Painful Market Lessons

[trader99]

Well... in my humble opinion, if you did truly have the experience/confidence, then even if this was a one-off mistake, you wouldn't need to create a thread about it. Saying things like winners come when you're trading small size and all the bigger losses seem to come when you put on more size tells me that not everything is worked out yet.

I'm not saying that its easy, but when you're in the right space, putting on a trade with 20 contracts, and taking a loss, and then putting on another trade, same size, and taking a loss, and then not having this affect you at all for the next trade is the frame of mind you need to be in. If you can't bang out trade after trade without it affecting you and without you questioning yourself to me means that you're trading too much size to begin with.

You are probably right. There are still areas I can tweak in my main strategy. There are two fatal flaws so to speak.

1) Trying to time the bottom too soon. I've gotten better and better over time. So, now it's not too early. And there are times where many trades are just when it's about to turn the corner.

2) Trading too large sizes: That's a mixed bag. Sometimes when I trade large size it works out. The time it does NOT work out is when #1 occur. Too early before it reverses.

3) Cutting losses: This one is what I really really need to work on. Fix that and my P&L and stats will go up the roof. I'm right probably high 80-90% of the time. And the handful of times I'm wrong I hold too long for it to come back. Then sell out at near the bottom ony to find it rebound back the next few days. Like my freaking ZW trades. Had I done nothing it would have come all the way back now with zero losses. But that's the WRONG way to think about that trade. I should have trade smaller size so even if I do sell out it's not a big hit. I should have cut losses faster and reenter on the rebound. And I probably should try to time that bottom until the signs are obvious of a rebound. haha

There you go. Self diagnostic of my 3 major issues. Fixing those 3 will make me a hugely successful trader. I've seen my P&L. Minus those 3 types of mistakes would have up huge.

Luckily, I have a well paying FT job and do no depend on trading as my income. Just keep learning and trading.

 

[Gotcha]

You are probably right. There are still areas I can tweak in my main strategy. There are two fatal flaws so to speak.

1) Trying to time the bottom too soon. I've gotten better and better over time. So, now it's not too early. And there are times where many trades are just when it's about to turn the corner.

2) Trading too large sizes: That's a mixed bag. Sometimes when I trade large size it works out. The time it does NOT work out is when #1 occur. Too early before it reverses.

3) Cutting losses: This one is what I really really need to work on. Fix that and my P&L and stats will go up the roof. I'm right probably high 80-90% of the time. And the handful of times I'm wrong I hold too long for it to come back. Then sell out at near the bottom ony to find it rebound back the next few days. Like my freaking ZW trades. Had I done nothing it would have come all the way back now with zero losses. But that's the WRONG way to think about that trade. I should have trade smaller size so even if I do sell out it's not a big hit. I should have cut losses faster and reenter on the rebound. And I probably should try to time that bottom until the signs are obvious of a rebound. haha

There you go. Self diagnostic of my 3 major issues. Fixing those 3 will make me a hugely successful trader. I've seen my P&L. Minus those 3 types of mistakes would have up huge.

Luckily, I have a well paying FT job and do no depend on trading as my income. Just keep learning and trading.

I once looked at another trader's trades, maybe about 20, and what jumped out at me right away was that it was only a few losses that made him overall negative/BE. If these were limited, he would have been profitable. What's even worse, those losses were much bigger than the average win. So it was a no brainier... just use a firm stop, and change nothing else, and he would be profitable.

But here was the big thing. I didn't know the MAE of all the trades. I mean what if often his otherwise winning trades or smaller losses went against him just as much as those big losses, but turned around just before the pain point. Stats change so much once you actually apply a very consistent R:R parameter.

So in reference to point 3, its easy to say cut losers short, but this sets off a whole other chain of consequences. Being forced to re-enter again after a small loss might cause some anxiety, or at the very least, it wouldn't be the same as still holding onto the loser.

What I did was look at a bunch of trades over a few weeks and apply just some standard stop/target to see if I could extract any useful info. It was incredible to see that there really was a much better, and a much worse, RR set, that was a huge eye opener. I want to be careful and not get into curve fitting, but some things really do jump out when you look at something consistently through the same lens, so to speak.

Anyway, my point is that its easy to say cut losses sooner, but if you apply this same metric, what does it do to the rest of the trades? Will it actually cause more trades to be entered? Or will it cause some winners to not be taken since you're already out for a small loss?

Saying you're right 80-90% of the time is incredible, and I'm sure this isn't the case to be honest, cause if it is, you're in the upper echelon of traders. But can you put some metric to this? I mean if you're talking ES, does this mean that 80% of time you hit 5 points profits before 5 point stop? Even a 1:1 trade like this with 80% win rate is amazing.

But if this 80% win is a 3 point profit with a 10 point stop, well, the 80% win isn't too great, and after a couple of losses, you're done, even if just psychologically. So I'm curious if you can provide some metrics for this win rate. Not that I want to doubt you, but on its own, an 80-90% win rate isn't all that meaningful.

In reference to timing the bottom, yes, very hard to do, and I think there is a reason why many in this field say timing a move is very hard. And then of course once its gets going, you're missing out a huge chunk of it, and having to use to big of a stop.

Anyway.. so thanks for all the detail. It really helps figure out what is actually there and what isn't.

 

[trader99]

But here was the big thing. I didn't know the MAE of all the trades. I mean what if often his otherwise winning trades or smaller losses went against him just as much as those big losses, but turned around just before the pain point. Stats change so much once you actually apply a very consistent R:R parameter.

So in reference to point 3, its easy to say cut losers short, but this sets off a whole other chain of consequences. Being forced to re-enter again after a small loss might cause some anxiety, or at the very least, it wouldn't be the same as still holding onto the loser.


Anyway, my point is that its easy to say cut losses sooner, but if you apply this same metric, what does it do to the rest of the trades? Will it actually cause more trades to be entered? Or will it cause some winners to not be taken since you're already out for a small loss?

Saying you're right 80-90% of the time is incredible, and I'm sure this isn't the case to be honest, cause if it is, you're in the upper echelon of traders. But can you put some metric to this? I mean if you're talking ES, does this mean that 80% of time you hit 5 points profits before 5 point stop? Even a 1:1 trade like this with 80% win rate is amazing.

But if this 80% win is a 3 point profit with a 10 point stop, well, the 80% win isn't too great, and after a couple of losses, you're done, even if just psychologically. So I'm curious if you can provide some metrics for this win rate. Not that I want to doubt you, but on its own, an 80-90% win rate isn't all that meaningful.

In reference to timing the bottom, yes, very hard to do, and I think there is a reason why many in this field say timing a move is very hard. And then of course once its gets going, you're missing out a huge chunk of it, and having to use to big of a stop.

Anyway.. so thanks for all the detail. It really helps figure out what is actually there and what isn't.

Thanks for the careful analysis. Let me give some more color on the cutting losses comment.

There are broadly 3 sets of trades for me:

1) I enter in and it's profitable right off the bat. Sometimes it runs. Sometimes not. I usually get out at a small to medium profits. Occasionally big profits. These are the best and favorite trades.

2) I enter a trade and it's mixed. No real trend. Sometimes I get out at a very small profit which is good since shortly I exit it goes against my entry point. Sometimes I get out out a very small losses since the PA doesn't look good. Whew. So those are basically scratch trades. But more often than not they are very little profits that adds up over time. I don't mind these types of trades but they feel like scalping more than catching the bigger move of 1) above that I like. But they produce very steady returns. In one of my account, I do that more often than not and the equity curve is relatively smooth. But the growth rate is slow.

3) The worst trades. I enter in and it goes against me almost immediately. But I hold on hoping for it to to rebound. Then it goes even more against me to the point from my chart analysis I know I'm in a wrong trade. That's when I stupidly hold on instead of getting out at a medium to slightly big losses. Then I hold on some more than it becomes painful near catastrophic losses that kill several months of profits!

Yesterday I read Brett Steenbarger post on traderfeed that got me thinking. BTW, I love his writing and books. In his post, he said something to the effect of using your worst trades as markets to tell you how to think and act. So, perhaps the lesson from these painful trades is when I enter in #3 and it goes against me right away and I have the stupid notion of just holding on to see if it rebounds, then i should IMMEDIATELY exit my trade and REVERSE my trade. I looked back at my records if I had "cut my losses" short at the point when I realize I was wrong and reversed it I would most if not all of the time RECOVER all of my medium size losses and make big bucks! That's an emotional indicator of sorts. This is psychologically difficult to do because a medium sized loss is not a small loss. But this is what I mean by cutting losses. I'm not talking about cutting losses on the 1) and 2) trades. Those don't have an real impact and it's not what really hurting my P&L. The #3 trades are the ones hurting my P&L. Just fixing this one fatal flaw would catapult into the upper echelons. I've seen how well my P&L can perform when I have a string of 1s and 2s.

As to the 80-90% hit rate, I need to go back and quantity it. Maybe it's not that high and I'm not remembering things correctly. But I don't think the fact is that far off. Because one year I bought TradeLog( http://www.tradelogsoftware.com/resources/filing-taxes) for tax purposes. And along with it came some trade stats and breakdown. Also I used TraderDNA(when it was still around). And I was just SHOCKED by high win rate of 75-85% depending on the time period. But what ruined my great win rate was the 3) great losses. That's why I feel like I'm on the cusp of moving up to next big level up in trading.

If only I can fix 3)...

P.S. Now the reason #3 occurs is because of I'm early in catching a bottom. Thinking this is it then it goes much more so then I sell out near the bottom only to have it rebound. Lately, I've begun to be more patient and looking for a sign of rebound to try to time the bottom and it has worked. It's when I'm hasty and try to catch the bottom BEFORE a real sign of the rebound that these big losses occur..

 

[trader99]

Another good development today. I got in a trade and it bounce around a little. Then it starts going against me. Then when I look at the chart it looks like the wrong short term trade, I got out at a loss. And I feel proud. I guess it's a lot easier to cut losses on 1 lot then 10-20 lots. lol. After I got out it went more down a little more. Now it's bouncing around up again. But it's fine. Gotta learn to honor your loss point else one of these "give it more room" trade will turn into catastrophic loss.

But it's the practice and habit of getting out when u know you are wrong instead of holding is what I'm trying to install.

Market Wizards were right. Trade smaller than you think.. Eventually fixing these bad habits then trading at bigger size will have a very positive impact on my P&L.

 

[bone]

Another good development today. I got in a trade and it bounce around a little. Then it starts going against me. Then when I look at the chart it looks like the wrong short term trade, I got out at a loss. And I feel proud. I guess it's a lot easier to cut losses on 1 lot then 10-20 lots. lol. After I got out it went more down a little more. Now it's bouncing around up again. But it's fine. Gotta learn to honor your loss point else one of these "give it more room" trade will turn into catastrophic loss.

But it's the practice and habit of getting out when u know you are wrong instead of holding is what I'm trying to install.

Market Wizards were right. Trade smaller than you think.. Eventually fixing these bad habits then trading at bigger size will have a very positive impact on my P&L.

This is going to sound old school corny and cliche, but I would suggest keeping a daily trading journal. The biggest pit and prop traders that I have known over the years all did. If you can be brutally honest with yourself, those reflections and observations will allow you to reinforce and even refine your trading rules and trade entry / exit strategy. But most importantly, if you are true to yourself you will avoid the repetition of mistakes. All good traders take a loss every day. They also do not repeat mistakes.

Avoided mistakes = account equity.

 

[Gotcha]

All good traders take a loss every day. They also do not repeat mistakes.

This opens up a whole can of worms. What is a mistake? Some of the time, you give the trade more room and it works, some of the time, you give the trade more room and it costs you more. The important thing to do is to quantify what some of the time means, so you're spot on with regards to keeping a journal, but I think its incredibly difficult to actually say what a mistake is and what it isn't, unless your trading plan has everything spelled out to the tick.

 

[bone]

You'll be miles ahead of the game if you set your stop-loss and profit target levels at the time of trade entry. That's what I do personally and that's part of the system I teach clients. If you can eliminate trade management mistakes that's a big piece of it already.

 

[Gotcha]

You'll be miles ahead of the game if you set your stop-loss and profit target levels at the time of trade entry. That's what I do personally and that's part of the system I teach clients. If you can eliminate trade management mistakes that's a big piece of it already.

I do agree. I just wanted to get a sense of what you mean by mistake because the OP does talk about cutting losses short sometimes, and sometimes not, so then it becomes very tricky to figure out what a mistake is. Based on your rules, the mistake is obviously simply not placing the OCO orders, or fiddling with them once in the trade.

 

[bone]

You can't have a trading system that performs over a protracted period of time whilst you simultaneously sabotage it with your discretionary actions and your own contrarian brilliance. Idiots and ultimately losers argue with price (and to wit argue with markets) That last price print is the ultimate distillation of all knowledge regarding the valuation of that product. You can go broke so so so very quickly proving yourself right and the rest of the world wrong. For a change of pace, try being on the side that inflicts pain - and not the receiving end of it.

So there, I said it.

 

[vanzandt]

stay cool honey-bunny

!

.... lmao. Best movie of all time.

"Honey Bunny: I love you, Pumpkin.
Pumpkin: I love you, Honey Bunny.
Pumpkin: All right, everybody be cool, this is a robbery!
Honey Bunny: Any of you ****ing pricks move, and I'll execute every mother****ing last one of ya!