot of effort. An edge is by no means easy to get.
Jerry Parker, Salem Abraham
Hope that helps.