Gordon,
I have to say that I agree with most of what everyone is saying here. The only thing that I would add is that the difference for me came when I came to a few critical realizations:
1. All the systems, all the methods, and all the technical skills you gain from reading books, attending workshops, and frequenting boards like this one are important, but not nearly as important as you might think. It may be an exageration, but I like to think of it this way: All of it is important in that it improves your odds (this is a game of probability not certainty, as you know), but the improvement only takes you from a coin flip's 50% of being correct (in some unknown timeframe) to maybe 52%. If you find a system that is consistently 55-60% correct, then you are kicking ass and don't need to be here.
2. That being the case, the secret to survival and success must not lie in the objective principles and theories you can learn from a book, but rather in the subjective discipline and emotional state of mind that you bring to the trading desk. Indeed, many would argue that if you have the discipline and emotional courage to admit when you are "wrong" (or COULD be wrong) in a trade while only allowing yourself to stay in those trades where you continue to be shown "right", then you would not even have to be right 50% of the time in order to stay ahead of the game. It's that tired old phrase you hear over and over: "cut your loser short and let your winners run." Definitely easier said than done.
3. And then even in those trades where you are shown to be right...in fact, more and more right as the trade goes your way, you could still end up wrong because ANYTHING can happen at ANY time. That retrace against you may look like normal consolidation, but then again, maybe it's just starting slow so that when you turn away for a second it will spike against you turning your winner into a loser. I have a theorem that I call "Derek's Monkey Theory" and it goes like this:
Hypothesis: Exit discipline and money management are more important to trading than TA, tape reading, or execution skill.
Proof: If you had to choose one, would you rather make your own entries and have a monkey manage your exits, or would you rather have the monkey make your entries and manage exits yourself?
Conclusion: When in a position, always assume that a monkey made your entry.
I have developed a reputation for "trading scared", and the folks who I trade with have great fun at times calling me a "wimp" or referring to "Derek-style chicken stops" (all in jest, of course). And consistent with my style, I almost always have more stopouts/bailouts than "successful" trades on any given day, and sure, many of those discarded trades would have been great wins if I only woulda-shoulda-coulda stuck with them. My win percentage is definitely less than 50% and my broker loves me because I churn a lot of commissions in my account. There are days when I finish with a large collection of papercuts to show for my efforts. But there are MANY more days where I show a decent profit.
You see, at some point I decided that for all my intelligence and analytical skills, I'm just not good enough (or lucky enough) to go for the home runs. I decided that FOR ME this is not the lottery, this is not about getting filthy rich quickly on a month of phenomenal trades. This is about trading just ahead of the game and surviving while trying to do so. And in taking that attitude, I've found that I am now sitting quite long ways ahead of par.
If you do decide to keep trading (or come back to trading), I hope that you are able to find the state of mind that works for you...
--Derek
I have to say that I agree with most of what everyone is saying here. The only thing that I would add is that the difference for me came when I came to a few critical realizations:
1. All the systems, all the methods, and all the technical skills you gain from reading books, attending workshops, and frequenting boards like this one are important, but not nearly as important as you might think. It may be an exageration, but I like to think of it this way: All of it is important in that it improves your odds (this is a game of probability not certainty, as you know), but the improvement only takes you from a coin flip's 50% of being correct (in some unknown timeframe) to maybe 52%. If you find a system that is consistently 55-60% correct, then you are kicking ass and don't need to be here.
2. That being the case, the secret to survival and success must not lie in the objective principles and theories you can learn from a book, but rather in the subjective discipline and emotional state of mind that you bring to the trading desk. Indeed, many would argue that if you have the discipline and emotional courage to admit when you are "wrong" (or COULD be wrong) in a trade while only allowing yourself to stay in those trades where you continue to be shown "right", then you would not even have to be right 50% of the time in order to stay ahead of the game. It's that tired old phrase you hear over and over: "cut your loser short and let your winners run." Definitely easier said than done.
3. And then even in those trades where you are shown to be right...in fact, more and more right as the trade goes your way, you could still end up wrong because ANYTHING can happen at ANY time. That retrace against you may look like normal consolidation, but then again, maybe it's just starting slow so that when you turn away for a second it will spike against you turning your winner into a loser. I have a theorem that I call "Derek's Monkey Theory" and it goes like this:
Hypothesis: Exit discipline and money management are more important to trading than TA, tape reading, or execution skill.
Proof: If you had to choose one, would you rather make your own entries and have a monkey manage your exits, or would you rather have the monkey make your entries and manage exits yourself?
Conclusion: When in a position, always assume that a monkey made your entry.
I have developed a reputation for "trading scared", and the folks who I trade with have great fun at times calling me a "wimp" or referring to "Derek-style chicken stops" (all in jest, of course). And consistent with my style, I almost always have more stopouts/bailouts than "successful" trades on any given day, and sure, many of those discarded trades would have been great wins if I only woulda-shoulda-coulda stuck with them. My win percentage is definitely less than 50% and my broker loves me because I churn a lot of commissions in my account. There are days when I finish with a large collection of papercuts to show for my efforts. But there are MANY more days where I show a decent profit.
You see, at some point I decided that for all my intelligence and analytical skills, I'm just not good enough (or lucky enough) to go for the home runs. I decided that FOR ME this is not the lottery, this is not about getting filthy rich quickly on a month of phenomenal trades. This is about trading just ahead of the game and surviving while trying to do so. And in taking that attitude, I've found that I am now sitting quite long ways ahead of par.
If you do decide to keep trading (or come back to trading), I hope that you are able to find the state of mind that works for you...
--Derek
