Reverse Psychology/Trading
- Thread starter romik
- Start date
To achieve consistent returns as a trader we have to do all sorts of things: researching, reading, back testing, experimenting, monitoring, more testing, averaging out, diversifying, etc...spending many years in pursuit of the ultimate system that will make us rich/richer. What if we don't do all this? Why can't we simply stay what we are and let some auto-system reverse our decision making?
The ultimate enigma of a trader on the way to an enevitable crash has always been good old greed. Why kill that, when you can simply try to get somebody or something reverse you?
The ultimate enigma of a trader on the way to an enevitable crash has always been good old greed. Why kill that, when you can simply try to get somebody or something reverse you?
BAD MONEY MANAGEMENT.
That is the most important part of this theory. Let us assume that any trader is capable of being neutral in the market consistently (gross), comparisons can be made to guessing on which side the coin will land. In the case of a coin (like in the market directions) there are only 2 variables. So if one was to continuously gamble the same amount of money per bet on which side the coin will land he will most probably be neutral, if u introduce commissions to this he would be negative. But "unregulated" human psychology will inevitably make random decisions to start adding to the stake in order to cover temporary losses or gain a better return. In a view of a pro trader that would be classed as gambling, not trading, and will result in almost inevitable loss of the whole initial capital. The whole process from A to Z results in an ultimate culmination. To gain advantage by trying to do the above will require the presence of a phenomenal luck. As most of us do not get to be successful by being lucky, this theory becomes a simple numbers game, where the majority will always lose.
That is the most important part of this theory. Let us assume that any trader is capable of being neutral in the market consistently (gross), comparisons can be made to guessing on which side the coin will land. In the case of a coin (like in the market directions) there are only 2 variables. So if one was to continuously gamble the same amount of money per bet on which side the coin will land he will most probably be neutral, if u introduce commissions to this he would be negative. But "unregulated" human psychology will inevitably make random decisions to start adding to the stake in order to cover temporary losses or gain a better return. In a view of a pro trader that would be classed as gambling, not trading, and will result in almost inevitable loss of the whole initial capital. The whole process from A to Z results in an ultimate culmination. To gain advantage by trying to do the above will require the presence of a phenomenal luck. As most of us do not get to be successful by being lucky, this theory becomes a simple numbers game, where the majority will always lose.
so now you are saying that there is not a 50% chance to have a winning trade each time you trade ? They lose in the long run because of fixed costs and lack of discipline to cut the losers shorts.
Correct. Trading is not a coinflip. If it was, you could just randomly taking positions and with good moneymanagement end up making money...
But anyway, the system is based on long term statistical data (most traders will lose in the long run) and not on a few trades.
From the system's view it doesn't really matter why they loose as long as they keep losing....
I will disagree on this occasion. Opening 1 trade per day is indeed a coin flip. Only 2 variables involved in both cases. If you were to calculate BASIC win vs loss in both cases you would arrive at almost 50/50. You can argue that the market, unlike the coin, can go up and down during the day, but that's why I have mentioned, and others, that incorrect money management will create a dis balance in the balance sheet of a trader that is a gambling type.
You can try this. Allocate $1000 to your friend and say $10000 to your bank. You would be flipping a coin and he will be taking a bet on heads or tails using his own approach to money management, ie any bet goes from 1 to 1000. What you do is bet against him with exactly the same stake reversing his decisions. If your buddy is a gambling type of person, I am pretty sure he won't last more than 5-10 minutes. What's more important than that is that even if he will be lucky for a while, ie go to let's say $5000 after a while he will start losing and end up at 0.
Having an edge makes it not a coinflip. There are traders with 70-80-90% winning ratios, are you saying that their system is just incredibly lucky?
But here is an example. Let's say my indicator says today will be an all day upper, with small pullbacks and I am correct. (So I have an edge.) Thus I am going to be only long and buy every dip.
On the other hand, you are going to flip a coin in every 30 minutes (or less) and take positions based on tail or head.
By the end of the day I will be ahead and you will be happy to break even...
But here is an example. Let's say my indicator says today will be an all day upper, with small pullbacks and I am correct. (So I have an edge.) Thus I am going to be only long and buy every dip.
On the other hand, you are going to flip a coin in every 30 minutes (or less) and take positions based on tail or head.
By the end of the day I will be ahead and you will be happy to break even...
No, I am not saying that their systems are lucky, but if u take an amateur and ask him to make daily predictions it would be lucky/unlucky on regular basis, especially in a sideways market.
Also, as you pointed out trading every 5 minutes might not work for either party. Consider making 1 trade per day or 10 a day depending on daily volatility of that market. Obviously the less trades the better as far as saving on commissions is concerned, but it depends on other things as well.
I haven't got it sussed as yet, so I will keep thinking more.
P.S. The direction of the market is a coin flip to an amateur trader. I've just made a very basic comparison between the 2.
ok, this could be a slightly better comparison. If at market open trader A (bank $5k) opens 1 car long and u reverse (bank $50k) at the same time and both the target and stop let's say are @ 3 pts away from entry for both traders, would result in a "coin flip prediction". At some point in the future when trader A wants to start adding cars (say 5, than 10, etc) u still keep 3 point target/loss, but keeping in mind the average of win vs loss, OK I will say COULD result in his capital starting to shrink, though yours being on the opposite side would then increase. 
phew, exhausting stuff
phew, exhausting stuffI thought we are talking about newb traders not veterans who have skills
