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I would have to agree with the POP: trading is a loser's game. He who loses best, wins. If you can take the losses and still be around to take advantage of the wins, you make money. You become one of the few.
95% lose in this game. That does not mean the other 5% got that way by winning from the start. |
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It's funny - I've seen 80% of traders fail, 90%, now 95% and even 99%. Who is verifying these stats? People trying to sell you stuff? I've never seen a published CME report that details 95% of traders fail. And what is 'failing'? This stat that is thrown around so casually out there has no statistical basis whatsoever. It's the guys selling you the holy grail that want you to believe very few make it, but for those that do... Watch out! Now by my stuff or else!
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a. If it is just about winning, why would so much time be spent on handling losses? |
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B/c handling losses - esp mentally - are a big part of the game. In the end however, if you don't win, you don't survive. Your account may be in tact, but you will have little $$$ to show for your time.
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b. If it were just about setting stops to be hit, why would so much time be spent on getting out of bad trades? |
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I don't agree with this necessarily. Stops are there for protection and to get you out of a losing trade. That's their purpose - get out of a bad trade. Pretty straight forward to me.
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c. (although not what we are talking about here) If it were about winning trades, why wasn't the trader given that INDICATOR so many losing traders are searching for? |
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I don't understand this either... Many systems out there make money, but traders are too soon to give up on them. The 'holy grail' is out there, probably staring you in the face, but human emotions do not allow the trader to actually see the system make money over time. In other words, a stochastics crossover system for example will make money over time. Will the average trader be around to see that? Nope, as soon as they enter a drawdown, it's time to find the next grail.
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In truth, good stop placement usually means stops are further away than most people would want them to be. The market doesn't care how much a trader has in his or her account. The market will, however, tell a trader where the optimal place to place a stop is. But for most traders this place can be too far away. Now, why not place a stop at the level dictated by the market, but have a mental stop (much closer and more in accordance with risk parameters) as you real stop? Which is essentially what I have been suggesting. |
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Ok, here is where we disagree completely. Good stop placement is NOT the same as a stop that is far away. On my trades, I am NEVER below a 1-1 risk/reward ratio. It's more like 2-1. So, if my YM profit is 10 ticks, the average stop is 5-10 ticks.
Proper stop management does not mean put a stop really far away. Quite the contrary actually. If you have a strong entry, you can have a very acceptable stop that will be respected. I've pointed to a few examples in my personal trading just in the last 2 days where this was. A couple trades the stop was ONE tick away and it never got triggered. And we are not talking about a 20, 30, or 40 pt stop on the YM. 10 points at the MAX.
Now, the question may be - how do you have a 'close' stop that is respected? For me, it came down to working on a smaller timeframe for charting. You cannot do this on a 15, 30, or 60 minute chart. I use volume based bars and have each market set so that during quick moving markets, I am getting signals galore. During slow moving, I can tell b/c the candles take a long time to form.
Volume based bars by far have taken my trading to a whole new level. And I found them on elitetrader. I don't want to discuss the 'enemy' per say, but of my time over there, the ONE thing I found useful was volume based bars. Search for ProfLogic if interested.