What are(were) your most common mistakes in Trading?
- Thread starter orbit23
- Start date
Because those losses are what eats at your soul and send you home totally absorbed in seeking a solution. Winning days are easy, you learn liitle. Losing days are where you learn and develop your character. Losing days are where you see if you can cut it as a trader.
Athletes and other high-performance professionals spend countless hours training in "simulated" environments, in preparation for the real thing - even when they are already highly skilled.
Stay on sim until consistent, and the worst case is that it takes you a little longer overall to get the mental game in order, once you do jump in the ring. Best case is that you avoid life-altering financial losses. The cost-benefit isn't even close.
All of which are made to emulate the real thing as closely as possible. The sim environments I've seen for trading are not much more than crude imitations that fail to replicate any of the important aspects.
If your initial real-life environment offers any chance of life-altering financial losses, then you're simply doing it wrong. The attitude that goes along with that mindset will not be corrected by any amount of time spent in sim, and will create those losses shortly after the switch-over.
Prop trading firms train traders on sim.
Depending on the type of trading, and the background of the trader, some strategies (very active trading, unique styles, specialized techniques, niche edges) would have to be practiced. Not doing so would be reckless.
Everybody has a different thing in mind when they say 'trading' and to say that there is one set of steps that are superior to others in the quest for sustained profitability would be incorrect in many situations.
Examples that would require practice with sim or demo would be complex strategies where you are spreading serious risk, trading off of proprietary indicators, or experimenting with untested or unverified strategy/indicators/theories.
Some people prefer forward testing strategies live in sim than backtesting.
My take on this.
I was researching a bunch of stuff that was having mixed results.
charting spreads of sector ETF
building my own indexes out of stock baskets
using relative price action of indexes for lead/lag analysis
spreading stock baskets against each other
component weighting sector ETF to build and chart/analyze grouped sectors
(that last system had me knowing exactly which sector or group of sectors was causing the price action in the S&P; kind of like algebra).
There was some edge in all of these things, but in the end I ended up finding much, much better things then these.
And when my results started getting too good to be true, then I started really testing that thing and investigating why it was working so well. Then I built out a complete platform based on it. And familiarized myself with every kind of technique that could help me use it.
That took me about four or five months.
It's shown in this thread I made.
https://www.elitetrader.com/et/threads/pro-trading-tools.336836/#post-4943084
Depending on the type of trading, and the background of the trader, some strategies (very active trading, unique styles, specialized techniques, niche edges) would have to be practiced. Not doing so would be reckless.
Everybody has a different thing in mind when they say 'trading' and to say that there is one set of steps that are superior to others in the quest for sustained profitability would be incorrect in many situations.
Examples that would require practice with sim or demo would be complex strategies where you are spreading serious risk, trading off of proprietary indicators, or experimenting with untested or unverified strategy/indicators/theories.
Some people prefer forward testing strategies live in sim than backtesting.
My take on this.
I was researching a bunch of stuff that was having mixed results.
charting spreads of sector ETF
building my own indexes out of stock baskets
using relative price action of indexes for lead/lag analysis
spreading stock baskets against each other
component weighting sector ETF to build and chart/analyze grouped sectors
(that last system had me knowing exactly which sector or group of sectors was causing the price action in the S&P; kind of like algebra).
There was some edge in all of these things, but in the end I ended up finding much, much better things then these.
And when my results started getting too good to be true, then I started really testing that thing and investigating why it was working so well. Then I built out a complete platform based on it. And familiarized myself with every kind of technique that could help me use it.
That took me about four or five months.
It's shown in this thread I made.
https://www.elitetrader.com/et/threads/pro-trading-tools.336836/#post-4943084
In that we disagree, friend. I don't refer at all to learning how to operate a platform, but rather learning the actual activity of trading, that is: analyzing markets, developing and executing strategies, noticing how certain things (like fundamental news) have an effect (or not) in a given market, and all sorts of things that are purely technical. In that sense, I believe that the sim does offer a sufficiently similar environment minus the pressure of putting real money into the table.
Once again, if one can't really make any gains in a simulated environment, they much less likely to do so in a real environment -- which, for the most part, is technically similar --; the same goes for applying any given strategy in a real market. Furthermore, if one can't get a psychological grip on a simulated environment, they are also less likely to have enough emotional control and discipline to deal with very, very much tougher exposition to real positions.
That said, one thing we seem to agree is that exposition to financial risk should be as little as possible for a beginner. The issue for me, personally, is that most people -- as evidenced by the astronomical failure rate of new traders -- are not prepared to be trusted with keeping their losses to a minimum. And the simulated environment, although not a solution in itself, is a positive factor in preparing these people or at the very least familiarizing them with market movements before they are to be trusted in making what might become some very very financially harmful mistakes.
I suggest one to three months on a sim for any starting trader, which is enough time for them to see how easy it is to win or lose -- but likely lose -- if you don't follow a strict set of rules, and urge them to continue there until they are technically capable. So that when they are exposed to real risk, they'll at least have some knowledge to help them navigate stuff.
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There are several companies which offer real-time free demo accounts, in which the only difference is you'll not be risking real money and the entry-exit pendent orders are executed automatically -- if this is a problem, one can always buy at market. That's why I emphasize the idea that the sim is technically very similar. Once you master it, you'll have enough baggage to be able to deal with the psychological challenges involved without having any other aspect of trading to woe you.
With that said, I obviously respect people who choose to start for instance with small accounts, if they are aware of the risks. What I find a bit negative is the idea that simulators are useless, when they could actually be hugely beneficial for newcomers.
The problem I see is that people trade a 100K simulator account then open a 5K margin account.
I used a sim account when I started. What I eventually did differently was to judge my success not on how much money I made but whether I had followed my trading plan.
A good trade can have a bad outcome. I wanted to concentrate on making good trades.
What you said is hugely important, because that is precisely one of the mistakes people make when actually using a sim: trading waaaaaay larger than they would in their real account. One should not to that, but rather do as you did: see if you they followed their trading plan, if their plan is actually working, if they're coming out net positive points/pips (rather than cash, which'll be dependent on amount of contracts; also, so that they don't start trying to resort to the financial maneuvering that comes with a large account).
Precisely the point. Most of us traders take a very, very long time to learn that but it should be one of the first things to be taught to newbies. Much in the same manner, yet intensely more harmful, bad trades can have good outcomes. That's why the focus for anyone starting out is to do as you did.
MattZ
Sponsor
I could not agree more. In economic terms, paper trading has a declining marginal utility. Over time the value you derive from paper trading declines. You start to develop bad habits along with theoretical calculations based on imaginary numbers.
The world of paper trading is a world without pain, and pain is what makes you define your obstacles. Then you find ways around your obstacles (the process), which may lead to your final trading plan and method.