Ratan Jain's Collections from Various Resources

PS: All the articles and excerpts posted in this thread will be from resources on the Internet, not my own writings....I am not that intelligent.

Do you feel prepared when you take a trade OR do you constantly feel that each trade is a 'rush' to get in before you 'miss' the trade?

How many entries, that really are base setups, do you then miss AND follow that with a non-setup trade chase or 'early' trade in the opposite direction?

How many trades do you take OR not take based on your opinion or bias with regards to the outcome of the trade - I can't go long because the market has gone too high, I can't go short because I have missed the initial entry AND if I enter now it is going to reverse?


How many trades do you take OR not take, where the decision is based on a prior trade - either missing a trade OR losing on a trade?

good to see you back RJ. Good questions

1. you can create a scoresheet (with a scale) and honestly fill it to see how you were feeling.
2. depends entirely on your style of trading. if u use a automated/mechanical system, the question doesn't arise. if u are a discretionary trader, with experience many times you will identify "dirty prints" that are similar to patterns/set ups that you have identified. many times markets wont give u the exact textbook(your book) setups that you were looking for. whether you will trade them or wait for clear setups to show up, depends entirely on your trading philosophy and RM.

3. Again you can keep a score and check whether you are doing it and how many times. Dont look at the moneywise results of this action, cos that will be pure hindsight, with no statistical significance.

In my system implementation exercise, I have adopted the following procedure:
1) Whenever the system gives a signal, I take a print out of the chart.
2) If I am unbiased towards the signal, I enter the trade and write down the details on the print and put it in a folder. I term this as "process selection".
3) If I am biased towards the signal, I write down as to why I am biased, in the print and place it in a different folder. I term this as "process rejection".
4) After the system gives an exit, I take the print on the opposite side of the paper and see how the trade has (would have) fared and I write down the details of the trade.
This way, subjectivity and hindsight bias should be reduced to a great extent, though not entirely.
I have been doing this for the last couple of months and so far,I found following the signal much better than adding my opinion, though the numbers involved are small. I plan to do this for a year and I feel it should give me a fairly decent idea on how to to proceed further. Of course, this is merely an opinion of an amateur.

Oxus:
An amateur who follows a diligent process goes on to become a professional.

Keep it up!

New Trader Scenario

Consider a scenario where a trader develops a method for day trading an index future. The method gives 15 trades per day, and the trader has gotten to the point where they are able to paper trade with the following results: 9 wining trades , and 6 losing trades giving Rs 2000 average daily gains. The trader has achieved these results for three consecutive months; their paper trading goals have been met and it is time to start trading real money.

Real money trading begins, but things quickly change. Instead of trading their method like they did when paper trading, the trader starts ‘skipping’ trades trying to pick the winners instead of accepting the 40% losers; of course, they invariably pick more losers than winners. Trying to then correct this problem, the trader decides that maybe they are entering their trades too late. So now instead of letting the setup complete and then doing the trade, the trigger is anticipated so the trade can be entered earlier - the losses get worse.

With the continued losses the emotions take over: “What is wrong, why am I such a pathetic loser? Maybe it’s not my fault, maybe the method just doesn’t really work.”

The problems get worse with each trade, more emotions and more loses - the trader quits trading. The trader now decides that their paper trading results weren’t really adequate to begin real money trading. They will go back to paper trading and studying again.

Thoughts that are going through the trader’s mind now: “Maybe I should try different trading methods until I can eliminate those losing trades – then I will be ready to trade real money again. Really, maybe I should just quit trading altogether – maybe I am just a loser, and that’s why I can’t trade.

the trader is right. he is a loser, cos he doesn't have discipline, without which you cannot win. anyway that apart, any trader should realize the problem here is statistical. he has not taken 100% of the trades signaled. he has used a judgmental biased sample (a sub sample if i may call it) whose results will never match the original results.

A gem of a post,Ratan.......identifying the root of the problem is sometimes 90% of the problem solved.

Great stuff,and keep 'em coming!!

Saint

http://www.traderji.com/99509-post6.html ;
bav,
it is always not possible to take position in all the signals.

The system can be made to initiate signals where stop loss is close.Then apportioning the highest consequitive loss nos * stop loss amount along with the initial capital will soothe the nerve.I will then be able to quantify the total loss possibility before 1 single win & mentally prepared to face the tension in mkt hrs.Any win trade in between will be a non event to me becoz my count of total no of loss will continue as usual bypassing this win trade.

Trading Scenario 2

Consider the a trading plan which has the following three setup types:
(1) initial which your intended trade entry
(2) first continuation which is used to enter a trade in case you have either missed your initial entry, or you decided that you wanted more confirmation because it was a counter direction trade
(3) second continuation which is intended as a trade addon setup, but is also one ‘last’ chance to enter a trade.

You get an initial sell setup that triggers, but you do not take the trade = trade1. The trade breaks cleanly and goes to what would have resulted in a partial profit, and then before price goes down further, it retraces back to the area where the sell was done. This price holds so the swing remains short, and from this hold of what is now resistance, you get the trigger of your first continuation setup BUT you don’t take this trade either = trade2. Why wasn’t the trade taken?

You decide that after missing the initial entry that you have missed the trade; your emotions and biases tell you that the ‘move’ has gone too far. Again, this trade breaks cleanly, not only adding to the gains of trade1, but also giving a partial profit on trade2.

Price now consolidates between the lows and the price resistance that you would typically be using to stay short if you had taken either the initial trade, or the first continuation trade. Instead of the swing reversing after consolidating, it continues down again, and with this continuation your second continuation setup triggers = trade3. AND AGAIN - you don’t take the trade.

After all, if you didn’t take either of the first two trades, how can you possibly take this trade; maybe you were wrong when you thought that the move had gone too far to take trade2, but certainly that’s the case for trader3.

Like trade1 and trade2, trade3 is a profitable trade. This swing has really turned into a great directional move, with each break holding on weak retests – a textbook example of the strengths of your trading method, but YOU have never entered a trade. You are going nuts! You are getting into this damn swing - you just can't take it any more. Another retrace holds as a lower high. You don’t have an entry setup, but that doesn’t matter, the other three trades were profitable after a lower high. Isn’t it interesting, the same emotions which wouldn’t let you enter your plan trades, are now ‘forcing’ you to take a non-plan trade.

Instead of YOUR trade going to a lower low and to a profit, it instead goes to a higher low and then reverses into an initial buy. Bad just got worse, you also don’t exit when the swing goes into buy. After what you went through to finally get into the trade, you have to try and make it work, and after all the trend is down – right? TraderA uses this initial buy to exit their profitable sell and sell addon; they decide that they want more confirmation of swing reverse before trading the counter direction. A first continuation setup triggers and they go long, the swing has reversed, and this trade reaches its first profit target.

TraderB finally ‘gives up’ and exits THEIR short, although with a two point loss instead of the intended one point, and without any consideration of taking their next plan trade, the first continuation buy. This trader is done for the day, but at least they were ‘right’ all along; the swing had gone too far to enter, and their fears had been warranted – this was a losing trade that they should not enter.

Is this a trading method or trading psychology issue? What ‘message’ is TraderB going to take from what has just happened. Will they take the attitude that they should not be blamed, they just can’t trade because of trading psychology? Or, will they acknowledge that the method did win, that the resulting loss was not a method trade, and even if it was, the loss would have been offset by the prior winners. Will they acknowledge that THEY made their worst fears come true and not only turned this into a losing trade, they also increased he size of that loss, and then avoiding another method winning trade.

Granted, psychology was involved with what has happened in the described trading scenario, but that is a function of the individual’s ‘core’ personality, and would most probably be an issue regardless of what was being done; if there is ‘risk’ involved, there will be an ‘emotional’ response.

Thus, it is first necessary to separate personal psychology from trading psychology, and the use of this concept as an excuse for trading actions. Then, if trading psychology is going to be controlled, this will be done through the development and implementation of a tested plan that the trader is willing to follow. Do not trade with ‘built-in’ excuses for failing, you will have lost before you begin, and will continue to do so with a continued ‘snowballing’ of emotion to the extent where trading will no longer be possible.

excellent post rj..rarely we find new article like this one...pl, continue