Your Mama Doesn't Trade ... So Wise Up to Yourself!

[Your Mama Doesn't Trade ... So Wise Up to Yourself!]

I agree that a full-time, experienced coach can be of great benefit - especially if present early in anyone's development. Like you, I've tried learning many things from books etc. - with mixed results. So I accept that 'coaching' can be a great aid to success - but not just any coaching.

 

What I'm less convinced about is the efficacy of a coach who has never competed in the sport and then touts himself as a coach in that sport - providing only books and DVDs plus one hour a month talking over the phone.

 

 

The full time, experienced coach is what I was talking about. Someone you knew was successful and could interact with face to face. Most don't have that opportunity so the next best thing might be a reputable service on the internet (key word, reputable). I don't think it is unrealistic to expect that one could find a service that would help them flatten their learning curve. Are there cranks, yes. Are there good ones, yes. One has to use their judgment.

 

As an aside, many a champion golfer have had swing instructors that never came close to being champions themselves. However, most work quite hard on their own games and bring that experience with them. Whether the same can be said in trading I could only guess.

 

I don't think the amount is as relevant as you think. The problem here is actually the inability to accept sequential losses. That can often be the result of a lack of faith in the method being used. Lack of faith causes a trader to avoid taking trades after even a very short series of losses - as Steve46 mentioned.

 

e.g. If I tossed a coin and paid you $2x every time you called the result correctly but you had to pay me $1x when you got it wrong, how much 'hurt' would you experience on the losses?

Whatever your 'pain' threshold is ('x'), I bet you wouldn't feel anywhere near as much pain in the coin toss as you would in the market. The only difference is your faith in the methods' profitability over time.

 

In the coin toss, you'd never NOT take a trade - even after 10 consecutive losses.

 

Unless the 10 consecutive losses wipe out your account.

 

The more painful the loss the more faith one must have in their method. The more faith one has in their method the more risk one might be willing to take. We could go round and round. One could trade 6E at $12.50/tick or EUR/USD at $1 a pip. Either way, unless one can find a size that easily allows them to take the next trade, even after a series of losses, they will have a hard time trading their method the way it should be traded. When people say they are having a hard time pulling the trigger live, even though they know their edge is good, I venture that this is the reason. Find a way to reduce size until it becomes insignificant, then slowly ramp it up.

 

As usual it seems people feel that they can simply ask for a trading plan that gets them to the moon and someone will step in and provide it.....you may want to ask sir or madam just how realistic is that?

 

Steve46, if you are referring to my request for successful traders to share their "simple" methods so we can all move on, it was partly said in jest and partly as a challenge to the casual statements I hear to the effect that the edge is the easy part and most of the work is psychological. If it’s easy lets get it over with. No one is looking for a handout here, but if you offered…

 

On a more realistic note, as regards risk...I will post the following for Todds (I think that is who posted the most recent comment on that subject)

 

Generally speaking professionals manage risk by varying position size, timing of entry and exit and size of stop loss. If they are longer term participants they also have to know how to protect positions using options strategies. These are each subjects in themselves but I will give a short example for your consderation

 

If my account permits me to trade a max of 30 contracts, then initially I will go in with 15 (5 at a time) while I monitor the market for "confirmation"......t o me "confirmation" means that the data I monitor tells me that I am right and the market is going my way....Initially I postion my stoploss about 2 points away. As soon as I get confirmation one way or the other I take action. If I am right I look to add another 15 ASAP, and then I go into "risk management mode". I do this because I want to be as big as possible when I am right.....In contrast, if I am uncertain or it look as though I am wrong, I will scale out (of my original 15 contracts) or wait for confirmation that I am wrong (that usually means a stop out and a 2 pt loss).

 

* "risk management mode" means that my job is to stay in the market as long I see it is moving my way....alternatively if I see the market stalling or not going my way my job is to take profit and reduce my exposure to "systematic risk" (unanticipated bad news or perhaps a "flash crash" event)...

 

As you can see, professional conduct is much different than retail, where the trader (usually) has a very limited account size, and therefore has fewer options with regard to entry, profit/loss and exit.

 

"Generally speaking professionals manage risk by varying position size, timing of entry and exit and size of stop loss." I couldn’t agree more. However, I would disagree that being a professional has to do with account size. I assume you are trading ES? So your max loss on a trade would be $1500? I assume $1500 is but a small fraction of your account? How is this different than someone with a smaller account who manages their trades the same way and risks the same % per trade by using other available instruments that allow them to do so? I am sure that you could come up with a position size that would cause even you to choke. That was my point. Figure out a size where you don't choke, no matter what percentage it represents of your account.

[Your Mama Doesn't Trade ... So Wise Up to Yourself!]

I am always amazed at the mind games people play to get enough courage to pull the trigger....look, its a game of odds....and it doesn't have to be complex....assuming you have a decent plan, you have to learn to think in a non-random way.....what does that mean?.....for most retail traders, even when they have a plan that they think is profitable, the first time they encounter a losing streak, its game over....not because the plan is bad....but because they cannot make themselves take all the trades....they start to "cherry pick" taking one trade here and one there because they think they know which setup is going to be successful....THATS what non-random thinking is....its "amateur hour" and thats what kills most retail trading accounts. In order to have a chance at making it in this profession, you have to be able to committ to taking a significant sample of trades, to keeping accurate records and then you have to have the skills necessary to adapt if your plan doesn;'t work out. Thats what adult behavior and discipline is all about in this business.

 

I used to pay little attention to all the talk about position sizing. But, the more I go along the more I realize its significance. I am becoming a believer that one has to find a way to reduce their size until a loss is virtually painless. If not, you will never trade your method the way you should. Even if you have a large account and are trading 1% or even 0.5% per trade, if losing this amount still hurts you have to go even lower until you find a value that does not hurt. For most, this will mean trading stocks or forex mini-lots and leaving futures for another day.

[Your Mama Doesn't Trade ... So Wise Up to Yourself!]

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No - not 'that easy' but I would repeat that it is a 'simple' process ('simple' <> 'easy'). That doesn't mean that you can't make it very difficult if you want to - as I did). My mentor died soon after I started. I had some seeds of an idea but not the specifics. It's taken you 2 years to get here. It took me longer. So if there's something wrong with you, then my condition is/was worse. It's been very hard work for me - but then, I don't have a 'natural gift' for this.

 

The strange thing is that the core idea that I use now is something that I noticed very early (about a year after I started). I did not pursue its development into a trading strategy. I don't know why. Perhaps it was because it was 'too' simple and I was looking for something complicated that I could program into a system to achieve an 'edge'. As a result, I looked at everything else - from Gann's square of nine through Elliott Wave. In fact, I did a Wyckoff course about 10 years ago that was offered out of Phoenix, Arizona. I still have all the workbooks and test results etc. Maybe others can cope with so many subjective and often conflicting indicators - I can't.

 

Another important text for me was as Tradestation 4.0 user when Charlie Wright wrote a book called 'Trading for a Living'. The lasting memory of that book was that Charlie's research concluded that Trend following and 'always-in' reversal methods were the only two that could be proven to be successful. I, (and I believe most traders when starting) are always drawn to Support/Resistance reversal points - for which he was unable to find any proof of success. I don't wish to pass judgment on S/R as a method - if anyone is successful with it, then more power to them - but the book stopped me from pursuing it.

 

In hindsight, noticing my core idea after staring at many charts was probably a subconscious reflection of how I wanted to trade and I should have given it more respect. I've always wanted a clear, unambiguous, totally objective instruction of the direction in which to trade: An exact price to enter; An exact price to exit if wrong and another if the market goes my way. All the other methods contained too many 'contextual' and subjective decisions for my brain to cope with at the very instant that I had to make a trade.

 

So, why did I spend so much time and effort learning about methods that did not tick all those boxes? I have no idea.

 

I think every trader needs to find a method that suits his personality. if you've been searching for 2 years already, the chances are that you've already found something that suits you in the volumes of text that you've read but, like me, you ignored it. I don't know what will 'float your boat' and what floated mine, might leave you cold - but you asked, so I'll answer.

 

The start for me was when I read Larry Williams' study on the the probability of a bar continuing in the same direction as the previous bar. I don't remember the exact numbers but I believe he found that the first bar continues in the same direction as the previous bar approx. 52% of the time. Each subsequent bar does less well statistically. That's an 'edge'. Admittedly not a great one - but it's a start.

 

Note: Las Vegas was built on small percentages - but it takes patience and enormous repetition.

 

Also, markets are not 'normally' distributed. The fat tails are a trader's best friend. They ensure that, over time, you can win much more (not necessarily more often) than a 52% coin toss would return. Also, Larry Williams' study only looked solely at direction - not duration or distance.

 

e.g. Even just plotting any Simple Moving Average reveals that more and wider 'up' bars are generally above the SMA while the equivalent 'down' bars are generally below it. Again, this edge is not great but it is significant

 

Note: it doesn't matter how small 'edges' are, they all add up.

 

IMO, It is also important to be aware that if you're not 'happy' with small edges that only bear lasting fruit with repetition, and despite many inevitable losses, then you are either being very unrealistic about what is possible as an independent trader or your mindset is not suitable for this business.

 

But I digress. Therefore, once the market moves away from the SMA, on a per bar basis, the number of winning trades is more likely to be higher than the losers and, more importantly, the point gain/loss ratio is more likely to be greater too. This is just another way of saying "Stay with the trend" but seeing 'why' it makes sense from the perspective of the ratio of trades won/lossed and the amount of money won/lossed ratio, made it 'real' for me as opposed to it just being a trading cliche.

 

I believe it is a 'can't lose' core strategy. I'm not sure if it matters whether it actually is. I believe it and and that belief helped to remove much of the fear. Much of the confidence comes from the fact that the method that I developed from the core strategy, works in any market and on any timeframe. Where a trader chooses to enter and exit within that strategy depends upon their preferred timeframe, capital and risk tolerance etc. but you could do a lot worse than first reversal bars off an SMA for entries and previous swing highs and lows and points where there is a confluence of traditional T/A indicators, for exits.

 

There is much room for improvement from this core idea. e.g. once the market gets far away from the SMA, reversals can also start with large bars and so I take those signals. OTOH, the market will often just move sideways for hours until the SMA catches up but it is possible to make such a determination early, accept any losses that occurred trying for a reversal, and use that moment to quit for the session or do the things that trading was supposed to allow.

 

Caveat: Even once a method was developed, I found that development difficulty paled in comparison to my difficulty in following it. That was a hurdle I never saw coming. I don't know it that's a universal truth or if it's just me but forewarned is, hopefully, forearmed.

 

MP-TT, I really appreciate the time and effort you took to respond! There is a lot of great information in your post so I'll have to read it a few more times.

 

I am definitely aiming in the direction of simple. The more I think of trading and compare it to my last endeavor of trying to be a professional golfer I know that ultimately success will come through simplicity. However, achieving simplicity is not always easy. One might say it is Simplicity through Mastery. Phil Mickelson makes golf look simple, and to him it is, but it took a lifetime for him to get to that point. A novice trying to copy his swing may not find it as easy as it looks.

 

Funny you mentioned Charlie Wright. I have another of his books called "Trading as a Business". I'll have to look at that one again.

 

Fortunately my trading journey has kept me away from indicators. I realized early on that they look a lot better in hindsight than in real time (this is not to say they cant work in the right hands.) Most of my two years has been following price action. The first year was spent entirely in sim trading the ES on a 30 second chart looking for specific reliable Elliott Wave set ups. While this gave me a great basis for reading price, I was not all that successful with it and really didn't like being confined to the ES.

 

My second year has been live trading various futures using a method based on price action taught by a group in a subscription chat room service. I know what many are thinking..."SUCKER!" I don't look at it that way. One of the biggest mistakes I made in golf was not getting a qualified instructor/mentor early on in my career. I tried to learn it all from books and watching the pros on TV. This took exponentially longer to learn the nuances of the game than had I found someone to show me the "tricks" in person. I learned a lot more as a golf club manufacturer's rep when I was able to interact with the pros and ask questions. I would recommend to any new trader to either find a successful trader who will take you under their wing or experiment with various interactive services until you find one that seems reputable and makes sense to you. I have no problem paying for lessons from pros.

 

Along the way I have also been doing research and experimenting with various ways to read price action. The threads I mentioned earlier along with James16 on Forex Factory have been very helpful. Thanks to Kiwi for that lead.

 

I took around 1500 live trades in 2010 and finished the year net even. The second half of the year was better than the first. This tells me I know something but just need to make a few tweaks here and there (I also need to trade less!). The next project will be to go back over those trades in detail to see if anything pops out. In addition, I am considering forex to reduce position size utilizing mini lots. I am finding that a typical loss in futures is just too painful and thus causes hesitation. The light bulb came on regarding position size reading the James16 thread.

 

Thousands of hours of screen time and continued education are the necessary building blocks to making a competent trader in my opinion. It all adds up, one brick at a time. MP-TT, I would guess that all the time and effort you spent on other things ultimately gave you the foundation to evaluate what has ultimately become your simple method.

 

Thanks for your reply.

[Your Mama Doesn't Trade ... So Wise Up to Yourself!]

 

The point is that in both cases (assuming a method with positive expectancy), 'what' to do and 'when' to do it is not the problem - or at least it's one that is easily overcome with a little experience, application and testing.

 

MP-TT and other veteran traders who have made it to consistent profits over time:

 

I really mean this with the utmost respect because it seems that you and others have a lot of experience and insight that can be helpful to us who are still trying to find our way to consistent profits. I have seen the above said by so many veteran traders so many times that I feel like I'm the last trader on earth who is still struggling with "what to do and when to do it".

 

Assuming a method with positive expectancy seems to me to be the biggest assumption of them all. Is there something wrong with me that after two years of full time trading I still haven't been able to solidify a trading method that I know has positive expectancy? Is it really that easy?

 

I am getting close, and sites like TL have helped a lot, but it took almost two years just to find TL! In the mean time I was doing research where ever I could find it: books, seminars, trading rooms, the usual suspects. Call me dumb, incurious, intellectually lazy, whatever but it is not for lack of trying that I have not yet devise that illusive trading plan with positive expectancy.

 

The problem as I see it for most traders is that they are trying to learn something that is very difficult essentially on their own, unless they are fortunate enough to have Linda Raschke as their aunt or some such situation. It's a bit like trying to be a surgeon without going to medical school, only probably a lot easier. You have to cobble together your own research material, evaluate it for its validity, devise your own training plan, and test your systems all while having no clue what you are doing. How many people would die on operating tables if this was how surgeons learned their profession? How long would it take to be a competent surgeon? In a perfect world there would be two year vocational schools taught by successful traders where the students were put through a rigorous training program. Sure, some would still fail but I would wager the success rate would be multiples higher.

 

What would be most helpful to most traders would be for successful traders to offer some insight as to where one might find this "simple trading plan". Or, better yet, share their simple trading plan so we can all get past that stage and start working on what is really important. I am finding threads like Reading Charts in Real Time and the Wycoff Forum here at TL to be most helpful, but I wouldn't say the methods taught there make solving the problem of what to do and when to do it a foregone conclusion. Is there an easier way?

[Your Mama Doesn't Trade ... So Wise Up to Yourself!]

I wasn't saying it isn't competitive just not as competitive a becoming a professional tournament golf player. I know nothing about golf -100 is just a figure I picked out of the air. Maybe todds will chip in with a more accurate figure. While trying to come up with a more educated number I did find this on wikipedia that made me smile:

 

"The great majority of professional golfers (at least 95%) make their living from teaching the game, running golf clubs and courses, and dealing in golf equipment"

 

I did find this tennis ranking sites that gives current 2011 and career earnings:

 

http://http://www.atpworldtour.com/Rankings/Singles.aspx?d=14.02.2011&c=&r=101#

 

I think that this shows the number of players tennis players that could live of their tournament winnings would be in the hundreds.

 

I hadn't thought of the multi-sport / different trader types aspect. And also how many traders (trading their own money) make a living off just their trading income? Maybe that number is also very small as well.

 

TradeRunner

 

TradeRunner, I agree, regarding making a living playing a sport like golf the opportunities are limited. In golf it's the top 400-500 in the world and one must "qualify" to play in events. I was never good enough to be a professional golfer but was good enough to be competitive at the state and national amateur level. It still took many years of complete immersion to get to this level. If my trading equals my golf skills I will do quite well. I suspect many people can say the same thing about their own life achievements.

 

The analogy was about the fact that trading is a performance activity, big money attracts talented motivated people, and one must be really good to make a living. I think it is what it takes to be “really good” that people don’t understand. It is about technical proficiency first and foremost. In trading, this is edge, and is the most difficult to attain in my opinion. It comes from acquired knowledge, attention and lots of experience, just like mastering any other field of endeavor. Confidence follows technical proficiency.

 

My point is that there seems to be a sort of mysticism that people attach to trading, as if it is somehow different than other difficult endeavors. If there is a difference it is that we are allowed to enter the arena long before we are ready.

 

For traders with some success in another worthwhile field, I do not believe their difficulties are about the "issues" they bring with them to trading, or some other latent psychological demons. If I am having trouble pulling the trigger, it's because I don't believe in my edge. Why should I believe in my edge? For the first two years of my trading life I got my head handed to me nearly every time I entered a trade because I picked terrible entries. Why should it be any different next time? If I'm having trouble staying in a trade it's for good reason. For the first two years of my trading life my trades rarely went anywhere because I was picking crummy trades. My technical proficiency was a mess. These are logical and healthy reactions. It is only through acquired knowledge, attention and experience that we improve our skills and slowly begin to have confidence in our judgment. I am trying to keep it that simple and not get sidetracked on other things.

[Your Mama Doesn't Trade ... So Wise Up to Yourself!]

It is funny how so much is made of trading. The way I look at it there is no difference between trading and any other performance endeavor where big money is a reward for excellence like sports or music. No one would expect an athlete or musician to be skilled enough after two or three years to be good enough to make a living. Why should we expect any less from traders? The reason most traders fail is because they are woefully ill equipped skill-wise, even after several years, to compete with professionals. The truth is, they just are not technically good enough.

 

I compare it to an area where I have reasonable experience and expertise: golf. In my twenties I attempted to be a professional golfer and later worked fourteen years as a manufacturer's rep helping the world's top professional golfers fine tune their equipment for competition. Every player I worked with on the professional golf tours had one thing in common: phenomenal ball striking and putting skills. This was the bare minimum requirement, their "edge". If you couldn't hit the ball well or putt well, forget about trying to be a professional golfer. It was only after acquiring these skills that the individual's mental toughness, competitive spirit, and psychological makeup separated the champions from the also-rans. In most cases it took these golfers 5, 10, or 15 years before they had the technical part of their game to the point where they could compete. They often started when they were kids, and had instructors along the way pointing them in the right direction. Very few learned it on their own. They competed at all levels on the way up, honing their skills against people their own size, age and ability.

 

But what do we do as traders? We read a book, open an account, trade in sim for a few weeks then do the equivalent of teeing it up in the US Open. It's no wonder we blow out.

I would venture that most traders never come close to developing the technical skills (their Edge) required to begin trading with real money, let alone in sim (sim can be just as damaging to your psyche as real). These technical skills are not acquired quickly. It is a combination of knowledge and experience. Knowledge comes from books, seminars, websites, teachers, coaches, mentors, gurus, whatever it takes. Experience comes from screen time, lots of it, 5000-10,000 hours of it. I am with FXGirl on this point.

 

To try to make it any more mysterious than this is counterproductive imho.