True Edge in trading - Willpower

[OddTrader]

quantifiable edge? how can you quantify an edge?

I actually meant non-fully-discretionary edge! However, non-fully-mechanical also.

I think my approach suits options traders better.

What would you call/name it in trading approach?

 

[i am nobody]

I actually meant non-fully-discretionary edge! However, non-fully-mechanical also.

What would you call/name it in trading approach?

Gambling?

 

[johnbennett103]

You have to be disciplined, yet flexible at the same time. You use discipline to stay with your back-tested strategy, yet stay flexible in the event that your strategy under performs or just flat loses money. This is not easy.

 

[drcha]

It is not willpower but confidence that is needed. Willpower implies you are consciously working against your own natural instincts to do something that you think is best for you. However, when you are confident in your system, and you are exercising proper money management skills, you do not need willpower to follow your system; you do not have to argue with yourself or prop yourself up. Trading becomes rote and boring. All the psychology in the world will not make up for inadequate backtesting and poor understanding of the effect of each parameter of your system. Or maybe you don't actually have a system. That's another issue that psychology will not fix.

Confidence comes from backtesting under all previous conditions, and other, theoretical conditions as well. I've backtested many systems that I never ended up using. It's not unusual to discover that someone else's so-called back tests cannot be duplicated when you do them yourself. It's amazing how many things people claim are effective strategies that simply do not work. Just because something sounds like it should work does not mean that it does.

 

[i am nobody]

It is not willpower but confidence that is needed.

You need confidence AND willpower. As you wrote, willpower implies you are consciously working against your own natural instincts to do something that you think is best for you. The problem is in your own natural instincts. Especially in the beginning of your "career" as trader. Subconscious is very powerful and works without you noticing it. It is an automatical reaction. So in situations were you are distracted, or have to take a very fast decision, your subconscious will overrule your conscious. You need time and have to train your brain to stop your automatical and subconscious reaction and replace it with the conscious reaction that should be executed.
For the rest I agree completely with your posting.

A good example of this power of subconscious is that people can learn how to react if they lose control over their car while driving. Following their natural instinct is always a bad solution, so they have to learn what to do and what not to do. And apply it immediately when necessary. Especially that last thing is difficult and can only be changed by training a lot.

 

[OddTrader]

http://www.elitetrader.com/et/index...ty-planning-to-trade-full-time.295982/page-11

A willpower example:

Here's my 2 cents:

First of all he needs to be realistic. It takes a LOT of time to get to the place where you are consistently making money. It can take years and years of very hard work and dealing with draw downs/failure at times. You will think you have it down and are on a roll, then go into draw down periods where you start thinking you can't do anything right. I always tell people that the great thing about being a trader is each day is never the same. You never know what you will be dealing with each session. For my personality that's great. I can deal with feeling like a champ one day, then a chump the next. I never get too high on the great days or too low on the bad days. The OP better be able to deal with that. Trading is a complete mindf*ck at times. To me if he doesn't think he can deal with the above, then don't bother.

As far as his situation? I would say have 1 year of living expenses saved up if he doesn't have a job on the side. When I say a job on the side I mean a job during non market hours. If he wants to make it as a trader he'd better plan on sitting in front of the screen during market hours. Some might say 1 year is a bit much, but why put anymore pressure on yourself? Trading is enough pressure.

I'm not sure what he plans on trading, I don't think he said....but whatever he starts trading in, trade TINY size. If he is a futures guy make all of your mistakes on one lots. Trade tiny for at least 6 months. I am not a fan of Sim trading as it is nothing close to reality. Between the generous fills and not feeling the pressure of a "live" trade, to me Sim trading is a waste. The only reason to trade on a Sim is to get used to the execution software. That's why I would say have a year of living expenses on the side. As a new trader get it in your head you aren't going to be bringing in any real money for at least a year. My first trading gig was a month after college. I lived at home for a few months. Then lived pretty inexpensively with 3 buddies from college in an apartment. I learned to really appreciate Subway sandwiches.

As far as "how to trade?", I don't think he mentioned any strategy....but my advice. Come up with your OWN strategy. One that you create and will live by. You will learn a ton by creating your own "way to trade". Back test as far back as you can and see how it did during different market environments. Forget these people who "teach" you how to trade. If they were really any good they wouldn't be teaching, they would be trading. I would read books that talk with the great traders out there. Interviews with them talking about how they made it and the mistakes they made, are priceless. Here are some of the ones I like, and re-read each year. You can never stop learning:







The one thing I didn't like when reading what the OP wrote was "get rich" a lot. Huge red flag. If he is looking to get rich quick and just worried about becoming some millionaire trader right away then he probably will fail. Those guys always do. He's a 21 year kid. Plenty of time to get rich and own yachts and all of that. He should plan on living a very "modest" life. Hell, the first year plan on making squat. Could take a few years of making squat. Time will tell.

Sure the money can be great, but you have to want to become a trader for many more reasons. The first being you LOVE to do it. Also if you get to the point of making consistent money you live your life the way you want to. Don't have to answer to anyone. It's a great way to live.

 

[OddTrader]

Same thread just next post:

I wish ET had some kind of a sticky thread as EPrado's post is exactly what every newcomer should read.
I also think becoming a millionaire is a silly notion in his position. He should aim to achieve a nice income first, that's a semi-realistic goal. The millions are not impossible but are very far in his future. Just because someone gets his first driving license doesn't mean he should be thinking about winning F1 races.

The feeling of everything working against you is a key point as this can be a mentally devastating job, unlike in professions where you build something you can see, you can't actually know for sure your improvements are working.

At times you will get greedy after good results and you will make mistakes because the "I could do so much more" bug gets you, I'm guilty of this for 2015. When times are bad you might get to be too conservative and that's also a mistake as you will miss many opportunities. There are a lot of mind-games the market plays on you.

 

[OddTrader]

Sometimes, it would be hard in trading to distinguish confidence and overconfidence in yourself or/and your system.

That could be fatal, again and again.

Some people's self-confidence could be completely lost in trading.

That's why willpower is required.

Don't give up.

Take a rest, then find out why in order to improve your system.

Stand up again!

Many times in the past, I read some people on ET said requiring the willpower like a Delta/ Seal's!

https://en.wikipedia.org/wiki/Delta_Force

http://www.elitetrader.com/et/index.php?search/3173452/&q=willpower&o=date&c[node]=35

1. sheer willpower to succeed
2. ability to analyze numbers and patterns
3. go to 1

I had similar issues until I deleted all charts except the 5 minute - now I trade a working system (thank God) and make spectacular consistent profits.

Use whatever willpower it takes to get on the system that works, and stay there long enough until you "believe in and trust the system" then you'll have NO problem following without "thinking" it would be better with those extra charts and maybe some more indicators.

Keep it simple - it cost me over a million $'s to finally get that message!!
Good Luck

You have identified the problem - compulsive trading, or overtrading, or gambling or whatever you want to call it.

The solution then is simple. Stop gambling/overtrading/compulsively trading.

Now, this may be a bit like telling a fat person to eat less and exercise more, in that you know what to do, but you just lack the willpower to do it and break out of your self-destructive habits. In which case you have to find a mental "trick" to stop the gambling, and habituate yourself to a more disciplined approach.

Generally, psychologists say it takes 6-8 weeks to habituate yourself to a behaviour (by doing it daily for that long, you then do it automatically). So my recommendation is this - come into work every day as normal, do your preparations, but then do not trade at all. Just watch the market, make a mental or written note of when your system would tell you to buy or sell, and then at the end of the day, see how you would have done. But do not trade at all.

Repeat this for 8 weeks, watching the markets intensevely, but without placing so much as a single trade. The idea is to force yourself to learn to sit on your hands. Because you cannot trade, you will break your addiction to trading for the sake of it. You will become used to the idea of not trading at all, you will be *forced* to learn how to be patient. And noting down your signals, and the paper P&L you would have made, will help bring home to you how much more profitable a disciplined approach is, compared to the reckless gambler approach.

For best results, tell someone you respect and who knows about your trading, what you are going to do. To them to check up on you, to make sure you have made no trades. That way, the dear of embarrassment will stop you breaking your self-imposed discipline, and doing the odd trade here and there (which will soon turn into full on compulsive trading).

If this is too excrutiating, then a moderate alternative is to allow yourself only 1 trade per day. Once you have made an entry, and an exit, then you must sit on your hands for the rest of the day, without trading at all (you must still follow the market, however).

p.s. I just noticed your 2nd post, glad to see you have "recovered". In this case, try the "sit on your hands" thing for one day only, and see how it feels. It is a useful experiment which helps you get a grip on your own psychology.

about 4-5 months ago you said the same EXACT thing... that you always look at things from a contrarian viewpoint, always try to "think" what will happen (i.e. the market will turn). No?

There is THE issue... so meditate for a week until you figure out why you do that. It is not an esoteric answer!

It is an issue I think all traders deal with to some extent... thinking and figuring out... too much.... and not enough observing and patient managing of positions in an effort to take what the market gives. These markets in particular require more patience and more willpower than the past, and in my view are more difficult.

Witness this week's large reversal with no follow-through. A real suck-out!

However if you look at the SPX or NDX chart... ask yourself why you didn't short ONE contract of each at the beginning of the down movement... and hold until today's lows. I don't mean that sarcastically, but it is a good question as to why some get into the markets to tick-f*ck every day and then VOILA in hindsight your first ES/NQ short ( or first long) was the best trade of the year.

In other words, why didnt you see the big picture?

Dig ?

I look at the same matters myself all the time seeking growth. The interesting part is trading is a close microcosm of life and how we handle things there as well; only it happens faster... and you get your "report card" much sooner!

 

[OddTrader]

Willpower

Discussion in 'Psychology' started by Ricter, Apr 20, 2006.

It's clearly advantageous to have it, and all of it you can get. So, how do you get more willpower? Seems obvious it can't be an act of will. Where does this motive force come from?

http://www.elitetrader.com/et/index.php?threads/willpower.67625/

A decent trading system with a positive expectancy is as meaningless to a trader without the will power to properly trade it as is a healthy dietary regimen to a dieter without the will power to follow it. Ideally, however, a point will be reached by both the trader and the dieter where doing the right thing feels like the natural thing to do. Then doing what is right won't require conscious "effort" (will power). Or at least that's the way I think it works. I have never had difficulty sticking to a healthy dietary and exercise regimen and can't really understand why it is such a hurdle for some people. However, in all candor, my "won't power" occasionally overrides my will power when trading. Maybe one day...

 

[OddTrader]

speculative trading is the attempt to buy and sell for a net profit over a relevent period of time with some consistency.

historically, the early adoption of technology has been a halmark of innovative business that have been able to sustain an above average return on capital over time.

If you are conceptually doing something that makes sense and are willing to assume risk, it does not matter if it is click of a button or automationed program. U use the tools available to you to the best of your ability, then u plunge in and take meaningful risk.

most, are not willing to do the groundwork, to create the sound base of operations, sophistication, and knowledge, the things that are not fun but you do them anyway...

IF all this is achieved, , can one still stomach the risk even though the skills learned to trade could also earn you a nice "safe" living employed elsewhere? there are few who can. The combination of willpower, intellectual ability, and stomach for risk.. all roled into one person, are very unusual..

most are better of finding a more specific nitch that is less taxing on the entire being... say, as a researcher, programmer, analyst.. a more specific, less all encompasing role.

So as to your questions... u tell us?

If you results say u are obsolete, then you are. Regardless, u are either doing all that u can to succeed, and all that is nessisary, or you are not. grey areas and "shades" in this care are just shades of dishonesty.

so mike what you are basically saying is that a ''edge'' is whatever trading behavior or technique that you have that is profitable to you.

Therefore, every trader that makes money has a edge.

Therefore, waking up in the morning, being on time at your trading desk, clicking the mouse when its time, trading a strategy that ''statistically significant'' probably meaning it shows profits in backtesting, are all considered like so, because they lead to your profit.

If you are referring to a edge as the thing that good traders have that failing traders don't, then that would be called talent, experience, willpower (for discipline issues), etc etc

i always laugh when i see traders talk about their edge like if it was the shit. you trade profitably, or you dont, period.

my butter knife as an edge too you know.

Figure out what triggers you to stop being disciplined, and try to see if there's a more intelligent solution than simply telling yourself you won't make that mistake and applying willpower.

For me, when I see chop markets, especially after 11, no matter how hard I try to sit through it and wait fro real movement, I 95% of the time churn. So now, when I feel the markets start to die down, it only takes one small loser, or even a possibility of me thinking of taking a shot when I shouldn't, to walk away.

I also get killed by a few huge down days on the month, and the pain of telling myself I won't do that, limiting my losses for 6 weeks, then blowing a month's worth of profits in one bad day from a few trades... it made me realize, the only way to ensure I dont' lose big is to have software cut me off from trading and to kick me out of my position if my open P/L exceeds 1/2 my daily max loss. Even if I get shitty market fills and am every so often forced to panic, it's well worth it.

Just what has worked for me.

You can win if you want too. May the forces of your willpower never abandon you. I'll meet you at the finish line. Takes time, but you can do it.

Making changes would require willpower:

There are two things probably contributing to your lack of discipline. First, fear of success. You have become so used to failure that it has become comfortable and your subconsciously self sabotaging yourself to maintain that pattern. Humans don’t like change, generally one has to force change with sheer willpower. The second thing is issue of accountability. If you trade by yourself then you have no one to hold you accountable for taking stupid trades except yourself. If you are unable to hold yourself accountable then a possible temporary solution is to find someone that can hold you accountable. Most of the time simply, the thought of someone watching your every trade and knowing when you screwed up is enough motivation to stop self sabotaging trades. Every time you break rules/ trade undisciplined there should be some negative consequence associated with it. And every time you go for a day making only disciplined well thought out trades there should be positive reward.

Or it may because you haven't defined your rules exactly so that they are crystal clear. Vague rules can allow for contradiction which can make you fall into trap of believing you should have taken the trade when it the pattern worked(after the fact) and you shouldn’t have taken the trade if it didn’t work(after the fact). Whatever your edge is you need to define rules in such ways that a complete idiot or a robot with no knowledge could execute. Only when your trading becomes highly systematic rule based can you start to achieve some level of consistency.

Before taking a trade try to say out loud what your reason for the trade is. Almost every good trade is based on anticipation. Trades that are put on without a reason and done on impulse are majority of the time emotional losing trades.

When faced with losing streak of trades one needs to fall back on confidence/belief. Confidence/belief that the trade you take is profitable if you take it every time you would come out with a profit over long term (months). Short term results (days) can test your confidence/belief and you need be strong enough to stick to being consistent. Just because one instance your edge didn’t work doesn't mean it isn't profitable. If you always change strategy reacting to short term result you will find yourself falling into the herd’s beat and lose.

Sleep is very important thing to trading well. If you don't get full night sleep don't trade. It’s already hard enough if to trade in well rested state, trading in sub par tired mental state you will crack too easy under pressure.

Reduce external distractions. It depends on your personality type but some people cannot function well in a cluttered environment. So clean up and keep things organized. It is easier to focus in silence then it is with a lot of noise.

Exercise and maintain healthy body. When your body/health deteriorates to the point where you experience pain/ have injury money doesn’t matter anymore. Health is more important then any money you could earn from trading.

Scared money can't make money. You have to be willing to lose in order to gain. If you trading with money you can't afford to lose then trade very small. Try to risk a very small amount so that your draw down would not really bother you so much. If your edge is profitable you will build up profits above initial roll over time. When you get enough profits you can increase your risk per trade because your just trading with profits, not money you weren’t willing to lose. Hopefully, you start run good and don't look back. If you lose profits and back to initial roll drop the risk down again and rebuild profits and try again until finally your edge gives you a good run with higher risk level. Cash out the money you weren't willing to lose as soon as possible.

Emotionally you can either be in a low state (feel bad), neutral state (feel nothing), high state (feel good).Best state of mind when trading is a neutral state.

Low state either manifests itself with anger/frustration, where you become more risk taking. Or fear, where you become more risk adverse.

Generally, fear is not an issue if you risk money you are willing to lose and you have confidence that your edge really works. Fear is only issue when you lose significant amount of money you weren't willing to lose. Often times it is denial. Denial that your account’s current balance is what it is. You are still thinking of your balance as what it was. At any give moment in time your balance is what it is. You are not down or up anything. Thinking you are up or thinking you are down relative to past balance, only leads to negative psychological issues. So the key is accept what your balance is and forget what your balance was. The only thing in your control is the present. The past cannot be changed so there is no point obsessing over it.

Don’t trade half-assed or for fun (paper trading). Don’t even watch the markets period if you aren’t willing to trade full out(100%) with risk level just outside your comfort zone. There is nothing worse then anticipating a move that you didn’t take Full advantage of when you had the capability to do so. The problem lies in the perception that you could have or should have made a profit if you had been trading full out. This can lead to many negative psychological issues. The key is to trade consistently always risking the same amount so you become comfortable and numb to that risk level. Then when you feel very comfortable where losses don’t affect you, you increase the risk slightly just outside your comfort zone. If you do the opposite by suddenly switching to paper trading/watching without risk mode, you end up shifting your comfort level of risk down where if you try to go back to your normal risk level it will be far more stressful / difficult.

The more significant the loss the more time it will take to accept it. Losses where you took a big risk but within your max risk per trade limit can usually be resolved from a simple 5 min break. Big losses may take a day to sink in. Enormous losses may take weeks/months.

Scorcher,

I've been where you are now, and advice like stockbroker offers would seem to make sense, but it's not enough. First off, can I assume that you have tested in some way, your trading methods, and that you know that it/they make money over time?

If not, then that is the first thing that you must do- you have to be able to have confidence in your trading system.

That said, it is my guess that when you see a signal to take a trade, you are asking yourself- "what if this is a loser?", or "what if I get stopped out?". In this case, you can muster up all of the willpower that you can, but if you imagine the trade costing you money, then you will not take the trade. Your imagination will overpower your will to trade every time.

The way to overcome this is to-

1. Have confidence in your trading methods (as I noted above).

2. Perform some simple mental rehearsal to create the image of the trade being a winner, and picturing what that feels like. See yourself taking the trade- rehearse that over and over in your mind. Mental simulation.

3. Associate emotional pain with NOT taking the trade, losing the money that you might have made if you had taken it. Picture in your mind what it would feel like to see the winning trade get away, and the money that you could have made, not coming to you.

I am making some assumptions about your state of mind when you freeze up, so if I am not correct, please provide some more detail, and I'll see if I can help. Like I said, I've been through this, and the above works.

Regards...Kevin

I’ll listen to almost anything. There are so many ways to trade, and I know people are profitable on polar ends of approaches (huge position very short term, wide portfolio long term). Here are 2 things I think newbies should avoid and/or will never work.

1) let your losers run, cut your winners — “I have a great win ratio”

If you have unlimited time and money, you will always be right and never take a loser. Unfortunately, you don’t have unlimited time or money.

If you've read a book or have some experience you should know that holding a loser and/or averaging down will work, maybe even 80% of the time. And when it doesn’t, you will lose more than you made on your majority winners.

I still see people who are genuinely confounded by this. They've probably read the book AND experienced it and still can't get over it.

"What?!? I have 8/10 winners!"

But the winners are X and the losers are 5X+.

If you get winners by taking heat, if you are risking 3X to make X and you think your win rate will save you, I think you are doomed.

(Consider inverting this. Risk 1 to make 5 was huge for me. Flip the above. Take many small losers to find that one true winner. When you actually learn how to trade, THIS PAYS.)


2) the earnings gamble

“The chart pattern indicated…” This is a sucker bet. You’re struggling, you don’t have a lot of experience, and your eye is on the prize, so you take a pre-earnings gamble on a high-priced, fast-moving stock like NFLX or LNKD. Whether you’re wrong or right, this is just a joke. The chart has nothing to do with how the stock will react to earnings and you don’t have a fundamental edge.

I actually think I’m open minded, in that IF YOU’RE INSANE (or a pro, YEARS of experience (and profit)) you can attempt to trade these things in the after hours AFTER the number comes out. I don’t. But I’m open to the idea that it’s not impossible.

(I'm also open to insane trades, if the risk/reward is right.)

If your strategy is to take a position before the number and pray you’re right, I honestly think you are much better off buying a lottery ticket. Much better risk/reward.

(Note that the difference with pre-earnings is the risk/reward is not favorable, it's ?/?)

***

Ok so fair question is what DOES work. Here is where it’s a frustrating answer. I’ve always felt if it was “just do X, Y, Z, then you make money,” well that would be quickly exploited, programmed, and is no longer a way for a regular guy to make money.

The ugly truth is trading is super hard.

It takes ages to find any kind of edge or real skill.

In my mind, fair analogies are learning a language or instrument.

You can’t use sheer willpower to get great at it quickly.

You get good with experience, and life isn’t fair.

How do you get full time trading experience while working a job that funds your trading, which is 99% likely to be initially unprofitable?

This is a huge stumbling block, and almost certainly why prop firms exist.

(They will allow you to pay rent and eat while (hopefully) learning how to trade. They also probably want a proven track record.)

I don't have a solution to that Catch-22, but if you talk to experienced successful traders I think you’ll find a theme in their responses.

It’s different for everyone, it depends.

It truly does.

And a huge element is eliminating what doesn’t work.

What does work is the magic, that’s what you find.

I am genuinely trying to help by pointing out 2 things I think a lot of new people do, that are total red herrings.

People want success immediately, which is easy to achieve if you never take a loss or if you take a giant gamble and happen to be right.

Neither of those things will help you in the long term.

All those trading cliches exist for a reason — they’re true.

Amateurs focus on how much they can make; pros are concerned about preventing losses.

Cut your losses, let your winners run.

Easier said than done but so is everything worthwhile.

Accept that there is a huge learning curve, start small, and look at your mistakes as learning opportunities.

All the unglamorous stuff that no one wants to do, read the tape, review your shitty trades, keep a journal, etc — that’s where the real improvement happens.

As someone fortunate enough to make a living daytrading, I firmly believe that it’s not what a stock does, it's the set up.

The one that jumps up 3 points and you think “fuck I wish I was long that”

Who cares?

What was the set up?

Would you get long the next 10 times you see it?

The little trade where you confidently risked 2X and knew you had a good chance of making 10X (or more) — THAT’S the one to worship.

Lastly, if you want to be told what to do, sorry, but get a normal job.

There is no shame in doing something that is actually useful to society!