Winning or Making Money?

Hey Jack,

I agree with your 'informed traders' point of view. When I trade, I trade mostly technical, but knowing certain market aspects keeps you out of the trade when the market is not friendly.

The method that i employ is discretionary so it's good to discard some signals once in a while...

On the other hand, i feel that there are a lot of things we don't know or we can't know regarding the market and the players (especially in FX) and it would be a little bit of playing the 'know-it-all' game and i fear that would be a delusion...

So i try to stick with price in the context of RA (Rational Analysis as John Bollinger says) which is a combination of Tech and Fundamental in order to set my bias. From there on, execution is technical and money management (a trade can be passed if reward does not look that rewarding).

My personal opinion is that the strong psychological nature that lets you be cool and factor in all the aspects before putting the trade isi an EDGE...

Counterarguments needed .... :)
 
Triple Screen is simple as a method, buy value when trend is up and sell value when trend is down...

The technique used by Elder is just the shape the author sees the method in .... You could be using Tom DeMark's studies in a Triple Screen fashion for example....

You could only be using trendlines and still trade the Triple Screen. That's the beauty of it, and many people don't understand .... Simplicity is key.

Now, i would give credit to Elder for "inventing" the system. He has the credit of putting it down in a logical and compreensive way for the masses. The method is as old as the Dow Theory...

As for books, after going through literally dozens of Trading and TA books (from Elder, DeMark, Appel, Bollinger, Van Tharp, all the bunch) i have come to only one book that stays with me and that is Trading to Win by Ari Kiev. I have found that no matter the system or approach, psychology is key....
 
There are lots of ways to do things.

You have steeped yourself in a school of thought and use a SOP as advocated by those who substantive materials have held sway for quite a while.

In Harris there is a block diagram of the heirarchy of about 32 identifyable approaches.

I, more or less, found out where I was located by checking out this heirarchy in Harris.

The session I most liked at the recent traders expo (Vegas) was entitled "the best traders you have never heard of". The Q's were from the event organizer, but they did take off on their own and break out of the conventional orthodoxy orientation about half way through the session.

All were people who were oriented to making money. They all had programmers who had the money making orientation, as well.

None of them were selling anything either.

It is really something to see the interaction of four people who are not oriented to the conventional orthodoxy but instead are oriented to making money.

It is extremely difficult to just look at all the money that is there for the taking. Who knows why?

a group I work with has been spending several months generating a content and style guide for doing a glossary of PVT and SCT. Recently, we got around to looking at a set of metaphors that would better illustrate ideas being defined. Both methods are money making oriented.

It seems that you have to look outside of the conventional orthodoxy to be able to make points that may lead to thepossibility of understanding making money.

The unbrella that seems to be most pervasive is the "unbelievability" umbrella.

As people go through the skill development for making money, the breakthough in understanding comes at just about the time people "put the pieces together".

As you say, you use passing on signals when the situation isn't worth it. This is a fairly universal aspect of gaming orientations.

Several things drive making money. As each comes into play, from a skills point of view, the trader is in the market more and more as a percent of RTH.

Once being in the market is comfortable, then becoming more effective and efficient comes into the picture.

That achieved, then optimizing becomes the limiting goal of being effective and efficient.

The huge size of the markets demonstrates that what ever flow of capital exists at any time, it is so large that an individual or group of individuals cannot affect the flow. Therefore, the inherent capacity allows for participation to any extent desired.

Apparently, people see "unknowns" in the market's activity. They feel "unknowns" that they see are insurmountable. How could this being in the final analysis. were a person to see "unknowns", those unknowns must be bounded by knowns.

It is logical, therefore, that iterative refinement would gradually erode the "unknowns" to a trivial level.

Wining comes down to passing on unknowns; making money comes down to getting unknowns to be trivial compared to the extraction potential.

Both probably start and end with the same number of degrees of freedom. 5 or so.


I see a staging as the market unfolds. There is always an input and output.

The interim flow of the stages is very rapid almost intantaneous, in fact. You swing from chart to chart as a staging for example.

I use pace and snetiment to "gate" where I am staging.

I have 5 stages and they have contents.

I steer to content subsets then I magnify the focus for the time I am in that stage.

There turns out to be about 70 degrees of freedom over the 5 stages. Waves from input 5 degrees to the output 5 degrees where 5 stages expand and focus on what it is that is sufficient to know to achieve certanty of results.

By threading through information using a "sufficiency" test by having so many alternative and focussed subsets, a seamless continuous result is achievable.

I follow about 80 edges of various performance levels and degrees of descretion. The above is like looking at these in parallel; sort of like playing roulette with 36 balls where they can fit into only one result, each per spin. It may seem "noisey" but I reduce that by "gating" with market pace and market sentiment to keep my eye on the ball.

If you look at 80 edges you automatically perceive that those losing (or taking the pass) are the vaste majority. Very few at any given time are winners.

In parallel to this action are the money makers who are always in the market making money. In effect money makers are facing the losers all the time and the edges that are in play for the moment are on the same side of the market as the money makers.

There is a pre beginner in a popular thread. He is a follower of the conventional orthodoxy and working his way up to learning what a market signal is. I gave him one and it is a money making one and not an edge type signal. He apparently needs to "watch it in real time" for some reason. He wants to see trades from the signal and the signal is one whereby he is in the market all the time and making money all the time. The signal is to switch sides of the market to be able to be in the market all the time and concurrently be on the right side of the market all of the time. I kept it "simple" meaning there is one source of signal and it is not tempered by any other consideration. 14 segements of profits were the result yesterday from 9:30 to the close. I asked him to make a log of the trades (this is not possible for him).

For your convenience I attached the chart. the vertical green lines are the time of the actions. This is a pre-beginner level of making money. There is no conventional orthodoxy invloved it is just pool extraction according to the sentiment of the market.
 

Attachments

Wow! That is surely a post, man! :)

Thanks for the insight.

I am more of a discretionary, price-oriented bastard. I consider buying when the asset feels cheap and consider selling when the asset feels expensive. Sounds easy, and for me it has begun to be.

The "feeling" part has it's rules...

The whole complicated thing is pre-session analisys, which is completely discretionary. I study price action, angles of declines, advances, peaks of MACD histogram, certain key pivot levels and decide upon that which should be my bias.

And if the bias is long then i need to wait for the asset to be temporarily cheap while not affecting the trend.

I don't consider it's a bet or a game, just an action that i took full responsability for after weighing in the risk level; everything is based on incomplete information eitherway....

I feel that i started to make money when my account was decent enough to produce cash while only risking a mere 1% or even lower per trade.... I wonder if that is psychological. Before taking money management into account, my account swinged like crazy, and i had huge emotional problems.....

Have any of you been there?
 
Quote from jem:

you can spend a lot of time at the altar of imitation zen bullshit

or you can trade with a real edge, make real money, build up your real account and then make so much money it no longer matters.

Then and only then will you be trading at the level where the money is only keeping score.

There are no zen short cuts for are real edge. And if you have a real edge you have to be a real nut job to sabotage yourself.
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Guess I must be a real nut Job.

To answer the original question. Personaly I win a lot and that seriously screws up the money making side of things.

I wish I could deal with this issue as I would make a lot of money (rather than a pretty modest amount). Despite knowing better I think deep down the old ego is at work. He/she/it would rather be right than rich.

Of course roll a bit of fear into that (maybe fear of being wrong rather than fear of loss) and you have a potent mixture for self sabotage.

I have tried all sorts of things to deal with this but still find myself closing perfectly good positions with a few ticks profit.

So to sumarise I'd rather be rich than right though the ego seems to need stroking with lots of small wins.
 
Right on target Blowfish!

I think everyone has had or has this problem.

I personally sought refuge in actively controlling my risk and reward. How it did it was by setting strict rules for entry and exit like for instance (this is an example):

After entering, if price moves my way and reaches target, i close the full position, no bullshit, even if it gets higher.

If it moves my way but MACDHistogram starts to tick down on the 10 min, i exit half and trail stop to breakeven.

If i enter and the position does not move my way, price will either take my stop (and it has to go against me with great force) or I close it manually (full position) if MACDh ticks against my trade.

Not only the stops are small, but i have the chance most of the time to exit even before they are hit and later reenter when the market made up it's mind.

The thing i consider healthy is have a rigid set of rules that makes you detach yourself from the impulsiveness of human nature.
 
Even if closing the position at a predetermined target comes against the old adage:

"Cut your losses short and let the profits run"

I think that, since you don't know which one will be a profit and which one a loss, you should seek a compromise and respect the rules it imposes.

my 2 cents...
 
Quote from Maverick1:

I believe you're referring to the adage that making money has little to do with a high win rate... for ex, see turtles with their sub 40% win rates and yet great success etc... So the reality for these guys is that they take losses on 7 out of 10 trades and still come out nicely ahead due to the large wins on the 3 other trades.

This is only my opinion, and I don't expect others to follow me in it, but I think that for anyone looking to make a living out of trading, the above is a crock. If you want to be a money manager who pays the bills from his salary and then gets a performance fee at the end of the year, sure go ahead and win 30% of the time BIG like a turtle and make money after stomaching 7 losses. But you have to be prepared to weather months if not years sometimes of equity drawdowns and sideways performance to get to the breakouts that will make you money.

For everyone else, especially those looking to make money consistently, a la Marty Schwartz, or Mark Cook, or Linda Raschke with short term trading, I believe that a high win rate is an ESSENTIAL prerequisite. Read what they have to say: these 3 traders all admit to having win rates in the 70-80% range. They have developed edges that allow them to pull the trigger time after time with full confidence. They typically don't sit through protracted drawdowns, in fact, Schwartz himself never had more than a 3% drawdown on his way to $20million. And the best of them have excellent reward to risk ratios on their completed trades, typically in the 1.5 or 2:1 range. So they can lose 3 times in a row, and be down small if the 4th is a winner. In other words, they have excellent DRAWDOWN RECOVERY power. That is KEY to successful execution, imo.

This is where I disagree with conventional wisdom and I've changed my views over the years. They say: Don't be focused on win rates, try to get at least a 3:1 on your trades. Sounds great doesn't it? Sounds like the real deal, right? Wrong. It isn't. Simply because it is tremendously hard to CONSISTENTLY achieve a 3:1 reward risk ratio in trading. And then you wonder why people go broke winning 25% of the time, looking for their proverbial 3:1, lol.

What I say is this: there is a reflexive relationship between a trader's win rate, his avg reward risk ratio, trading frequency and his mindset/ability to execute calmly. If any one of those 3 variables is out of whack, it will affect his performance in due time. For ex, for the guy who has a very high win rate but an inverted risk reward, 5% of the time an unexpected series of consecutive losses will throw him off and it will take him longer to dig himself out, leading to mistakes and more drawdown. Mind you, there are some who claim to be able to do that (Whitster on this site comes to mind, but I don't trust what anyone says here without verification), in the name of positive expectancy. Or take for ex the guy with a 50% win rate, but high reward risk of 3:1, even with a 50% win rate, 3% of the time he will see 5 consecutive losers in a row and get discouraged and quit, or change his system etc.

So what to do? I believe that to be a peak performer or to be the BEST or among the BEST, you have to have 3 things going for you: a 70% win rate or higher, a reward risk of 1.5:1, preferably 2:1 net, after commissions and slippage, and ample trading frequency. That to me is the SWEET SPOT of trading which optimizes the trader's mindset/psychology.

Of course, those who don't have a real edge will tell you those numbers aren't achievable. It's up to you to decide. I believe that they are, actually, I KNOW that they are. But you believe whatever you want to believe based on your experience, research. I'm not going to argue about it, don't have time for that.

So to answer your question in short: making money is about optimizing your mindset and execution abilities. And you can only achieve the optimal mindset if you have a real EDGE comprised of 3 things: a high win rate, good reward risk, and enough opportunity.
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VERY WELL PUT & ELOQUENT - THANKS
 
Maverick1

I broadly see where you are coming from...

But one key point is missing... it is possible to achieve a hybrid approach... it is not necessarily one choice or the other...

Candle


Quote from Maverick1:

I believe you're referring to the adage that making money has little to do with a high win rate... for ex, see turtles with their sub 40% win rates and yet great success etc... So the reality for these guys is that they take losses on 7 out of 10 trades and still come out nicely ahead due to the large wins on the 3 other trades.

This is only my opinion, and I don't expect others to follow me in it, but I think that for anyone looking to make a living out of trading, the above is a crock. If you want to be a money manager who pays the bills from his salary and then gets a performance fee at the end of the year, sure go ahead and win 30% of the time BIG like a turtle and make money after stomaching 7 losses. But you have to be prepared to weather months if not years sometimes of equity drawdowns and sideways performance to get to the breakouts that will make you money.

For everyone else, especially those looking to make money consistently, a la Marty Schwartz, or Mark Cook, or Linda Raschke with short term trading, I believe that a high win rate is an ESSENTIAL prerequisite. Read what they have to say: these 3 traders all admit to having win rates in the 70-80% range. They have developed edges that allow them to pull the trigger time after time with full confidence. They typically don't sit through protracted drawdowns, in fact, Schwartz himself never had more than a 3% drawdown on his way to $20million. And the best of them have excellent reward to risk ratios on their completed trades, typically in the 1.5 or 2:1 range. So they can lose 3 times in a row, and be down small if the 4th is a winner. In other words, they have excellent DRAWDOWN RECOVERY power. That is KEY to successful execution, imo.

This is where I disagree with conventional wisdom and I've changed my views over the years. They say: Don't be focused on win rates, try to get at least a 3:1 on your trades. Sounds great doesn't it? Sounds like the real deal, right? Wrong. It isn't. Simply because it is tremendously hard to CONSISTENTLY achieve a 3:1 reward risk ratio in trading. And then you wonder why people go broke winning 25% of the time, looking for their proverbial 3:1, lol.

What I say is this: there is a reflexive relationship between a trader's win rate, his avg reward risk ratio, trading frequency and his mindset/ability to execute calmly. If any one of those 3 variables is out of whack, it will affect his performance in due time. For ex, for the guy who has a very high win rate but an inverted risk reward, 5% of the time an unexpected series of consecutive losses will throw him off and it will take him longer to dig himself out, leading to mistakes and more drawdown. Mind you, there are some who claim to be able to do that (Whitster on this site comes to mind, but I don't trust what anyone says here without verification), in the name of positive expectancy. Or take for ex the guy with a 50% win rate, but high reward risk of 3:1, even with a 50% win rate, 3% of the time he will see 5 consecutive losers in a row and get discouraged and quit, or change his system etc.

So what to do? I believe that to be a peak performer or to be the BEST or among the BEST, you have to have 3 things going for you: a 70% win rate or higher, a reward risk of 1.5:1, preferably 2:1 net, after commissions and slippage, and ample trading frequency. That to me is the SWEET SPOT of trading which optimizes the trader's mindset/psychology.

Of course, those who don't have a real edge will tell you those numbers aren't achievable. It's up to you to decide. I believe that they are, actually, I KNOW that they are. But you believe whatever you want to believe based on your experience, research. I'm not going to argue about it, don't have time for that.

So to answer your question in short: making money is about optimizing your mindset and execution abilities. And you can only achieve the optimal mindset if you have a real EDGE comprised of 3 things: a high win rate, good reward risk, and enough opportunity.
More...
 
Quote from Maverick1:

I believe you're referring to the adage that making money has little to do with a high win rate... for ex, see turtles with their sub 40% win rates and yet great success etc... So the reality for these guys is that they take losses on 7 out of 10 trades and still come out nicely ahead due to the large wins on the 3 other trades.

This is only my opinion, and I don't expect others to follow me in it, but I think that for anyone looking to make a living out of trading, the above is a crock. If you want to be a money manager who pays the bills from his salary and then gets a performance fee at the end of the year, sure go ahead and win 30% of the time BIG like a turtle and make money after stomaching 7 losses. But you have to be prepared to weather months if not years sometimes of equity drawdowns and sideways performance to get to the breakouts that will make you money.

For everyone else, especially those looking to make money consistently, a la Marty Schwartz, or Mark Cook, or Linda Raschke with short term trading, I believe that a high win rate is an ESSENTIAL prerequisite. Read what they have to say: these 3 traders all admit to having win rates in the 70-80% range. They have developed edges that allow them to pull the trigger time after time with full confidence. They typically don't sit through protracted drawdowns, in fact, Schwartz himself never had more than a 3% drawdown on his way to $20million. And the best of them have excellent reward to risk ratios on their completed trades, typically in the 1.5 or 2:1 range. So they can lose 3 times in a row, and be down small if the 4th is a winner. In other words, they have excellent DRAWDOWN RECOVERY power. That is KEY to successful execution, imo.

This is where I disagree with conventional wisdom and I've changed my views over the years. They say: Don't be focused on win rates, try to get at least a 3:1 on your trades. Sounds great doesn't it? Sounds like the real deal, right? Wrong. It isn't. Simply because it is tremendously hard to CONSISTENTLY achieve a 3:1 reward risk ratio in trading. And then you wonder why people go broke winning 25% of the time, looking for their proverbial 3:1, lol.

What I say is this: there is a reflexive relationship between a trader's win rate, his avg reward risk ratio, trading frequency and his mindset/ability to execute calmly. If any one of those 3 variables is out of whack, it will affect his performance in due time. For ex, for the guy who has a very high win rate but an inverted risk reward, 5% of the time an unexpected series of consecutive losses will throw him off and it will take him longer to dig himself out, leading to mistakes and more drawdown. Mind you, there are some who claim to be able to do that (Whitster on this site comes to mind, but I don't trust what anyone says here without verification), in the name of positive expectancy. Or take for ex the guy with a 50% win rate, but high reward risk of 3:1, even with a 50% win rate, 3% of the time he will see 5 consecutive losers in a row and get discouraged and quit, or change his system etc.

So what to do? I believe that to be a peak performer or to be the BEST or among the BEST, you have to have 3 things going for you: a 70% win rate or higher, a reward risk of 1.5:1, preferably 2:1 net, after commissions and slippage, and ample trading frequency. That to me is the SWEET SPOT of trading which optimizes the trader's mindset/psychology.

Of course, those who don't have a real edge will tell you those numbers aren't achievable. It's up to you to decide. I believe that they are, actually, I KNOW that they are. But you believe whatever you want to believe based on your experience, research. I'm not going to argue about it, don't have time for that.

So to answer your question in short: making money is about optimizing your mindset and execution abilities. And you can only achieve the optimal mindset if you have a real EDGE comprised of 3 things: a high win rate, good reward risk, and enough opportunity.
More...

Best post I've read here for a while. Nice to read something by someone who knows what they're talking about.

Re the hybrid. I hold longer for part of my positions in two conditions which have high probability of continuation beyond my normal target. In both cases I am breakeven plus before the hold. I don't do this because its key to profitability - I do it simply because I feel pain if I let too many of the big moves go on without me.

So the hybrid isn't necessary for winning or profitability but can provide some extra satisfaction.
 
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