Quote from candletrader:
It isn't hard to beat the market...
What too many people find hard is taking a string of losses, so they bail out of the trading game...
If you can take a string of losses calmly, you can beat the market...
There is a drill that I recommend to people. In my opinion it applies to all kinds of trading.
It is simple and it changes how a person monitors the markets.
It is the wash drill.
If I am mentoring a beginner, often that person's print looks like 50% of his trades are wash trades.
Does this mean he is doing poor entries?
No, it doesn't. What is it showing?
It shows half of his trades were such that he took profits at the right time and continued to stay on the right side of the market and made money on a trade and positioned himself to continue to make money.
The half that show wash prints, just illustrate they he got back on the right side of the market after doing a rior trade that,while it took profits, it did not get him on the right side of the trade subsequently.
What is the normal version of the description above called? The normal thing is for a person to take an action and hold as it goes against him. This is "hope" trading. A more severe verion of his is the drawdown trading where stops are hit, once, or maybe twice... or maybe three times in a row...or maybe five ties in arow... or maybe ...six times in a row....or maybe as you say 7 times in a row.
The drill to do washes instead of getting stopped out or doing whipsaw trading is a drill tht allows the person to see that as time passes, he is often sitting on his entry or near it (above and below) and he has the opportunity to extinguish the situation without worsening his capital standing.
Most people just read this and dismiss it. That's cool. What is the reason? That is important to consider for a moment.
Most people go into markets on set ups that happen just once in a while. Often the set up is not neutral biased, meaning it is only used either long or short but not both.
Further, pople do not have "exitset ups" but only entry set ups. This is where a lot of "hope" trading comes from. The entry set up has a lot of possible endings, some of which are called: losses, whipsaw; drawdown; and blow out. Notice that the entry set up does not have an exit labelled next entry set up.
What would it be like to understand that a wash exit is also a next entry set up. That is not possible for people who have a small list of entry set ups, all of which, occur only occasionally.
So for most people a wash exit is not preferred over a loss, a drawdown , a stop out, or a blow out. It denies them the opportunity to do hope and if it is used as an entry (a reversal trade is used to wash) it is not part of the existing list.
Obviously, when I mentor I am instructing the person to stay in the makret to make money and if the action he takes doen't make money he washes as an action that is double the contracts needed to wash so it is a reversal. That means he is always looking at the markets as a market he is in and it is his one and only job to always be on the right side of the market.
Most traders do not think about being on the right side of the market very much. they are sidelined looking to get in the maret and the rest of the time, when in the market, they are "hoping" with a target not in view and a stop in place to be hit. most means 90% of traders who are traders that are only temporary
traders.
Doing wash trades prior to having losing trades for any reason in the hope category is a good beginning. Making a wash trade a reversal trade is not a bad idea either since this reversal can be washed too if necessary.
To facilitate all of this there is a leading indicator of price. I can tell you that it becomes an indicator that is believed like no other once a person starts taking money out of the market by being in the market.
those consecutive failures are stating that the person does not know how to stay on the right side of the market. I know it is always chalkd up to being disciplined where discipline is defined as ollowing something that does not reflect an understanding of the market.
How can discipline outweigh market understanding? The answer is that it is important to 90% of the traders who all become temporary at some point.
Drills train. Training gives understanding. Understanding produces skills. Skills make money.
Learning failure works the identical same way. 7 conscutive failures teach failure. Repeated failure creates biochemicals and instictive reactions. Misunderstandings result. Capital is depleted. the trader leaves trading forever. Lesson: do not do failure.
Hope there is never a 50% drawdown before you have enough padding to get blown out ;-)
