Risk Management is the answer

[Wide Tailz]

My apologies, it may have been better to post this in the psychology forum because the total obsession with limiting the downside motivates the work necessary to find that golden grail buy signal (which, from my own research, coincides with a situation requiring the lowest possible adverse excursion before knowing the pattern failed).

When did you turn from a loser to a winner?

"When I was able to separate my ego needs from making money. When I was able to accept being wrong. Before, admitting I was wrong was more upsetting than losing money. ........ By living the philosophy that my next winner is always in front of me, It is not so painful to take a loss." - Marty Schwartz

Any other advice for new traders?

"You have to learn how to lose; it is more important than learning how to win. If you think you are always going to be a winner, when you lose, you will develop feelings of hostility and end up blaming the market instead of trying to learn why you lost. Limit losses quickly." -Mark Weinstein

 

[waynejackson]

@Wide_Tailz Very well said. It’s often our ego that is a limiting factor. Ego subconsciously creates obstacles in our mind to accept our mistakes. If we can’t accept that there's something wrong in our style, then we can never evolve ourselves to the changing market conditions.

 

[deaddog]

After 25 years of daytrading forex and futures, I am not a rookie anymore.
Second, I posted an extensive post with mathematical proof that a good entry matters a lot. I never said that a good entry alone is the holy grail. I just said that a good entry is more important then risk management, to make profits. Good entries can make profits, good risk management cannot make even a dime.

I would argue that a good entry won't make you any profits if you don't have an exit plan. The entry is only part of the equation. To have any either profit or a loss you have to have an exit.

I can give the perfect entry to 2 different traders and they'll probably end up with 2 different results. Lots of emotion involved in when to sell. Having your stop loss hit is the easy part. Having the trade go in your favour gives you lots of difficult decisions.

 

[Wide Tailz]

Insights from Vic Sperandeo, who had a trading business after making gobz of money himself:

"I hired other traders, taught them what I did and gave them my capital to trade. ... Over a five year period I trained 38 people. Each spent several months by my side while I taught them everything I knew. Five went on to make money."

Was there a correlation between intelligence and success?

"Absolutely, but not in the way you think. One of the five who made a great deal of money was a high school dropout who was my phone clerk, and was always very aggressive and alert. He had been in Vietnam and had a grenade explode near him, so he was always afraid of everything. When it came to trading, he was more worried about losing than not winning. He took losses very quickly.

"On the other end of the spectrum, one of the people I trained was a genius. He had a 188 IQ and had been on Jeopardy and answered every question correctly. He never went on to make a dime in trading."

 

[deaddog]

Insights from Vic Sperandeo, who had a trading business after making gobz of money himself:



"On the other end of the spectrum, one of the people I trained was a genius. He had a 188 IQ and had been on Jeopardy and answered every question correctly. He never went on to make a dime in trading."

Did he mention why?

 

[Handle123]

My Edge IS risk management. Entry is last in my list of what to look for in Trading Plan. Yes, many have next to nothing as far as risk management, but if one studies how to hedge, drawdowns go much lower, and if you study enough, you learn on to make profits on obvious losing trades. Learn how to hedge open profits so retracements means account does not lose value. Nothing is perfect every time, but most times.

It's funny, almost every business carries insurance in some way and hardly anyone in trading uses it in longer term trades.

 

[deaddog]

My Edge IS risk management. Entry is last in my list of what to look for in Trading Plan. Yes, many have next to nothing as far as risk management, but if one studies how to hedge, drawdowns go much lower, and if you study enough, you learn on to make profits on obvious losing trades. Learn how to hedge open profits so retracements means account does not lose value. Nothing is perfect every time, but most times.

It's funny, almost every business carries insurance in some way and hardly anyone in trading uses it in longer term trades.

I suppose it depends on how you manage risk. The way I understand hedge is that you have an asset or instrument that will move in the opposite direction of what you are hedging. One goes up the other goes down. Kind of guarantees that the portfolio goes nowhere.

I manage risk by getting out of the market when it's not doing what I expect it to do. No insurance.

Making profits on losing trades is beyond my comprehension. Offsetting a loss by putting on a different trade would take me out of my comfort level. I just accept the loss, try and keep it as small as possible and move on.

 

[Overnight]

...

Making profits on losing trades is beyond my comprehension. Offsetting a loss by putting on a different trade would take me out of my comfort level. I just accept the loss, try and keep it as small as possible and move on.

It is a hell of an interesting experience though. I forget what you trade, but you can try the easiest of all in futures, due to liquidity...the intra-calendar spread in CL with manual legs (as opposed to an ETS).

For example, tomorrow night go long January, short February. (or vice-versa, doesn't matter)

You will always have an effective gain/loss of zero, +/- a few ticks. But as you watch the charts, you start to learn a bit more about the kind of trader you are. You can sit and watch those charts move for weeks and weeks before you have to make a decision, because the nearest expiry would not be until end of December.

It is like playing chess with yourself. Fascinating psychology play. Give it a whirl if you can, it will cost only the commish, and maybe even gain you a bit of profit if you close the legs out during a spread gap.

 

[deaddog]

It is a hell of an interesting experience though. I forget what you trade, but you can try the easiest of all in futures, due to liquidity...the intra-calendar spread in CL with manual legs (as opposed to an ETS).

For example, tomorrow night go long January, short February. (or vice-versa, doesn't matter)

You will always have an effective gain/loss of zero, +/- a few ticks. But as you watch the charts, you start to learn a bit more about the kind of trader you are. You can sit and watch those charts move for weeks and weeks before you have to make a decision, because the nearest expiry would not be until end of December.

It is like playing chess with yourself. Fascinating psychology play. Give it a whirl if you can, it will cost only the commish, and maybe even gain you a bit of profit if you close the legs out during a spread gap.

I was told that I shouldn't play with myself.

I swing trade stocks. Used to day trade ES and NQ but it took up too much of my time. I kind of know what kind of trader I am. Lazy is the first word that comes to mind. I like to keep things real simple.

First thing I would ask about the trade you suggested is how much can I lose if things don't go as expected?

 

[Overnight]

I was told that I shouldn't play with myself.

I swing trade stocks. Used to day trade ES and NQ but it took up too much of my time. I kind of know what kind of trader I am. Lazy is the first word that comes to mind. I like to keep things real simple.

First thing I would ask about the trade you suggested is how much can I lose if things don't go as expected?

Zero, +/- a few ticks and comissions.