Through the Looking Glass

[trackstar]

Quote from illiquid:

On the topic of paranoia:

Anyone who has traded long enough will undoubtedly develop a nagging suspicion that the markets aren't exactly "friendly". Highs/lows tend to be bought/sold, protective stops serve as magnetic trampolines, the list goes on and on. For the more optimistic (typically greener) bunch, this feeling usually gets swept under the rug of unbridled anticipation for what opportunities a free market offers one and all; besides, at any given moment, one can go long or short as he pleases, it's 50/50 at worst, no? Even the less sanguine will nonetheless learn to dismiss such misgivings and instead focus on taking full responsibility for the results of their own actions – a sign of growth and maturity . . . isn't that what trading is all about?

Yet I would argue that it's a mistake to supress one's paranoia for the sake of some egalitarian ideal of the free market. On the contrary, I think to do so would be to deprive oneself of a powerful tool for learning how the market actually functions. Remind yourself constantly of the fact that "free" doesn't necessarily equate to "fair". I've learned not to shy away from my paranoia; in fact I really don't care if what I believe is necessarily true or not. But if I allow myself free rein in considering what is possible, I at least open myself to accepting all outcomes no matter how nonsensical or illogical, and work from there.

So what sorts of "truths" does a trader-paranoiac hold? Consider the following:

1. The market is always out to get you.
2. The market will go up because you sold it; the market will go down because you bought.
2. The tape can be liberally "painted" and cannot be trusted.
3. Stops are always visible and are magnets for price action.
4. If your risk manager can see your losing positions and where you need to be liquidated, why can't someone else?
5. Do you think fx brokers invented trading against their own customers? The spirit of the bucketshop never died.
6. Short locate requests go directly to the enemy; traders are offered free locates the same way brokers once offered "free" trading.

And so on and so forth. Does some or all of this sound crazy? Can one really even attempt to make money from such a hostile environment? Doesn't a belief in all the conspiracies paralyze one from placing a trade at all?

Well . . . that's the whole point. Trade paranoid people. Trade more selectively. Much more selectively. Throw that 50/50 crap out the window, that's la-la-land bullshit. The market isn't gonna lie there and let you try out which hole feels best without making you pay up. Remember, whatever doesn't kill you only makes you stronger. Level the playing field a little and learn to be paranoid.

I will say that I have had the exact opposite experience. In my early years I thought just like what you posted. I made things much harder than I needed to. If your stop is "on the book" or not there is still going to be other stops around it to make a potential area worth gunning for.

Once I finally started to understand the tape tells the truth and didnt try to find the lies within it then I started to become more and more profitable. I anticipate that we started at opposite extremes and we both ended somewhere in the middle but I thought I could at least provide another perspective.

 

[Kassz007]

Quote from trackstar:

If your stop is "on the book" or not there is still going to be other stops around it to make a potential area worth gunning for.

I have often questioned the use of stop-losses (I do not use them personally). To me, the only usefulness found in stop-losses is for people who aren't actively managing their trades. If a trader is actively managing his/her trades, what use a stop loss when you can close the position with a market order whenever you want? I would think a stop-loss order is just as susceptable to slippage as a market order, so what is the benefit?

Perhaps this is not the appropriate place for this discussion but since the topic was brought up I thought I'd share some thoughts.

Good discussion in this journal so far.

 

[trackstar]

Quote from Kassz007:

I have often questioned the use of stop-losses (I do not use them personally). To me, the only usefulness found in stop-losses is for people who aren't actively managing their trades. If a trader is actively managing his/her trades, what use a stop loss when you can close the position with a market order whenever you want? I would think a stop-loss order is just as susceptable to slippage as a market order, so what is the benefit?

Perhaps this is not the appropriate place for this discussion but since the topic was brought up I thought I'd share some thoughts.

Good discussion in this journal so far.

trading without stops(mental stops) has always given me much worse slippage than trading with them.

 

[kardisa]

Quote from illiquid:
I tend to get sloppier and more lax as my account accumulates. The attitude becomes: why not take a chance, try something new, see what happens, learn something while you can afford the tuition. Inevitably, that tuition gets paid -- and perhaps then some. Rinse and repeat.

Wow, this is me in a nutshell. I look forward to reading more of your musings.

 

[illiquid]

Quote from trackstar:

I will say that I have had the exact opposite experience. In my early years I thought just like what you posted. I made things much harder than I needed to. If your stop is "on the book" or not there is still going to be other stops around it to make a potential area worth gunning for.

Once I finally started to understand the tape tells the truth and didnt try to find the lies within it then I started to become more and more profitable. I anticipate that we started at opposite extremes and we both ended somewhere in the middle but I thought I could at least provide another perspective.

Although some of what I wrote was tongue-in-cheek, the point I was trying to make was to find trades that work even if all the conspiracies were true. In a well-timed trade there won't be any time or desire for "them" to hit your stops -- they'll be too busy pushing the market in your favor to bother.

 

[NoDoji]

Quote from trackstar:

trading without stops(mental stops) has always given me much worse slippage than trading with them.

Absolutely. Stops are market orders and you end up farther back in the queue if your stop isn't already in place.

 

[trackstar]

Quote from illiquid:

Although some of what I wrote was tongue-in-cheek, the point I was trying to make was to find trades that work even if all the conspiracies were true. In a well-timed trade there won't be any time or desire for "them" to hit your stops -- they'll be too busy pushing the market in your favor to bother.

point taken and i think i might have been dead on when i said we can from opposing angles but ended in the same place.

 

[illiquid]

P/L for this week: -4,700 on 433k shares traded.

-6, +4, +8, -4, -6

This week was typical in the volatility of day to day p/l for me; not so typical was how it was arrived. I concentrated on cutting losers short, as my losing days usually come from one or two positions going very bad, and that went well. However, I also ended up churning a few stocks, most notably 77k shares of AIG on thursday for a loss of -3.7k. On good days I only tend to trade around 30-40k shares in total; I am a poor scalper, and my share count traded in a stock is directly correlated with how much I'll lose in it. Also, I normally don't hold overnights for an entire week but the position looked good -- until POT guidance caught me offsides Friday.

A disappointing start, but I really shouldn't expect too much during expirations months (mar, jun, sep, dec) in between earnings seasons. And so my total volume should reflect that, which it didnt; my biggest error this week was just clicking away at the kb when there just wasn't anything (for me) to do. I was also reminded about how I can lose just as much or more trading around a losing idea as holding it straight all the way til my puke point -- I "rewarded" my quick loss cutting with multiple attempts at the same trade, instead of just moving on. I think I need the ability to visualize the "perfect loss", and it should look something like this:

ABC 2000 shrs -XXX

Next.

 

[Redneck]

Hey Illiquid

Realize I know you are experienced – so I could be very "wet” on this but…..


Whenever I read “cut my losers short” (in any post not just here) here’s what I tend think (albeit right or wrong)

And btw – I fully acknowledge you also said – you “rewarded your quick loss cutting”... Which to me cutting a loser short is not the same as cutting a loser quick… (and yea I realize what you meant when you wrote “rewarded yourself” – been there done that )



Anyway what I tend to think when I read cut a loser short…..


I know the time frame I’m trading…. I know what the set ups look like within that time frame.., which by default means I also know the point where a trade failed… However...


I am really not crystal clear on the time frame I am trading – possibly I am using multiple time frames but not sticking to one specific time frame for entries/ exits

I am not really crystal clear on my set up(s) – within the chosen (specific) time frame I trade

I am not patiently waiting on my set up(s) to materialize – and I end up entering early

I am not crystal clear on my failed trade point(s)

I am clear on my failed trade points but I not waiting patiently on the trade to come to fruition – win or lose

I know all this (my frame work is clearly defined) but I am not really following it



Would you mind describing how you know, and why, you are cutting your losers short? (and if not no biggie)



Fwiw…

On the flipside – I think if we have absolutely and clearly defined all the above (created our frame work) – and consistently trade within our framework…

Then our primary (only) task is to sit and wait – either on the next trade (set up) to materialize, or on the trade we’re in to come to fruition – win or lose


Yep it’s easier said than done – that human condition we all face is a real pita Sir

Respectfully
RN

 

[ammo]

Quote from Redneck trader:



I



Fwiw…

On the flipside – I think if we have absolutely and clearly defined all the above (created our frame work) – and consistently trade within our framework…

Then our primary (only) task is to sit and wait – either on the next trade (set up) to materialize, or on the trade we’re in to come to fruition – win or lose


Yep it’s easier said than done – that human condition we all face is a real pita Sir

Respectfully
RN [/B]

good rn