Painful Market Lessons

[trader99]

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.

Yeah, you are right. Keeping a journal would keep me honest. And keep me from repeating the same mistakes over and over. UP a lot then down then UP and then down.

Now I realize there is still a lot more for me to learn and tweak my strategies. I mean avoiding Type 3 errors would go in a long way. But there are a lot more nuances that I'm beginning to see.

It's a constantly journey. Automating it might be the first path toward consistent profitability.

P.S. I got out a medium sized loss. Then it rebounded a little and said I should have held on just a little longer for a slightly smaller loss. But then it down even more after that. Lesson learned. Honor your stop points. Hope and fear. Fear when you see losses so cut them short. Hope when you are in gains for further gains.

 

[bone]

If you require absolutes, trading is the last endeavor you should undertake. Again, take out the emotional aspect of your trading (as you describe it as "hope and fear"). Set your stop-loss and profit target at the time of trade entry. One of two things will happen: 1. you get stopped out, or 2. you take profit. Furthermore, make that stop-loss and profit level resting limit orders so that you don't sit there and get cute about taking a loss or a profit.

The sooner you become an emotionally detached, psychopathic automaton with respect to getting into and out of the markets, the sooner you will start to make some money at this.

 

[signalmaster]

One of my painful trading lessons was when I was using the MACD system. The histogram in the MACD had shown a signal to sell, so I rushed on but it was not an accurate signal. Now I filter my signal with more indicators like using the Relative Strength Index (RSI) to confirm the signal.

 

[mlawson71]

Following a false signal is something we've all done at some point, I think. Probably more than once. It's very frustrating, but it quickly teaches you to double-check your signal.

 

[Simples]

Following a false signal is something we've all done at some point, I think. Probably more than once. It's very frustrating, but it quickly teaches you to double-check your signal.

A signal is just a signal, performing exactly to it's specifications/instructions. Wether it's "false" or not, may have nothing to do with subsequent price action. Of course, the better the signal is, the less times it will exit against you, but your stats shows you that, right? The stats will often say how many losses to expect, or at least it should say that. So then the losses will be part of the signal!

One single trade means nothing and can always go 101% against you for whatever reason. Therefore it's often a mistake to change your rules in major ways during a trade. But, here's the crux: Unless you adapt and update often, your rules are probably not the best they can be, unless you're consistently profitable for a long period. So it's an art to improve, but without attaching emotions and hope behind the changes, but real insight from the full data (not just from one trade - remember?).

So easier said than done, and one of the skills one need to aquire is to recognize such mistakes. Because if you believe you're flawless, that's probably a bigger mistake right there.

 

[mlawson71]

I'm very far from believing I am flawless. I am impatient, anxious, occasionally greedy, more often than not more fearful than greedy, occasionally too impulsive for my own good. It's really hard to trade without attaching any emotions to it, although I work on that every time I trade. I think I've improved somewhat, at least since I began, but I know I have a long way to go.

 

[preme]

The real painful lesson is not from market but it is from those brokers who scam you or cheat you smart just like Instaforex that has cheated many of their profits.

 

[trader99]

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..

I quote myself, "As to the 80-90% hit rate, I need to go back and quantity it." Luckily, FundSeeder has done that for me! Now, it confirmed everything I've been suspecting. I have extremely high hit rate, but the occasionally loss really screw me over.

This is on one of my smaller account. As you can see winning % on Equities is 82.3% and on futures it's 71.8%. But if look at the monthly performance, Nov 2015 and April 2016 account probably of all the losses. And in those 2 months it's just one trade each that costed the catastrophe losses. I need to learn to take small losses. haha.

I have the same pattern on the other accounts. Though 2 of my 3 accounts are net positive, they have high winning percentages but big average losses. So, cutting losses is the main culprit.

Is this the right diagnosis of the problem guys? I love FundSeeder objective and quantitative proof.

Thanks for any advice.

 

[GotherL]

The real painful lesson is not from market but it is from those brokers who scam you or cheat you smart just like Instaforex that has cheated many of their profits.

I agree, first lesson chose the right broker...