Trading is Bad for your Mental Health

Quote from Rearden Metal:

A Random Walkist wandering around a site for traders is like a priest at a brothel or a Muslim at a peace rally. WTF are you doing here?
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I never said financial markets were random in any way. There is a perfectly sensible rationale to how they work, but basically I think it takes some kind of serious "edge" to accurately predict their movements, be that inside information, some kind of incredibly wicked news/data feed, or maybe a billion dollars to just move the market yourself.

The main point of my post was that through all the rhetoric among traders, you ultimately don't know what the price of any given instrument is going to do. You can GUESS, or make an educated GUESS, but this is not a very productive occupation like say, a mechanic who knows how to rebore your engine block or a translator who knows how to communicate about technical subjects in two totally different languages. Given a task, they can tell you up front if they KNOW how to do it. Traders, at best, can give you a GUESS as to the price action of a financial instrument.

maybe you're very successful at trading, rearden, and given your number of posts I'm sure you've been at it for a while (a lot longer than myself, I'm sure), but wouldn't you agree that uncertainty is the main element of trading as an occupation that differentiates it from others such as those I've mentioned above?
 
With a rigorous training in hard science, initially I wish the market was rational and hence predictable so that I would have an advantage over many others.

However, trading has forced me to learn one thing, that is, unlike God who is rational and predictable, people are very often irrational and unpredictable. The other thing I have learned from trading is that I can control myself, but nothing else. So gradually I realize what really works for me: Being defensive => being able to control myself => nice profit out of the irrationality of the market.

As in hard science, the things that really work great and yet without too much of your effort are common senses and simple ideas, though the technical part of the trading is much simpler than that of hard science.
 
You're technically correct, of course... but a trader's career isn't defined by just one trade! As long as your 'guesses' are +EV you'll do fine over the long run. This is such basic stuff.

Does the casino 'know' for sure that they won't lose money on the next spin of the roulette wheel? Do they have a true edge over the roulette player, or is the casino 'just gambling'? I'd never define any +EV bet/trade as 'gambling'. More like gam-bling-bling.

Sure, the casino has a huge element of "uncertainty" regarding the wheel's next spin... but what about their expected outcome from the next one million spins collectively? That's an edge, and that's all that matters. A skilled trader can find the same type of +EV scenarios, which are practically guaranteed to win money over the long haul.
 
Quote from Rearden Metal:

You're technically correct, of course... but a trader's career isn't defined by just one trade! As long as your 'guesses' are +EV you'll do fine over the long run. This is such basic stuff.

Does the casino 'know' for sure that they won't lose money on the next spin of the roulette wheel? Do they have a true edge over the roulette player, or is the casino 'just gambling'? I'd never define any +EV bet/trade as 'gambling'. More like gam-bling-bling.

Sure, the casino has a huge element of "uncertainty" regarding the wheel's next spin... but what about their expected outcome from the next one million spins collectively? That's an edge, and that's all that matters. A skilled trader can find the same type of +EV scenarios, which are practically guaranteed to win money over the long haul.
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rearden,

Thanks for the link. I haven't really tried to wrap my head around the math yet but it looks interesting.

This is off topic but I'm just curious, as this was something I was trying to research before, do you know anything about time series analysis of financial markets?

Without trying to do any computations I've noticed there are definite time-related tendencies in currency markets, namely higher volatility at market open in Europe, Asia, America, etc.
 
Trading is extremely difficult psychologically, and also addictive. That's why GA has sections specifically for day traders.

The only way I have found to end-run around the mental difficulties it presents is to develop a mechanical, non-predictive system. That way, I don't have the stress of "having to be right" about the market direction. A large dose of acceptance of the market's uncertainty also helps.

The previous poster who mentioned coin-flipping was onto something. I have backtested systems based on pure randomness, and found them to make money. They just don't make <i>as much</i> money as other systems, else I'd be using them.
 
Quote from Rearden Metal:

. A skilled trader can find the same type of +EV scenarios, which are practically guaranteed to win money over the long haul.
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where can a trader find the "SAME TYPE of +EV" that a casino has??? where the edge there is built into the game....in trading it is only +EV in the rear view mirror...
:D
 
Quote from lilduckling:

Im not going to disagree with what you said, however, i dont think one can conclude that by reaching this state of mind in trading, equals the kind of sucess you imply.

.... Multiple ATR......... etc...

What is offered is available=>Measure it=>Fill in your log with the turns=> updat your business plan and your trading plan so that future logs are like the one you just did.

There are others skills needed, perhaps some that you have to be born with, in order to be in the right side of the market as often as you imply.

What do you have to be born with to log the right side of the market?

Annotate three levels of the market=>trade the middle level=> log the SENTIMENT on the middle level by doing a routine (MADA or OODA, for example)=>Analyze to be sure your trade is on the ssame side as the logged SENTIMENT=>decide to hold if your trade is on the same side=> decide to reverse if your trade is opposite the logged SENTIMENT.

The above is always workable and there is no special skill or intellignece needed to annotate and log and analyze and decide and to ACT. What would it be like if you had a trading plan that explained to you what repeated routine to do periodically (say do it over and over as fast as time permits.) You sound like a person who sits and looks at a screen. Trading requires a routine; one of the parts of the routine is knowing and staying on the right side of the market. Look at your and cheese's examples of a person who does not do a routine but get emotional felings by looking at his P&L at the end of a messed up use of his time. Neither of you depict what goes on in trading. Each of your examples had two trades each; both made money on SENTIMENT usage alone. So far you know nothing about where market iming comes from.

I will tell you: it comes from doing a routine (MADA) and, annotating the display, logging the M, logging the A, logging the D and logging the A.

You said, if you make a mistake you just take a small profit and get back on track.... most dont have a profit if they made a mistake. (why get out at a small profit.... you said you don't use stops.... perhaps time stops?)

Pretend you have a couple of screens and a routine and you are logging. You make a mistake anotating two adjacent bars as to the trend or formation (one of 13 possibles), you do MADA and the action is to follow the SENTIMENT of the adjacent bar formation. A few ticks later in making money following this mistake, your reannotate the chart and see tha connection of other elements of the data set now bing taken and it all adds up to continuing what you had going on before your mistaken MADA effort. You correct the mistake and get back on the former continuing trend that had a glitch you mistakenly though was the end of the former trend. So you make a small profit while on the glitch and then you return to the former trade.

This description is one that just illustrates the anti whipsaw that is built into a binary vector MADA based system.

Reguarding stops (time or price). read the above over. See that I am continually moving away from the stops anyone would have been setting at the time. Stops are history prices that I never see again as I make money. Your two examples used stops poorly and the person spent time doing stops instead of doing MADA or equivalent. Your trading plan is incomplete and so is you business plan.

While I dont disagree with your approach to market physcology, I am extremely wary of your results........

Wary.... Get a box of anti wary crayolas. Print 50 charts. of the 5 minute fractal. Do zig zags of SENTIMENT until you are weary. Do 100 charts and remelt the stubs into Muddy colored back up crayolas. Stick it in a pen holder and put the pen holder on your desk. If you feel wariness returning do muddy crayola zig zags on chart and your foregead so people will ask you what is going on. You answer: "I understand what the market offers and I know I am allowed to take it because the SENTIMENT tells me so" Then sing "Jesus wants me for a Suinbeam". Especially blast out "because the Bible tells me so" SENTIMENT is the Bible of timing. 150 5minute charts of 150 days will give you a Biblical feeling of making a multiple of the ATR JUST BECAUSE IT IS THERE TO BE TAKEN.

I've been doing this long enough to get a "gut" feeling when i'm being told something that doesn't square up.
(thats the nicest way i can put it)

Right. Your business plan has som voids and so does your trading plan. There is no crayola appendix in your business plan that verifies the ATR realtionship to trading. You left SENTIMENT out of your trading plane and therefore you have NO TIMING section in your trading plan.

You have the axes of the chart screwed up. Trading is a horizontal oriented enterprise and you still are vertically oriented. Your gut is screeming at you saying SOMETHING IS WRONG ALL THE _______. But you do not, as yet, get the gut missing word. TIME.

WARY is another TIME word.
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So you still can't figure out anything I am saying to you. that is just how it is.

How could you ever see the connection between a crayola stroke following price up for LONG SENTIMENT or see how a down crayola stroke signifies SHORT SENTIMENT.

All those places where you can't keep drawing the stroke because price went the other way mean something. These are sunbeams hitting the T key on the execution platform. T means trade.
 

Attachments

Trading can be a psychological challenge because it means to embrace uncertainty and the notion of tendencies rather than absolutes. Most of us deal sufficiently well with the notion of tendencies when we engage in games that have an element of chance (backgammon, poker, blackjack, etc.). I think this is because we attach less of our ego to the outcome of games than we do to our livelihood.

Men, perhaps more so than women, draw a fair amount of their identity and their feelings of self-worth from their occupations. Therefore, the uncertainty associated with mere tendencies is a bitter pill for a lot of people, and certainly for most insecure people. And whereas games of chance have mathematical probabilities of outcome, trading does not. Most traders seem to think (or hope?) that trading is about probabilities, but, in fact, there is no bona fide probability distribution of future outcomes at the trader's disposal before he commits to a trade. Instead, what he has before him is uncertainty along with some previously observed tendencies. And these tendencies may or may not remain reasonably stable over time. Although that in itself can be a lot, and more than enough to trade profitably on balance, this uncertainty evidently reaches beyond the comfort level of most people who try their hand in the markets.

I think that ascribing momentary or illusory probabilities to these observed market tendencies is a mistake. In so doing, a trader may be inclined to draw too much false comfort from such imagined, non-existent numbers. It can be especially problematic for the aggressive trader who wishes to play it to the limit by putting on a large position based on some misguided formula comprising “optimal” position size and “probability.” I think it is more prudent to regard the observed market tendency from a “balance of probability” perspective rather than with numeric specificity. In so doing, the trader will be more inclined to operate with a margin of safety, knowing that there are no real probability numbers to hang his hat on.

And then there is the trader who has not even spent the time necessary observing the markets to properly identify these tendencies. As with any pupil who has not studied for a test, how can he not be distressed at exam time? Even so, he'll probably do no worse than the guy who thinks that life is all about showing up and therefore didn't bother to study, expecting to do well because he feels the world owes him a living.
 
Quote from jack hershey:

Wary.... Get a box of anti wary crayolas. Print 50 charts. of the 5 minute fractal. Do zig zags of SENTIMENT until you are weary. Do 100 charts and remelt the stubs into Muddy colored back up crayolas. Stick it in a pen holder and put the pen holder on your desk. If you feel wariness returning do muddy crayola zig zags on chart and your foregead so people will ask you what is going on. You answer: "I understand what the market offers and I know I am allowed to take it because the SENTIMENT tells me so" Then sing "Jesus wants me for a Suinbeam". Especially blast out "because the Bible tells me so" SENTIMENT is the Bible of timing. 150 5minute charts of 150 days will give you a Biblical feeling of making a multiple of the ATR JUST BECAUSE IT IS THERE TO BE TAKEN.
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Work of art. I'm still trying to stop laughing after the Suinbeam part. Thanks Jack.
 
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