Lessons Learned
- Thread starter rs7
- Start date
You know, if someone has a truly systematic way of generating losses (other than thru paying too many commissions/spreads/slippage), then they might actually have the core of a profitable trading system. The key is to buy when the trading system says sell and sell when the system says buy. Imagine if every drawndown made a new high.
Of course the challenge is that so many losing trades are based on taking the psychologically intuitive/comfortable approach to trading. I'm not sure exactly how to perfectly reverse this. (Every time I get nervous and want to sell, I should buy more and every time I get greedy and want to buy, I should sell or go short). I wonder if anyone could convince their broker to swap the buy and sell buttons? With the buy and sell buttons reversed, I could trade emotionally and win!
Hmmm... if trying to force the market to pay me is guaranteed to create losses, then maybe trying to get the market to fleece me will generate profits???? Reminds me of the Hitchhiker Guide to the Galaxy and the trick to learning to fly -- throw yourself at the ground and miss.
Hoping that nobody has to re-learn the lessons posted on this thread,
-Traden4Alpha
Of course the challenge is that so many losing trades are based on taking the psychologically intuitive/comfortable approach to trading. I'm not sure exactly how to perfectly reverse this. (Every time I get nervous and want to sell, I should buy more and every time I get greedy and want to buy, I should sell or go short). I wonder if anyone could convince their broker to swap the buy and sell buttons? With the buy and sell buttons reversed, I could trade emotionally and win!
Hmmm... if trying to force the market to pay me is guaranteed to create losses, then maybe trying to get the market to fleece me will generate profits???? Reminds me of the Hitchhiker Guide to the Galaxy and the trick to learning to fly -- throw yourself at the ground and miss.
Hoping that nobody has to re-learn the lessons posted on this thread,
-Traden4Alpha
here is one that I made that can be applied to other similar types of mistakes.
I became aware of program trading numbers. This was prior to the crash of '87. I thought I understood what it was about. So I started trading options based on the premium I saw. I figured if the premium got rich, I should buy calls and beat the rush. Unfortunately it worked a few times. Enough to get me convinced I was on to something.
Well looking back now, this seems so obviously wrong. But at the time, I just didn't understand that I was doing the exact wrong thing. I was doing what I would now call "buying up movement". I just felt so cocky because I thought I knew something new and unique and was ahead of the investing public.
My lesson here was that I was mistaken in my approach to using the information, and additionally, I became enamored with something and didn't let it go fast enough. I had a similar (yet thankfully shorter) experience when I first learned about stochastics. I thought I had found some kind of foolproof way to time my trades. Again, I thought I was ahead of he crowd with unique information. I was a stockbroker then and one of the other brokers in my office had a brand new "portable" Compaq computer. Probably weighed about a ton. We didn't have charts on our quote terminals back then. But this guy had a program on his "portable" that had charting and it had some studies too. So I thought the stochastics he showed me were very cool, and infallible for timing, because they worked on the first few trades.
Again, I became enamored with something because I was so hopeful about finding an easy way to beat the market.
I became aware of program trading numbers. This was prior to the crash of '87. I thought I understood what it was about. So I started trading options based on the premium I saw. I figured if the premium got rich, I should buy calls and beat the rush. Unfortunately it worked a few times. Enough to get me convinced I was on to something.
Well looking back now, this seems so obviously wrong. But at the time, I just didn't understand that I was doing the exact wrong thing. I was doing what I would now call "buying up movement". I just felt so cocky because I thought I knew something new and unique and was ahead of the investing public.
My lesson here was that I was mistaken in my approach to using the information, and additionally, I became enamored with something and didn't let it go fast enough. I had a similar (yet thankfully shorter) experience when I first learned about stochastics. I thought I had found some kind of foolproof way to time my trades. Again, I thought I was ahead of he crowd with unique information. I was a stockbroker then and one of the other brokers in my office had a brand new "portable" Compaq computer. Probably weighed about a ton. We didn't have charts on our quote terminals back then. But this guy had a program on his "portable" that had charting and it had some studies too. So I thought the stochastics he showed me were very cool, and infallible for timing, because they worked on the first few trades.
Again, I became enamored with something because I was so hopeful about finding an easy way to beat the market.
I used to think that if enough trading books said it was true, then it was true.
For example, "cut your losses short" seems like a very popular, must-follow trading rule. Now, I'll bet that this rule really works for some trading systems (it's interesting to think about what types of trading rules work for which types of trading systems). And, I am absolutely certain that this rule is mandatory for emotion-driven, discretionary traders. But after analyzing, simulating, and pondering this "irrefutable rule" to death, I found that "cut your losses short" was a mistake for the mechanical swing trading system that I use (specifically, the expected return for my exit rule was future-positive regardless of the losses on either the total position or intraday drop).
Anyway, NEVER EVER assume that what works for most traders will work for you. As was discussed in <a href="http://www.elitetrader.com/vb/showthread.php?s=&threadid=7337">Technical Analysis and Common Sense</a>, it seems that there is no one best way to trade. Maybe one of the reasons that so many say that each trader must learn trading for themselves is that the idiosyncracies of each trader mean that only a fraction of traditional rules of trading apply to any given trader. Each trader must individually learn which rules work, and which rules don't. I happened to use numerical simulation and statistical analyses to test whether "cut your losses short" really worked. Others might try paper trading or journalling to see if that or any other trading cliche makes sense.
Happy trading,
-Traden4Alpha
For example, "cut your losses short" seems like a very popular, must-follow trading rule. Now, I'll bet that this rule really works for some trading systems (it's interesting to think about what types of trading rules work for which types of trading systems). And, I am absolutely certain that this rule is mandatory for emotion-driven, discretionary traders. But after analyzing, simulating, and pondering this "irrefutable rule" to death, I found that "cut your losses short" was a mistake for the mechanical swing trading system that I use (specifically, the expected return for my exit rule was future-positive regardless of the losses on either the total position or intraday drop).
Anyway, NEVER EVER assume that what works for most traders will work for you. As was discussed in <a href="http://www.elitetrader.com/vb/showthread.php?s=&threadid=7337">Technical Analysis and Common Sense</a>, it seems that there is no one best way to trade. Maybe one of the reasons that so many say that each trader must learn trading for themselves is that the idiosyncracies of each trader mean that only a fraction of traditional rules of trading apply to any given trader. Each trader must individually learn which rules work, and which rules don't. I happened to use numerical simulation and statistical analyses to test whether "cut your losses short" really worked. Others might try paper trading or journalling to see if that or any other trading cliche makes sense.
Happy trading,
-Traden4Alpha
Actually, all I'm saying is that each trader needs to test these rules, not assume that they are true.
I'm glad that you have learned that cutting losses short is a good exit strategy for you. And I hope that it did not cost you too much to learn that lesson.
Wishing you profits,
--Traden4Alpha