Quote from Jachyra:
One of the best traders I ever met used to always say that "trading models are to believed, but never trusted." That little saying has helped me so much over the years that I find myself mumbling it in my head everytime I'm about to pull the trigger.
The thing you have to remember is that the indicators only get you so far. I spent the first 5 years of my trading career trying to find the perfect mechanical approach, or the best combination of indicators, before I finally realized that I was trying to use them as a crutch. I think that a lot of traders try to make trading mechanical, and really kind of abuse their indicators, because letting the indicators do all of the work for you is a hell of a lot easier than trying to actually learn the principles of auction market theory and having to apply them in real time. Its just easier.
The fact of the matter is (at least in my opinion), that there are a lot of things that go on throughout the day, some of which show up in a chart and some of which don't. The indicators can be a big part of it, but its not the only part.
I always find it amusing when I see traders who can tell me what all their indicators say but can't for the life of them spot a simple chart pattern thats developing right in front of their very eyes.
However, if you are convinced that trying to approach the markets in a more mechanical nature is right for you, I would also point out that you should have a similar "long term" perspective that a lot of professional poker players have, and that anyone must have when trying to engage in and "odds-based" business. Just this weekend I was in Las Vegas and played quite a bit of poker. In one day I was dealt pocket aces 4 times, played them pretty well, and still lost with them all 4 times. Does this mean that I should quit playing pocket aces....well only if I want to never play the only hand that I'm guaranteed to be at least a 4 to 1 favorite with, no matter what other SINGLE hand I happen to be up against.
In an odds based business (like trading, poker, or owning a casino or an insurance company) the laws of averages are not the only principles in play. There are also the laws of distribution (or what some people refer to as random walk). This is why if you flip a coin ten times in a row, while we know that theoretically it should come up heads 5 times and tails 5 times, sometimes it may only come up heads 3 times and tails 7 times.....or heads 10 times in a row for that matter. The laws of averages really only begin to become evident as your sample size begins to approach 1,000,000.
From my experience, all the indicators in the world aren't going to get you in a much better situation than A-K vs. an under pair (forgive the poker analogies if you don't play, but its how I think). No matter how you slice it, you're going to be in a coin flip situation, with the indicators helping you to get on the "good side" of the flip (which would be the equivalent of having a pair vs. two over-cards). And its important to remember that having an edge doesn't mean that you're guaranteed to win... it only means that you have a better chance of winning.
So one thing that you must do is determine as to whether or not your set of indicators that you're basing your trading decisions on is solid. If not, well then thats a big problem. But if you have faith in them, then the best thing you can do for yourself is to just not care when you get into a trade that doesn't work out. Even if you have an awesome system you are still going to have a LOT of trades that just don't work out.....just like a poker player isn't going to win with pocket aces 100% of the time. Quite often, those trades that don't work out are going to come in bunches...just like winning trades will often come in bunches. Its not just possible....its probable.
I always tell new traders that you shouldn't be any more upset about a losing trade than a casino would be about having to pay out a single bet at the blackjack table. I mean, even if you have a system that you estimate gives you a 70% edge, you're still going to have to book a loss 30% of the time. If you allow yourself to become distraught every time you have to book a losing trade, you're just not going to do very well in this business.
