Zen and The Art of Trading

martys · Feb 9, 2005

"POKER RULE #98: Don't give in to the death wish... It is saying, 'I might as well keep throwing my money away at this point, because it doesn't matter anymore.'"

This one gives me the cold sweat. This is a very dangerous situation to contend with. Somehow I have to shift back to neutral out from the brain lock.

Larry Phillips · Feb 9, 2005

Quote from martys:

"POKER RULE #98: Don't give in to the death wish... It is saying, 'I might as well keep throwing my money away at this point, because it doesn't matter anymore.'"

This one gives me the cold sweat. This is a very dangerous situation to contend with.

Very dangerous indeed. Poker player (and author) Mike Caro came up with a theory he calls the "threshold of pain"-- which may apply to trading as well as poker. The idea is that it's possible to have a terrible session and then get to a point where, if you lose a lot more, thousands more, from that point forward, your misery will not increase. You're down $4,000, let's say, and you start thinking: "What's another $4,000 more?" You stop caring. A dangerous attitude indeed. Fast forward to the next day, however, and that extra $4,000 WILL have a real-money meaning then, when one's head is cleared.

Larry Phillips

Flashboy · Feb 10, 2005

Quote from Larry Phillips:

Very dangerous indeed. Poker player (and author) Mike Caro came up with a theory he calls the "threshold of pain"-- which may apply to trading as well as poker. The idea is that it's possible to have a terrible session and then get to a point where, if you lose a lot more, thousands more, from that point forward, your misery will not increase. You're down $4,000, let's say, and you start thinking: "What's another $4,000 more?" You stop caring. A dangerous attitude indeed. Fast forward to the next day, however, and that extra $4,000 WILL have a real-money meaning then, when one's head is cleared.

Larry Phillips

Its happened to me in both trading and poker... and happens often.. and that is exactly how I've felt.. I remember going to the ATM saying what the F*** I'm already down $400.. what's another $400...

And its a terrible situation because when you reach this point you are not playing good/proper poker or trading well.. you are basically just in to be in trying to salvage any of what you have left...

martys · Feb 10, 2005

Quote from Flashboy:

Its happened to me in both trading and poker... and happens often.. and that is exactly how I've felt.. I remember going to the ATM saying what the F*** I'm already down $400.. what's another $400...

And its a terrible situation because when you reach this point you are not playing good/proper poker or trading well.. you are basically just in to be in trying to salvage any of what you have left...

Hi Flash,

I just mentioned this at the other thread. When I begin this thread I know about not taking marginal trades from Larry's book and from my mentors. But it takes the birth of my son to really hammer this into my head. He taught me what it really means to be risk-adversed that no books or seminars or guru could have taught me. If I see ten opportunities during the day, I might only take half including scratching a few. I mean I am probably trading ever dumber than I was... purposely let go of some great opportunities and not letting some of the profits run. But the funny thing is I doubled my daily profits as a result... I know my trading is going to hell tomorrow by saying this. I am a dumber trader and I ended up making more money??? I am mentioning this because I also ended up in the death wish situation much much less often. I think somehow the chaos is best managed in the beginning. I need the technicals, market psychology, tape reading and my own focus to really line up and pull the trigger, otherwise I sit there like some stupid idiot watching the trains come and go. The market is probably gonna kick my ass tomorrow but I got a plan for that too... I hope.

monee · Feb 10, 2005

An interesting point I have found is that there are a few different scenarios regarding rules for entry.

A.) I place a trade that follows my rules and it is a winner.

B.) I place a trade that follows my rules and it is a loser.

C.) I place a trade that breaks my rules and it is a winner.

D.) I place a trade that breaks my rules and it is a loser.

E.) I pass on a trade that would break my rules and it is a loser.

F.) I pass on a trade that breaks my rules and it is a winner.

Psychologically:
A )keeps me stable

B) Doesn't bother me because no system is perfect

C leads to trouble.

D) doesn't bother me because I know slips in
discipline happen and as long as it was a small loser it won't kill me and I realize how to correct these losses.

E.) Truly builds confidence and discipline.

F.) Really annoys me because much of the time if a rule had been bent a little it would have allowed entry.My rules are fairly rigid but allow some leeway.For some reason this trade which would not allow entry and wins drives me nuts,and I must stay in check the next day to avoid letting any frustration from missing a trade damage my discipline.

What are others thoughts?

Larry Phillips · Feb 10, 2005

Quote from martys:

Hi Flash,

I just mentioned this at the other thread. When I begin this thread I know about not taking marginal trades from Larry's book and from my mentors. But it takes the birth of my son to really hammer this into my head. He taught me what it really means to be risk-adversed that no books or seminars or guru could have taught me. If I see ten opportunities during the day, I might only take half including scratching a few. I mean I am probably trading ever dumber than I was... purposely let go of some great opportunities and not letting some of the profits run. But the funny thing is I doubled my daily profits as a result... I know my trading is going to hell tomorrow by saying this. I am a dumber trader and I ended up making more money??? I am mentioning this because I also ended up in the death wish situation much much less often. I think somehow the chaos is best managed in the beginning. I need the technicals, market psychology, tape reading and my own focus to really line up and pull the trigger, otherwise I sit there like some stupid idiot watching the trains come and go. The market is probably gonna kick my ass tomorrow but I got a plan for that too... I hope.

There is a parallel here with sports betting. You see people sit down, bet 10, 12 college football games, or even more, 15-20... By contrast, the top sports bettors, the guys who are really good at it, how do they do it? They look for 1 or 2 plays out of the 30 games, and that's all. They're looking for all the conditions to line up right, before the chips go in.

Larry Phillips

martys · Feb 11, 2005

"POKER RULE #99: After a major poker failure occurs, resist the temptation to do something big, dramatic, and fatalistic... A better idea is to pull back and reset. Play tight again. Return to your best game; return to the Zen..."

Trying to make back what I lost by pressing or imagining trades aren't there, is a real bad do. I also think it is helpful to physically remove yourself to take a breather when stressful things happen. Always stick with the high probability setups which capture the market imbalance and psychology and provide low risk entry. The amount of money I make is exponentially proportional to how closely I stick to my stuff because of the butterfly effect.

martys · Feb 11, 2005

"POKER RULE #100: Make sure you know when you're on a cold streak... He is not aware of his condition. He is not stepping back from it and seeing it -- and, more important, not acting on this information. As a result, as cold as he is, you often see him right back in there on the next hand, fighting struggling, betting..."

It all comes down to patience, managing the expectation, and keeping one's head. When something is not right, the worst you can do is keep trading away like a robot. Timeout to regain perspective. Don't gamble anymore!

martys · Feb 11, 2005

Quote from monee:

An interesting point I have found is that there are a few different scenarios regarding rules for entry.

A.) I place a trade that follows my rules and it is a winner.

B.) I place a trade that follows my rules and it is a loser.

C.) I place a trade that breaks my rules and it is a winner.

D.) I place a trade that breaks my rules and it is a loser.

E.) I pass on a trade that would break my rules and it is a loser.

F.) I pass on a trade that breaks my rules and it is a winner.

Psychologically:
A )keeps me stable

B) Doesn't bother me because no system is perfect

C leads to trouble.

D) doesn't bother me because I know slips in
discipline happen and as long as it was a small loser it won't kill me and I realize how to correct these losses.

E.) Truly builds confidence and discipline.

F.) Really annoys me because much of the time if a rule had been bent a little it would have allowed entry.My rules are fairly rigid but allow some leeway.For some reason this trade which would not allow entry and wins drives me nuts,and I must stay in check the next day to avoid letting any frustration from missing a trade damage my discipline.

What are others thoughts?

Rules should be make to save us from occassional disasters over the long haul despite inconvenience. Breaking the rules is the exact opposite of having rules... Do not look for the override button. If the rule does not work or clashes one another then that is another problem. It's best to keep things simple. You need very little to make money but at the same times you got to stick with the program.

When I start trading, I used to have pages of rules and setups... they call it business plan. Now I only trade one setup and a few rules which are pretty much incorporated in the setup itself. If I try other things, it's like putting bad gasoline into my car. Sure I miss all the excitement but I prefer cash over tears.

Larry Phillips · Feb 11, 2005

Quote from martys:

"POKER RULE #100: Make sure you know when you're on a cold streak... He is not aware of his condition. He is not stepping back from it and seeing it -- and, more important, not acting on this information. As a result, as cold as he is, you often see him right back in there on the next hand, fighting struggling, betting..."

It all comes down to patience, managing the expectation, and keeping one's head. When something is not right, the worst you can do is keep trading away like a robot. Timeout to regain perspective. Don't gamble anymore!

You need to be two people-- one is the guy who is doing it, and the second is the guy who steps back and watches the other guy from a slight distance and evaluates whether the first guy is too tired, too upset, too unfocused, too much on tilt, etc, to be sitting at the poker table, trading, or whatever. Most important, this second guy must have the AUTHORITY to pull the first guy out of the chair, if he doesn't like what he sees.

Larry Phillips