The 30 most costly trading errors
- Thread starter Cutten
- Start date
zero sum - commision and overhead = negative sum.
I hope my message can save a kid or 2 from making the most costly error in their lives.
a general misconception out there is that a young person can take more risk, e.g. by persuing some negative sum fantacy..... this is truely a fallacy.
at 25, if you waste 5 years, the reduction in earnings AND future earning power is compounded thru out ones life till he retires.... do a back of the napkin calculation of the 2 examples I gave in a earlier post, you can see that at the time of retirement, the net damage is in the $ millions.
where as, if an old person waste 5 years from age 55-60, the damage is not compounded, and therefore is limited to only the 5 years of earnings.
Thats why the misconception is so deceiving.... the younger you are, the more careful you should be in selecting a career. Most people do the opposite, and that's sad.
So how do you select one, you ask.
Ask yourself, where your passion is. Ask your parents, your professor, your elder, your career advisor, whoever has going around the block a few times. Persue it passionately. You will have fun, and the money part will take care of itself.
My parent and professors would be really embarrassed for me to pursuit into porno video games industry.
A college grad asked me not long ago for some words of wisdom. Family, friends, career advisors all had opinions for his career choices, but he loved trading and wondered if it was viable option.
Here is my reply:
"There is no job security, despite what others may tell you. We have so many friends who are being laid off after many, many years with a company.
Doing something you dislike (or maybe even despise) in order to maintain the illusion of financial security while hoping to someday place yourself in a situation to do what you love is self-defeating. I believe it's a road to nowhere. I despised running a business all those years, dealing with bad employees, unreasonable customers, massive debt, and incredible workloads doing things I hated, working toward some nebulous future, when I could've actually done what I loved all that time and become one of the best at it. Then if I failed, I could've moved on. Nothing is worse than looking back on your life with regrets.
At this point in my life, I find trading absolutely fascinating and for the first time in my life I have a job that I look forward to each day, despite the challenges which are huge for me. I don't have any other job prospects, so the pressure is heavy to make a living at this. I know this holds me back hugely, and I'm working through the psychology of that on a daily basis.
You said, "I guess the real thing I am worried about is failing at trading. I worry that I will not be able to cover my monthly expenses with trading, or worse, lose my capital."
That cloud hangs over me every single day, and once I can remove it psychologically, I am certain I can be successful.
Here is the nugget of wisdom I impart to you out of all this (and this is nothing more than my sole opinion):
Ask yourself, "What is my passion?"
Then take your passion and go all in!"
*****
What was my passion many years ago that I put on hold in order to build a proper career like parents, friends, and counselors told me to?
Music.
Like trading, a risky "1% make it, 99% fail" sort of thing.
Better to go all in when you're very young, before family, mortgage, and such create real pressure, and if you fail, you have plenty of time to re-evaluate your life.
The biggest mistake is worrying about the biggest trading errors
Trading needs to be fluid and seamless and effortless
Trading needs to be fluid and seamless and effortless
Definitely can relate to that one the most. I think the key here is you must have an absolute $ stop that is not way out of wack, ie you can recover the loss in x days, weeks or months, NOT years
. I always find myself in a situation wherein i tell myself all i need is just a little pullback that's allI find what helps me is to look for a moment when the free fall has stopped before adding to your position if that is your strategy. Then you can start accumulating from that point onwards but always making sure you have a hard stop right at that new low/high for that specific accumulated shares. That way you do not indefinitely average your position but rather increase your probability of success as you cut the loss on those accumulated shares at the break out of a new low or high.
So true! That's why there are so many market inefficiencies though due to the varying degrees of cost structure. Think about it, a normal discount broker would charge typically say $8 for a trade of say 100 shares of GE. A regular broker may charge $30. However, a prop. firm, would charge say 2 cents for those same 100 shares! Its ridiculous but one can clearly see where the "edge" is on the basis of cost structure alone.
There is such a thing as credits/rebates plus an edge you know? This completely refutes the zero sum theory when one's strategy consists 80% of adding liquidity. Also, if you work for one of these prop. firms, you have no overhead as that is the reason why you would be getting a lower payout. And as previously stated, commission for these prop. firms are virtually 0 and they allow you to get in and out same price and having the credits/rebates more than offset your commish.
You mentioned about finding your passion as well, what if trading IS your passion? Should you give up so easily?
You've made good points about maximizing your value when you're at a young age but at the same time you've mentioned you should also take the most risk with an "all in" attitude while you're still young and single. I find them a bit contradictory
BTW just wanted to share with you an article "On Work" by Kent Nerburn
http://www.clubbinginsider.com/forum/showthread.php?t=35960
06-20-09 06:21 PM
The OP (Cutten)' s request:
06-10-09 04:02 AM
âItâs hard to repeat a brilliant performance, but itâs straightforward to avoid errorsâ - Paul Graham
The most costly mistakes usually have one or more of the following characteristics in common. Feel free to add your own suggestions, but only mistakes that tend to cost a lot of money, not minor errors. Also, I encourage anyone to post "war stories" where one or more of these errors was involved.
My list is different than the OP's in one way. The mistakes are not the quicky kind that occur in a moment. They are deep and pervasive and costly to one's performance.
They are ranked as well.
1. Being in an incoherent state while trading. This is the fight or flight stance so common and pervasive. Either stance is incoherent.
2. Not understanding or measuring your coherence.
3. Not being completely knowledgeable of your coherent state so that you DO NOT trade when this state is not being maintained.
4. Not having a routine that is repeated over and over while the market being read.
5. Not being mentally differentiated so that you can read the market in real time.
6. Not knowing precisely What Must Come Next (WMCN) on your trading fractal.
7. Not consistently using a complete data subset as the market is read.
Corollary to 7. Acting behaviorally on one data element (the freakout trader).
8. Not understanding that there is only one time in which the market operates and it is named NOW.
9. Not being able to see "What Wasn't That when it occurs.
10. Operating inductively.
Corollary to 10. Not operating deductively.
11. Using anything associated with probability.
Corollary to 11. Not using a binary decision making approach with regard to market parameters.
12. Not being on the right side of the market at all times.
13. Not recognizing that there is NO noise in markets.
14. Not recognizing that the most important aspect of trading is HOLDING as time passes.
15. Not knowing thoroughly what constitutes the difference between the status of the markets and the signals of the market.
16. Not knowing that there is an identity between an exit in NOW and the next entry on the opposite side of the market in NOW at the very same time.
17. Not trading on the same fractal all the time.
Corollary to 17. Shifting fractals to obtain status or signals unknowingly.
18. Not removing original capital upon first doubling in order to do all subsequent trading on profits only.
19. Adding ANY additional capital after the initial capital is traded.
20. Not understanding that price need not be displayed to trade. Displaying price on a chart is NOT a requirement to trade successfully. There were no charts for longer than there have been charts in the financial industry.
21. Not knowing the leading indicators of price.
22. Not knowing that any trading signal used must only come when the HOLD status (See 14.) that could be observed is NOT present in NOW. This applies to all trading strategies.
23. Not knowing that there are three more important panes than the Hold pane and the trading signal pane.
24. Not using the all the market vaiables in the monitoring data set.
25. Not knowing the one to one correspondence of the monitoring and analysis data subsets. (Knowing both sets are finite is a priori)
26. Not knowing the one to one correspondence of the analysis and decision making subsets. (This relationship never changes because of market context).
27. Not knowing that a wash trade is always possible to regain being on the right side of the market.
28. Not knowing the importance of being in the market when price is changing. (Changing price is the only way to make money.
29. Not knowing when the status of the market is such that there is zero possibility of trading signals.
30. Not recognizing all internal price patterns on a given fractal are HOLD status conditions except for expert traders.
31. Not recognizing that the market offers, daily, a multiple of the ATR.
A person learns to trade after hours and NOT during RTH. There is a choice that comes in learning to trade. A person either chooses to learn the language of the markets or learns to make up rules for trading. these two paths at the fork in the road do not overlap. It is like understanding that learning to read and learning to do math are different subjects. One is about language and the other is about using rules to solve problems.
The market is not a problem and mathematics is not the primary knowledge involved in trading. In trading, a language is involved it turns out. Most people will never understand this. Cutten's list applies more to problem solving than the communications aspect of languages. I posted the list I did in a negative context as an NLP consideration. No one who reads the list actually takes in a negative comment but onloy takes in the positive reading of the listed item.
Consider: "Don't fall down on the ice"
Now consider: "walk carefully on the ice".
Which comment allowed you to cross the ice?
For humor, there is a thread on models and their development. In it back testing was done and mentioned. the person finally noticed the leading indicator of price and did not make use of his statisitcal results. He discovered a 92 percent correlation between TA indicators under a certain condition and just chucked the condition in the toilet and flushed it. This guy has all the problems I listed it turns out. So do his colleagues here and in his office (he is hiring).
There is another correlation: the failure rate of potential traders as compared to whether they learn the language of the market or whether they take the fork in the road to develop rule sets for trading.
Making an ATS for either approach (reading or rules) happens in the manner of the child. It either represents how the child's mind learns to read a language or learns how to do arithmetic. MA's are sort of simple and what quants did when they had jobs was induction instead of deduction. Coding the language of the markets is deductive because can only be based upon the use of paradigms (null hypothesis set testing by the appropirate parametric measure). Four measures are used and they are of like kind. This is how all the 31 items on the list are avoided.
The OP (Cutten)' s request:
06-10-09 04:02 AM
âItâs hard to repeat a brilliant performance, but itâs straightforward to avoid errorsâ - Paul Graham
The most costly mistakes usually have one or more of the following characteristics in common. Feel free to add your own suggestions, but only mistakes that tend to cost a lot of money, not minor errors. Also, I encourage anyone to post "war stories" where one or more of these errors was involved.
My list is different than the OP's in one way. The mistakes are not the quicky kind that occur in a moment. They are deep and pervasive and costly to one's performance.
They are ranked as well.
1. Being in an incoherent state while trading. This is the fight or flight stance so common and pervasive. Either stance is incoherent.
2. Not understanding or measuring your coherence.
3. Not being completely knowledgeable of your coherent state so that you DO NOT trade when this state is not being maintained.
4. Not having a routine that is repeated over and over while the market being read.
5. Not being mentally differentiated so that you can read the market in real time.
6. Not knowing precisely What Must Come Next (WMCN) on your trading fractal.
7. Not consistently using a complete data subset as the market is read.
Corollary to 7. Acting behaviorally on one data element (the freakout trader).
8. Not understanding that there is only one time in which the market operates and it is named NOW.
9. Not being able to see "What Wasn't That when it occurs.
10. Operating inductively.
Corollary to 10. Not operating deductively.
11. Using anything associated with probability.
Corollary to 11. Not using a binary decision making approach with regard to market parameters.
12. Not being on the right side of the market at all times.
13. Not recognizing that there is NO noise in markets.
14. Not recognizing that the most important aspect of trading is HOLDING as time passes.
15. Not knowing thoroughly what constitutes the difference between the status of the markets and the signals of the market.
16. Not knowing that there is an identity between an exit in NOW and the next entry on the opposite side of the market in NOW at the very same time.
17. Not trading on the same fractal all the time.
Corollary to 17. Shifting fractals to obtain status or signals unknowingly.
18. Not removing original capital upon first doubling in order to do all subsequent trading on profits only.
19. Adding ANY additional capital after the initial capital is traded.
20. Not understanding that price need not be displayed to trade. Displaying price on a chart is NOT a requirement to trade successfully. There were no charts for longer than there have been charts in the financial industry.
21. Not knowing the leading indicators of price.
22. Not knowing that any trading signal used must only come when the HOLD status (See 14.) that could be observed is NOT present in NOW. This applies to all trading strategies.
23. Not knowing that there are three more important panes than the Hold pane and the trading signal pane.
24. Not using the all the market vaiables in the monitoring data set.
25. Not knowing the one to one correspondence of the monitoring and analysis data subsets. (Knowing both sets are finite is a priori)
26. Not knowing the one to one correspondence of the analysis and decision making subsets. (This relationship never changes because of market context).
27. Not knowing that a wash trade is always possible to regain being on the right side of the market.
28. Not knowing the importance of being in the market when price is changing. (Changing price is the only way to make money.
29. Not knowing when the status of the market is such that there is zero possibility of trading signals.
30. Not recognizing all internal price patterns on a given fractal are HOLD status conditions except for expert traders.
31. Not recognizing that the market offers, daily, a multiple of the ATR.
A person learns to trade after hours and NOT during RTH. There is a choice that comes in learning to trade. A person either chooses to learn the language of the markets or learns to make up rules for trading. these two paths at the fork in the road do not overlap. It is like understanding that learning to read and learning to do math are different subjects. One is about language and the other is about using rules to solve problems.
The market is not a problem and mathematics is not the primary knowledge involved in trading. In trading, a language is involved it turns out. Most people will never understand this. Cutten's list applies more to problem solving than the communications aspect of languages. I posted the list I did in a negative context as an NLP consideration. No one who reads the list actually takes in a negative comment but onloy takes in the positive reading of the listed item.
Consider: "Don't fall down on the ice"
Now consider: "walk carefully on the ice".
Which comment allowed you to cross the ice?
For humor, there is a thread on models and their development. In it back testing was done and mentioned. the person finally noticed the leading indicator of price and did not make use of his statisitcal results. He discovered a 92 percent correlation between TA indicators under a certain condition and just chucked the condition in the toilet and flushed it. This guy has all the problems I listed it turns out. So do his colleagues here and in his office (he is hiring).
There is another correlation: the failure rate of potential traders as compared to whether they learn the language of the market or whether they take the fork in the road to develop rule sets for trading.
Making an ATS for either approach (reading or rules) happens in the manner of the child. It either represents how the child's mind learns to read a language or learns how to do arithmetic. MA's are sort of simple and what quants did when they had jobs was induction instead of deduction. Coding the language of the markets is deductive because can only be based upon the use of paradigms (null hypothesis set testing by the appropirate parametric measure). Four measures are used and they are of like kind. This is how all the 31 items on the list are avoided.