The Most Gut Wrenching Trades are the Winners

Quote from aeliodon:

Because every step of the way you are faced with the temptation of 'taking profits' at new equity high water marks because you know there will be a pullback and you don't know how long or how large the pullback will last. And you're also constantly bombarding by the conflicting 'fundementals' spin machine.
Holding onto your winners is the toughest skill to master and adding to your winners on pullbacks as you hold is nearly impossible. But if you can master this skill, all you need is one huge move: whether its a bubble going parabolic, or a bubble popping to make enough money to be rich.
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Doesn't this depend on the size you are trading?

I've traded positions ranging from small to large, and my own experience is that the gut-wrenching only occurs when you are trading too big. As the old trader saying goes, if your position is so big that you can't sleep at night, then "Sell down to the sleeping point". The flip side is that you are not going to retire from one trade if you are trading sensible size. But how many market legends made their reputation from making a killing on one trade? It was normally success over a lengthy career that established their credentials, not an enormous killing on one trade. George Soros had a great 23 year track record of superb returns before the British Pound trade, for example. Paul Tudor Jones made a name for himself in October 1987, but it is his record since then that elevated him from flash in the pan to legendary hedge fund manager. So, I think your comments are based around the idea of betting way too much on one trade, rather than looking at the long game of trading - how you perform over the next 10-20 years, rather than the next big trade you put on.

I've had my share of losers and winners, and from time to time I have managed to ride a market for the majority of a very large move. Whenever I have been trading sensible size, I have found holding on to be pretty easy. Whenever I have traded very large size, I have found it much more difficult. Suddenly, every small movement assumes greater significance. It makes it much harder to focus on what matters - the broad move taking place - and much easier to get distracted by what doesn't matter, i.e. the random noise. Furthmore, I have found it much harder to correctly adjust a position when I am trading too big. If the market changes tone, and suddenly your trade is not so hot anymore, then you need to be able to completely objectively realise that and act on it promptly. Trading large, it becomes harder to do this because you are more attached to the position.

I think this is the real problem with trading big - it causes you to become emotionally invested in your position. With big size, all of a sudden a huge amount is riding on this one trade. It thus becomes much harder to be objective and flexible, to listen to the market action and respond accordingly. If your gut is wrenching then you are liable to get faked out by every slight move against you, to second guess yourself constantly, and to hesitate when you need to be decisive. That is not the way it should be, because you are going to have hundreds and hundreds of trades over your career. The results of any given one, even if you wait for the odds to become stacked in your favour, are not going to be what determines the end result. Personally I have found it far easier to make the correct trading decisions when I am trading medium size, with a few % of capital at risk on any given trade.
 
Quote from Tracy McGreedy:

But why bother with mediocrity. Some wanna test to see if they're stars.
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If you are a "star" then you will achieve very good results on modest size over a number of years. You will make 20-30% per annum with 5-10% drawdowns. That is enough to raise billions of capital and become one of the richest people in the world in about 10-15 years, if you choose.

Or you can trade the same way, with somewhat more risk, for your own account, and make 50%+ per annum with 10-20% drawdowns. That is enough to become independently wealthy within 10-15 years, or sooner if you have a decent amount of starting capital.

Or you can swing for the fences and trade much bigger size. Then you are practically guaranteed to have a 50% drawdown at some point. Note that this 50%+ drawdown will occur, *even if you are trading absolutely correctly*, purely because of the random factor in trading. If you are risking 10%+ on each trade, a series of 4-5 losers will cause this kind of loss, and this will happen eventually even if each trade setup was a good one. Now this is assuming you are trading well. If you actually start to trade poorly - which will happen from time to time, and is especially likely to happen if you lose half your money - then your drawdown will be magnified. The thing about those kinds of drawdowns is they tend to be psychologically destabilizing and tend to magnify themselves through the deterioration of confidence and the urge to "make it back" on the part of the trader. That is how 50% drawdowns become drawdowns of 80-90% or even a total blowout.

I urge you to look at people who have been successful in the markets. How many of them swing for the fences on a sustained basis? Consider that the more "sensible" traders have still had some very hefty losses. People like Soros and Paul Tudor Jones have all at some point lost 30% of capital during particularly bad periods. If they were trading the kind of risk you are suggesting, they would have been out of business, it's as simple as that. Look at Jesse Livermore - he was a very talented trader, but he blew up several times and eventually it contributed to his suicide.

Part of becoming a star is to manage risk, to guarantee that no matter how wrong you are on a trade, no matter how long a losing streak you have, you are still around to survive and play the game again. You don't do that by betting the ranch - that's what pikers do and it is the #1 reason they blow up so often.
 
Quote from volente_00:

The best trades in the market are always the ones that the majority is scared to take.
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That is probably true for the big picture, but is not something I would focus on as a trader. I am not interested in catching the entire move or the top or bottom, I just want to catch a chunk of it consistently. Even if it means I will take several trades in and out while the move consolidates on the way up. My objective is preservation but I will be aggressive once things line up. In order to do this, one has to be in a clear mental state and have defined parameters for risk and sizing to get plenty of profit for relatively acceptable risk (notice I didn't say low risk - low is relative).

I often feel that there is too much focus on the Market Wizards like Cutten says. This is a job. There are many who think they can get rich by trading for a bit. That is never the case. People don't come to play and leave when they got lucky and made some money. They will continue to bet. That is what casinos are all about. The people who continue to bet expecting to get paid within a short amount of time so they can retire are the ones likely to pay those who are here to grind it out every day.

Again, this is a career choice. The idea is that you don't take trades that the local newspaper will write about. The idea is to be consistent and to build the mental edge and confidence needed to continuously improve your sizing so that the reward becomes incrementally bigger over time while the risk is incrementally acceptable and tolerable.

I would read Cutten's posts a couple of times and really be clear with those concepts. It took me a while to know what I know now and to internalize what Cutten is talking about. Each one of us has to choose this as a long career to be good at it. Otherwise, it is just a hobby and losing the account is simply an acceptable and likely outcome in most cases.

Good luck trading.
FT71
 
the best traders in the world fret over those trades that "could have been worth x and x amount" but are happy with the profits they make.

at this level, the emotional significance of a stop loss trigger is meaningless. discipline in taking losses is expected. discipline is riding winners is a bonus.

that said, the OP has a good point.. letting a trade mature and ripen is the hardest skill to maintain.
 
I think folks here have missed the message.

Hold winners and pyramid - is a very effective strategy- its just that lots of wannabes can not do it. It doesn't matter if its a 2 second trend or 2 year trend. The strategy is the same.
 
Quote from Shagi:

I think folks here have missed the message.

Hold winners and pyramid - is a very effective strategy- its just that lots of wannabes can not do it. It doesn't matter if its a 2 second trend or 2 year trend. The strategy is the same.
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That was exactly my point. I wasn't refering to scalping or arb. trading but rather long term trend trading for huge wins.

If guys look at the big trends in the past 10 years, whether its: nasdaq bubble, housing stocks bubble, china, energy, commodities, AAPL/GOOG/RIMM/BIDU/etc, EUR, etc. - the bottem line is that you don't need to do 50 RTs a day to make good money, you just have to ride the big trends that are constantly happening in the market. I'm not saying you have to go all in on just one trend but one trend is enough to pay for all the small losses with this strategy.
But with any trend, no one has the patience to ride it till it goes parabolic because the lure of 'taking profits' is way too seductive to not fall far when you know there will be pullbacks and you have no idea as to how big or how long the pullbacks will be. And as far as adding to the position along the way - that is a near superhuman skill.
For example, how many billions did Buffett leave on the table in PTR? Something like 20 billion probably. The only reason why Buffett is the 2nd richest guy is because he traded fundemental trends and never took small profits out of fear of the pullback. And the one trade he did take a quick profit on, he leaves 20 billion on the table.

Trend trading and holding all the way is gut wrenching even when you're ITM and that's why there are so few (rich) people that do it. The majority either countertrend trade, or overtrade trying to time every micromove - and usually either blow up or consistantly underperform a buy and hold S&P strategy.
 
After a year and a half of study and 8 months paper trading NQ I finally went live today. The sheer visceral experience was a million miles from sim trading. I'm sure for most of you that 'first time' was a memorable moment. After consistantly being profitable for several months, day in day out, the brain acts completely differently under this sort of pressure: perception is distorted in contrast to being relaxed and objective.

The market takes on a 'personal' edge, an opponent that wants your gelt. So, trading just one contract my hands were shaking and my heart felt as though it was going to beat itself to death. By the 4th trade I was little more relaxed and focused, so I can see how things may hopefully take on an element of eqanimity.

I think this could be addictive. It's such a great feeling to win even a few bucks. The hope of independence from a grinding work regime and a sense of achievement are, I think, worth risking a bit of time, money and sanity for. I thank and salute all those guys (and the odd girl) out there who have provided a great deal of useful information and intelligent insights (as well as the viscious bastards who always amuse).

I shall now follow in those footsteps. With my simple edge, a sense of humility and a stoical outlook that reasons we're all worm fodder at the dying of the light. Perhaps 12 months from now I will be a loser, bitter and contemptuous of daytrading promises. Or, maybe tougher and more determined to succeed, I'll still be in the game. I do not know for we can only find ourselves by finding adversity. The fear will always be in the failing to try.
 
Quote from FuturesTrader71:

Consistency is really the ultimate goal. As I have always advocated since I began coming here several years ago, focusing on making money is really a distraction from what is really needed to make money. I have had many rough patches and have had to relearn a few things many times, but my goal is to squeeze out what I can get pretty consistently. With consistency comes the right mental attitude, confidence and, most importantly, clarity. My views on trading were not learned from a book or a seminar. It has taken a fair amount of introspection and "gut wrenching" to get there, so my opinion to the OP is as close to reality as I can get.

The battle for everyone is really getting to know or figure out what you are comfortable with accepting as far as risk. That is the key. The mind is wired to avoid the pain of losing. This is the part that causes everyone to do things impulsively or to feel a wrenching gut while trading. Losses are inevitable and are just part of the process much like traffic is part of getting to work. It is not desirable, but it is something you know is a part of life and plan for. Once you figure out what risk you are comfortable with, it becomes easier to take enough of it to eek out some consistency. Over time, one starts getting a perspective on the market that will provide confidence and tremendous profitability. Until then, trading is really a fog of emotions masked by technical analysis and time and sales data. LOL

My point: Spend more time learning about who you are and what you expect versus the reality of what is actually in front of you. Once you feel you know that well, you can come back and have less fear. Those who tell you to control your emotions and that trading is unemotional are really masking the fact that there is no such thing. Have you ever tried to run up 20 stories worth of stairs while breathing calmly through your nose? Go ahead and try it. You will end up with a black-out. Doing that exercise makes just about as much sense as trying to "control" how you feel or "make a mood" while trading. Instead, simply understand when your emotions kick in, how you react and, if necessary, walk away for a while. Like I said, if you understand who you are in relation to the market, then you are ready to be objective and to simply take the next trade. Do you really know what the outcome of the next trade will be? Can you really avoid a loss or guarantee a win? If not, then why focus on the impossible. Just accept it and move on. No gut-wrenching required. :)

I'm not saying I'm completely there yet. But I can tell you that after struggling for a while, I started to recognize that being consistent (hence, profitable) is a state of mind/attitude.

I hope that helps shed some light.

Thanks for the kind comments. I'm just another guy trying to achieve consistency day in and day out.

Cheers and good luck,
FT71
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Two words: Mark Douglas.
 
"The Most Gut Wrenching Trades are the Winners"

I couldn't disagree more.

Once I'm in a trade, I'm pretty much on autopilot - I have all my "what ifs" covered and I know what I should be doing and when.

The real gut-wrenchers are the trades I DON'T make - pulling an order because I won't get the fill I want at the original conditions - either because I wasn't paying enough attention or whatever (infact, nearly always because I wasn't paying enough attention :mad: ).

It is terribly gut-wrenching to see a trade you wanted to make - but were too late - run away into profit. But it is these non-trades, the ones you let get away, that make the difference between being consistently profitable and blowing yourself up.
 
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