Trade Abstractions, Not Money

Z

zmostatabi

Trade Abstractions, Not Money
This is gorilla drags down more traders than we can count. Never underestimate the emotional power of profits and losses, of making and losing money. Our culture constantly bombards us subtle and not-so subtle messages that suggest that if we’re making money we’re successful and good, and that if we’re losing money we’re losers – we’re bad.

This psychology so ingrained in all of us, and is so linked to issues of personal self-worth, that most professional traders have had to construct abstract mental trading worlds into which they can figuratively retreat to isolate and protect themselves from this pervasive money/success paradigm. Many big hitters, people who trade in hundred and thousand-lot positions, would surely go crazy if they were not trading in such a self-created abstract mental realm.

This is why traders such as Tom Baldwin, the kingpin of the bond pit, a man who trades as many as ten or twenty thousand bond contracts a day, say such things as, “I don’t trade for money, I trade tics.” By convincing himself that he’s trading tics [numbers] and not money, he’s trading in the abstract. In doing so, he’s effectively diminishing his susceptibility to the emotional consequences of trading money.

Do not trade money, trade numbers. Create for yourself an abstract trading world. But be careful not to lose contact with reality – don’t deceive yourself.
Never place real money you cannot afford to lose within this abstraction; the emotional attachment to money is too strong to gloss over, no matter how hard you try. Trade only money that you can lose - money
 
I've come to believe that this is what seperates the mild and moderately profitable from the very profitable traders.

It takes work to divorce emotion from money, to break the associations that society ingrains into you. But once you do, it's like peeling a thick layer of hazy plastic off the glasses you've been wearing. All of a sudden you see things clearer and easier and your trading explodes to another level.
 
i believe its one's relationship with money that is critical. if you have a good relationship with capital, there is no need to trade in the abstract. fake money, real money should be identical--however, a damaged relationship with money caused by parents/circumstances/etc. makes trading very difficult.

best,

surfer
 
It is a little more complicated than that imo.

The key is not to not care about money [negation intended], but to trade within your risk parameters and style and be completely confortable with it. Trading fearlessly an account that should be traded with 1/10 the margin is [lack of] fear working against you not for you. But once you trade within the size of your account so that the mathematics of the game can't blow you out unless you are exceptionally unlucky, money becomes a recursive mechanism - use money to make money - money then is a kind of machine and the markets become a personal ATM.

It is however, once you understand how to trade profitably and with the correct risk parameters THE one thing that keeps one moving to the next level. The correct way to get to the next level isn't to remove the fear of losing money, but to acquire a bigger trading account so that losing x + y instead of x doesn't elevate your chance of getting removed from the game and having that ATM machine taken away from you. Notice that fear helps with defense, not offense.

In other words, fear is a good thing if it keeps you from overtrading and trading too much size for a given account. Most professional traders don't need fear as this kind of aid, because while they still have the ambition to make lots of money, they no longer have the dysfunctional dream of taking $5000 into $1M and trade irresponsibly. We know how to make our $xK a day [fill in the blank] and know that if they want to make $2xK a day they have to trade bigger size and/or more edges and know what that entails.

When your stomach starts to churn - listen to it. Not only is the position you are in likely to suck, but you are no longer trading with a professional mindset. Exit and reevaluate. This is not fear, this is experience, if you are already profitable.

nitro
 
Here is one thing i do to eliminate FEAR from trading. First, fear in THIS CASE being the account blowing up from a deviation from the norm, such as an atomic explosion on the GOOGLE campus if i was long the stock. Likely? Not really, possible, yes.

The year is ending. I take the winnings out of the futures account and start the new year with a certain nut to trade. With that set amount used to trade and no more or no less, the play money is no sweat. Never shoot to gain more money than the Donald can lose in a downturn in the real estate mkt of Manhattan.

Trading with your edge and "loss management" ideas with a set amount will not put you on the Forbes most rich list, but that is exactly the point....Who cares.......:D

These days i do not trade for tension, i trade for the best return for the same amount year after year, that is enough challenge.

Fear is totally gone, if the account blew up, so what...:p
 
Quote from nitro:

It is a little more complicated than that imo.

The key is not to not care about money [negation intended], but to trade within your risk parameters and style and be completely confortable with it. Trading fearlessly an account that should be traded with 1/10 the margin is [lack of] fear working against you not for you. But once you trade within the size of your account so that the mathematics of the game can't blow you out unless you are exceptionally unlucky, money becomes a recursive mechanism - use money to make money - money then is a kind of machine and the markets become a personal ATM.

It is however, once you understand how to trade profitably and with the correct risk parameters THE one thing that keeps one moving to the next level. The correct way to get to the next level isn't to remove the fear of losing money, but to acquire a bigger trading account so that losing x + y instead of x doesn't elevate your chance of getting removed from the game and having that ATM machine taken away from you. Notice that fear helps with defense, not offense.

In other words, fear is a good thing if it keeps you from overtrading and trading too much size for a given account. Most professional traders don't need fear as this kind of aid, because while they still have the ambition to make lots of money, they no longer have the dysfunctional dream of taking $5000 into $1M and trade irresponsibly. We know how to make our $xK a day [fill in the blank] and know that if they want to make $2xK a day they have to trade bigger size and/or more edges and know what that entails.

When your stomach starts to churn - listen to it. Not only is the position you are in likely to suck, but you are no longer trading with a professional mindset. Exit and reevaluate. This is not fear, this is experience, if you are already profitable.

nitro
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There isn't a single bit about that post that I did not like. Nicely put nitro.

Didn't Elder state in one of his books that the aim in trading should be to trade well (stick to plan, risk, etc) and not be consumed by the size of profits (at least not initially anyway)? If you trade well and do it consistently, profits will naturally follow.
 
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