And yes, that is how the pros in WS do. Also the coding in quant trading do.
Why Trading is so Hard
- Thread starter John9999
- Start date
Can I digress a little: Alpha is hard but perhaps Beta is easier if I am lucky or if I keep at it for decades? Small caps outperformed large caps if your time horizon is 30-40 years? In options trading that means I trade high volatility options instead of low vol? Of course as a directional I still have to get the magnitude and direction correct.
Also, in the last 4-5 years there were a number of articles on smart Beta (my broker Schwab even had articles on that). Are there really free lunches out there?
I think most people with guns don't understand much as pointing it toward someone, most would not be able to pull the trigger and end up getting shot with own gun. Their internal thought processes of hurting or killing someone gets in the ways of normal thoughts. And often times while "playing" with a gun, they shoot a loved one. I am more comfortable being with those who have guns and been/are police or been in hostile territory than someone who carries and not shot anyone.
It is better to call the police, cause people only change when it costs them tons of money and prison time.
Agree.
"As I explain in Modeling Trading System Performance, the sweet spot for a trading system has these characteristics:
- Trading frequently. 20 to 30 times per year.
- Holding a short period. 1 to 3 days.
- Winning a high percentage of trades. At least 65%.
- Limiting the size of losses on losing trades."
Howard B. Bandy in "Mean Reversion Trading Systems", 2013, page 138. One of the favorite books in my trading library. $38 on Amazon.
Absolutely no trader will be profitable long term if they don't work through the emotional side of trading. No matter how good the technical side of trading is, it won't do you much good if emotions keep highjacking your trades.
And the old adage of "leave your emotions at the door" is total bunk. It's like taking a deep breath at the door and holding your breath the entire time you are trading. Neither is going to last long I assure you.
How does one work through the emotional side then?
Depends, as for each person it is different. It depends on your personality and also on your system. So a lot of things have an influence on you and your behavior:
- are you very emotional or not
- how do you feel physically when things go wrong (or even with the thought that things can go wrong)
- can you overcome with your intellect your emotional problem
- how good is your trading system, high win rate or high losing rate
- how do you (over)react when you win
- how do you (over)react when you lose
- what do you do before, during and after the problem occurs
- etc...
Maybe follow cognitive therapy?
For some people the emotional side is not an issue, for some it is an issue, and for many it is a huge issue.
It is all about how your brain reacts on events. Always negative thoughts, or always remember only the negative events.
Black/white thinking...
Most of the time emotional people exaggerate the reality of the situation. This negativism can/will lead to a depression and loss of confidence.
Cognitive therapy tries to help you think more realistic.
That's why for me:
- good entries are very important: they give you confidence and the open position will be faster in profit which reduces stress and uncertainty. Losses will be in general also smaller. It creates positive thoughts.
- high winning rate is important: it makes you more sure and again will give you more confidence and less stress.
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Hi EUG. I took a long road on the emotional/psychological side of trading. I did CBT (Cognitive Behavioural Therapy) for over a year and a half. I learned mindfulness and meditation (I highly recommend both) and all of it was good but didn't quite take care of my problems.
I read countless books, including the often mentioned "Trading In The Zone" by Mark Douglas and even purchased his video training course and went through it a few times. But they were all seriously lacking in the HOW part of working through your emotions, until . . .
What I ultimately found to work was a book (and course) called "Mindful Trading: Mastering Your Emotions and the Inner Game" by Rande Howell. I went through the book, then purchased the workbook and went through it a couple more times, then purchased his course. You can find them at his website (mytradersstateofmind (.com)).
Rande guides you through the process step by step and is very thorough. Far better, and much deeper than any trader therapist, coach or author I've found. The book and workbook will take you pretty far, but not enough. The course (I purchased the home study course) takes you step by step with much deeper guidance than the book, and on top of that, you get recordings (essentially guided hypnosis) that expose you to stress inoculation.
The emotional side of trading is quite complex and does take months to work through. But with his book and course it worked fairly quickly for me.
Win rates are way over rated by amateur traders. The more experienced/profitable traders focus on things within their control like identifying trades with high reward-to-risk and using good risk/trade mgmt, that is what wins the game.
I would much rather be a trader that can make a decent profit when they are in a prolonged low win rate period than a trader that has to have a high win rate to make any profit. One trader has a lot of upside when their win rate turns around, the other has a lot of downside.
I would much rather be a trader that can make a decent profit when they are in a prolonged low win rate period than a trader that has to have a high win rate to make any profit. One trader has a lot of upside when their win rate turns around, the other has a lot of downside.
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Yes my last run of trading had a very high win rate... but still ended up being a losing period over all with some big equity swings because the losses were quite large compared to the wins. I am now coming to terms that this is not the way to trade. It's just so difficult to take the small losses and not get attached to the outcome of very trade. Taking 1 -2 -3 quick losers but then the tilt creeps in. I am sure some people breeze through these psychological aspects of trading but man it is brutal for me. At least I've proven to myself that I can make money trading so I know this is possible and gives me the fuel to keep fighting, need to learn how to keep the money I make.
I read the trading in the zone, and understand the concepts but again there is no real applicable stuff in there. Will check out the book above. I am also on sim for a bit attempting to make my method into a lower win rate with more stop outs to see if it can actually be profitable that way without the emotions getting in the way.