Stress-Free Trading System

#1
Emotions Generated by Trading By Bennett McDowell,

As traders, we not only have to develop technical trading skills but also the emotional skills to trade successfully.

Emotional skills help the trader get through equity draw-down periods and multiple, consecutive trading losses that ALL trading systems experience if traded long enough. These tough events in trading will test the emotional fortitude of any trader.

This is where confidence in your tested trading system and trading with money you can afford to risk will play an important role. If the trader did not test his or her trading system, how do you think that trader will feel after four consecutive losses totaling approximately 8 percent of the trading accounts equity?

Now, compound this with the fact that it is not money this trader can afford to lose. And, compound this again if the person is day trading and losing 8 percent in one day! And, the 8 percent assumes that you are controlling your risk so that each loss is only a net maximum of 2 percent per loss.

Now, after all this, do you think the trader will feel anxiety and stress? I think so! Do you think that stress will create a good environment for successful trading? I think not! Do you think the trader will be afraid of taking another trade for fear of another possible loss? Perhaps it might because this kind of stress can cause the trader to second guess him or herself and the trading system, whatever it is. Traders who trade with confidence will keep trading and not second guess themselves OR their trading system.

As a trader you want to eliminate any and all emotions while trading. This even includes emotions generated by having too many market opinions. Emotions never help the trader! Keep emotions in your personal life and away from your trading life.

The best way to keep emotions in check is by creating a stress-free trading environment where you accept equity draw-down periods and can keep trading through them in a stress-free state. You do this by testing your trading system or approach

In my opinion, the best testing method is to paper trade for a long enough time that you come to know the best, and the worst, that your trading system produces. Paper trading (again, in my opinion) is better than computer back testing because it represents how YOU are actually trading the system or approach. Yet, its in a stress-free environment because no real money is being used.

I always tell traders, that, if they are not profitable paper trading, they will not be profitable trading with real money. In other words, they are not ready to actually trade! It is far better to know that you are not yet ready then to jump in head first and lose your shirt!

So, the first step in getting a handle on your emotions is to create a stress-free trading environment that provides a solid foundation for you to apply your trading skills and, then, access how you are doing. If youre the one creating your stressful trading environment, you are short-changing yourself before you ever even start actually trading.
 

beginner_av

Well-Known Member
#2
Good article with a BIG PROBLEM...

testing et al is fine...but what has paper trading got to do with stress-free...may be meditation can help!!! Where is the stress in paper trading. Unless u do it with real cash...may be try tearing a hundred rupee note and see how you feel! And yes, why wait ages with paper trading...test on past data or use simulators (even a free one comes with amibroker).
 
A

amarnath

Guest
#3
Good article with a BIG PROBLEM...

testing et al is fine...but what has paper trading got to do with stress-free...may be meditation can help!!! Where is the stress in paper trading. Unless u do it with real cash...may be try tearing a hundred rupee note and see how you feel! And yes, why wait ages with paper trading...test on past data or use simulators (even a free one comes with amibroker).
Better than tearing a note ( which may be illegal act to do so but not sure :D ) offer the fund you loose to a charity whom in need to that :) atleast can earn good karma ;)
 

beginner_av

Well-Known Member
#4
ok - i put a disclaimer - for educational purposes only - dont do in real life ;)

then may be flushing down the drain (is that illegal too?)
the problem with good karma is that u have a sense of altruism and may feel thats easier to do ...u wont get the same altruistic feeling when someone yanks your money off in the market.
 

swagat86

Active Member
#5
Paper trading never brings in real emotions. U always will c wat u want to c.
But wen it comes the real world as against the Rossy paper trading, the real might is found. paper trading is just to get a grasp.


Sit infront of the Rt feed and ul find the strength of the pull. Wen the prices jump infront up and down, decsion makin goes difficult.

Meditation is the best route.


Thanks
 

kkseal

Well-Known Member
#6
Sit infront of the Rt feed and ul find the strength of the pull. Wen the prices jump infront up and down, decsion makin goes difficult.
That's a very fine point (and one that is often overlooked)

It's one thing to make the right decision but another to make it quickly & constantly in a shorter timeframe. (Many more would qualify in CAT or simillar exams if given 4 hrs to solve the paper instead of 2)

I think whether one backtests or forwardtests what matters most is the sampling of the data used for the test. The sample should ideally cover all mkt conditions - trending-nontrending, volatile-non volatile, & different mkt-cap stocks. Also the sample while being representative should not be too large coz our 'hard disks' & 'processors' are not designed to handle large volumes of data - too much of it would cloud our perceptions.

Regards,
Kalyan.
 
#7
Meditation is good but, it doesnt work when you are losing your hard earned money.

When you come to realize your own mistakes till then you have already lost your money in the market.

I think it is better to first check yourself.
 
#8
If you feel that you are in a situation where you cant keep ur emotions outside.

Then dont risk ur money more.

Just, Train yourself by Paper-Trading for few weeks or months until you get ur confidence back.

Thanks
BULLET
 

swagat86

Active Member
#9
Meditation is good but, it doesn’t work when you are losing your hard earned money.

When you come to realize your own mistakes till then you have already lost your money in the market.

I think it is better to first check yourself.
A Lesson in Trading Psychology
Brett N. Steenbarger, Ph.D.
www.brettsteenbarger.com

Note: A version of this article appeared on the Trading Markets site, July 28, 2006.

Back in 2004, I joined Kingstree Trading, LLC, a proprietary trading firm in Chicago. There, I had the good fortune to get to know--and observe--many successful traders at work.
One lesson particularly stands out in my mind. A trader saw buying come into the market, and he quickly jumped on board. He saw that the odds of taking out a recent high were good, given the size of the buying. To his surprise, however, the trade stalled out before the target and reversed. He quickly exited with a tick loss.
He turned to me and said, "I just paid for information."
When the market bounced higher a few ticks several minutes later, the volume was weak. No big players were taking the long side. He aggressively sold and quickly made a couple of points.
He placed a good trade, and it didn't work out. He didn't view that as a threat, as a loss, or as a failure.
He viewed it as information. The market was telling him that we weren't going to take out the recent high.
How he entered the first trade and exited it and how he used the loss to prepare himself for the winning trade: *There* was a clinic in trading psychology.
If your setups are valid, there are only two kinds of trades: Those that make you money and those that give you information.



BOTTOMline : mistakes are part of the learning process. If u loose all ur money u dont hav no money management in place.

If you feel that you are in a situation where you can’t keep ur emotions outside.

Then don’t risk ur money more.

Just, Train yourself by Paper-Trading for few weeks or months until you get ur confidence back.

Thanks
BULLET
Thanks for ur advice dear.
 
#10
I am a new member for this forum\group. I am also knowing very little of stock market. My interest is to get knowledge of stock market where ever it is possible. I am also equally interested in replying my answers if I know them .I am trying to find out what is day trading,intra, F&O and how I must trade as safely as possible.

I have done stock market business with the help of others tips, magazines, brokers sujjestions. At several times I have gone wrong. This is because of lack of proper knowledge of stock market dealings.

I am very happy to have found this site and allowed to take part in this forum so that stock market business I can do with more confidently.

As I have seen some articles of bull and bearish market conditions.They are really worth for new comers in this field.
I wish we help \guide one another and get satisfactory business.
 

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