Thoughts on "The A to Z of trading career - musings of a professional trader !!"

Patience is absolutely essential in a good trader.Patience helps a trader to wait till the trading set up presents itself and then he goes into the trade with least hesitation.This avoids a trader to take trades prematurely.It also helps to avoid over trading and impulsive trading.

Patience also helps a trader to hold a trade which is going in his favour and the reasons for the trade are still valid but market does not do anything or move quickly in the desired direction.Many times we traders spoil a good trade due to impatience and need to " do something " with the trade.Patience helps us to add to our positions and hold these positions till the potential of the trade is realised.

Smart_trade
 

ncube

Well-Known Member
Thanks madan ncube and others,

I have satisfied myself a little. I think I need to run my system patiently till it succeeds or fails. Wait patiently till it succeeds or fails.If it fails then I need to adjust and trade as per the changed circumstances.

In all this I think its best to have maximum ratio of average annual returns: the max loss after
which you believe the markets changed.

The allocated capital for max drawdown seems like a bait to make money in the process. It can be lost
@lemondew,

1. How do you quantify if your system succeeds or fails? Is it worth waiting patiently till your system fails? One will have the patience to stick to the system only if he is having confidence that his system will succeed right?
2. You dont have to wait for max loss to occur before confirming markets have changed, it should be the other way round, You fist observe that the markets have changed and then it is confirmed by the losses you start getting.

When trading any system your thought process should be very clear, there should not be any ambiguity either in executing your trades or monitoring your system performance. It should be systematic like a computer executing a well tested algorithm.

To be a consistent trader one need to have the following 3 abilities, hence try to maintain a dairy and record/monitor the following details regularly:

1. Describe System clearly: One should know the system in and out and able to clearly describe the system in simple terms,i.e What is the system edge, why and under what market conditions it works. This will help you in deciding if the current market condition is suitable for your system to trade.
2. High Confidence in the System: To gain confidence in your system, you need to perform regorious backtesting of the system under various market conditions and measurement periods. Capture & record the key parameter values such as Expectancy, Max Consecutive Winner, Max Consecutive loosers, Max Drawdown, Total Returns etc. This will give you a rough idea how your system has performed on historical data set, though it may not be apply to future data, but you will have the confidence to sit thorugh the drawdown period if the market conditions have not changed.
3. Awareness of the Market conditions: Regularly monitor the market conditions to decide which system to be used for your trading, and one need to proactively measure the trade performance after every few trades (Roughly after about 25 trades) to ensure that you are not losing your edge and the results are within the acceptable standard deviation of back testing results for the current market condition.
 
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Snake.Head

Well-Known Member
I am having problem with Patience,Which costing me alot in trading.
I trade via Price action method .Trade only those setup,which has high probability of hit ratio (record stats for setup success and failed ratio).
1) Hurry into trade with less info or First sign - Second entry are much better bcoz more info
Jumping into trade due good looking bar - but context and location are off
2) Placing wrong Stop bcoz of less info that cause by entry into trade too early
This is more frustrated when it hit Sl and then go to your target
For eg take Today trade
Bar 1 open weak with price going up then rejecting
Bar 2 was same open went up and down was doji but price below open of day
Bar 3 doji I short this bar has price failed to went three time but i did two mistake 1st was market was not yet decide which way it will go both bull and bear where fight. 2nd place stop at 419,1 point from entry Should have kept higher at bar 1 high then it RR would have screwed bcoz bigger risk then reward (I had thought at mind of keep it their) byway target was LOY 414 and 1st target was COY at 415.35
Bar 5 was better entry with multi setup Wedge and fbo prior bar 4 was DT to Y swing point
then again bar 10 second entry short with good r:r

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XRAY27

Well-Known Member
Patience is not about doing nothing. It’s about doing the right thing at the right time. And that is exactly what traders need to succeed.Most traders have a strategy they follow that tells them when and where to get into a trade. That strategy, if traded correctly, should yield a profit...otherwise why are you using it? Sounds simple, but traders face a problem: when watching a fast moving chart in real-time the mind gets tricked into thinking you should get into a trade before the trade setup has fully formed. You don't want to miss a trade, so you get in a bit early and end up with a loss (usually).

Wait for the setup to fully form and trigger your trade (a trigger is a precise event that tells you NOW is the time to act). Be OK with missing a trade. If you're trying to profit from every price move, how is that working for you? Only take trades that give you a complete setup and trigger your trade. No trades occur unless the market triggers it.

If you're following your strategy and are still getting in a bit too early, have a psychological drill before jumping in ...
 

madank

Market participant
I am having problem with Patience,Which costing me alot in trading.
This is a more common problem than we think in trading and in a larger scheme of things, this is somehow related to our psychology.

Let me keep this short and sweet. There are 3 parts in bringing about a change in our behavior -

1. Identifying the change (awareness of the issue)
2. Ways to make changes
3. Sustaining those changes

In your case, you have identified that you are not waiting patiently for the setup to shape up. So, we basically muscle into the trade, see it collapse (or recover after our exit) and wonder what just happened. It is basically our survival instincts overriding rational mind to create a thought process incapable of trading effectively. Research unequivocally shows that our brain is not equipped to deal with uncertainty (the basic essence of trading).

Many a times, traders take the wrong approach of using will power to become a patient trader but come out empty-handed. One can talk to himself (self-talk) that ‘I am a patient trader..I am a patient trader’ but the same mistakes seem to crop up in frequent intervals. One can also put sticky-notes on the screen but ultimately one will become a patient trader only when they experience it themselves. Usually, it means that we practice/cultivate patience in our non-trading life as well. Forcibly putting ourselves in situations that require a person to exhibit patience. One can start a garden (will teach you lot of patience), teach physics (or some other subject) to their kids, babysit a toddler(lot of patience is required) or tutor a special child.

By doing the activities that require patience, we create that ‘patient identity’ within ourselves and that will nicely manifest in the market. We will never become greater risk takers in markets if we approach life with risk aversion. We will never be organized/disciplined in trading if we are not disciplined (one common example is lack of discipline in working out..if we are not disciplined in life-enhancing activity like hitting the gym, then trading will be no exception) in our daily lives. Everything in life, approached properly, is an opportunity to exercise the capacities we most require in our trading. I always say to my fellow traders that ‘becoming a better trader is a path to becoming a better person.’

So, take baby steps and move one stone at a time. If we need to change, we need to internalize new ways of doing the same thing and create that fresh set of experience. Every day is a new opportunity and every step counts. Once we keep internalizing things and become patient everywhere, sustaining the changes will be automatic.

P.S Thanks for the post and your post has impelled me to make the next member-only thread post as ‘psychology in trading' :)
 

lemondew

Well-Known Member
Madan,

Kindly also share your thoughts on Risk aversion and risk acceptance.

Some people are profitable mostly everyday. If not everyday surely by every 2/3 weeks. These people just take salaries from market like a job.

Does trying to emulate something like that result in risk aversion? Is it possible to be playing it too safe, avoid being underwater for more than a few days/weeks and come out profitable consistently.
 
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madank

Market participant
Kindly also share your thoughts on Risk aversion and risk acceptance.
The whole question of risk management is far from an objective subject. You need at least one subjective piece of the puzzle to put it together, and that is an individual’s acceptance to risk. Now that is subjective, meaning there is no rule that says how risk averse you should be. That is an integral part of your emotional makeup.

The problem is, human nature does not operate to maximize gain, but rather to maximize the chance of gain, i.e., maximize the number of winning trades, and minimize the number of losing trades. The result is, not only is risk controlled, but profitability is also controlled. In other words, playing it safe can be just as bad as taking too much risk, because you are not optimizing your winning trades nor the days with extended ranges. Sure, it's possible to develop trading idea based on very short-term price swings that will on average be profitable. However, the average profits on individual trades from such methodologies are microscopic, and the trades they generate are so many that it not reasonable to scale up these strategies. If we look at it from a modern portfolio theory point of view, we can think of the trading profit on any given trade, as the compensation we receive for the risk we took on the trade. In a sense, the market demands a premium from the trader for taking less risk, which is of course, reduced profitability :)

Ultimately, it is not what the trader knows, but who he is. The really profitable traders are able to ignore or weaken their natural tendencies to do what feels comfortable, and instead, do what is essential, to be profitable.

If we don't take a chance, we won't get hurt, but on the other hand, we'll never know what could have been. On top of that, if we don't take risk after risk, by making trade after trade, we will never sharpen our trading skills, and we will never become a winning trader. So when we face risks and possible losses, it’s wise to not despair about it.

Let me leave this topic with these three quotes –

1. People who look for easy money invariable pay for the privilege of proving conclusively that it cannot be found on this earth - Jesse Livermore

2. Even though most people think they are trying to succeed, they are simply going through the motions. The last thing in the world they want is to get off the familiar treadmill and actually get somewhere - Chin-Ning Chu author of "Thick Face, Black Heart"

3. A Ship in Harbor Is Safe, But that Is Not What Ships Are Built For – John Shedd

Some people are profitable mostly everyday. If not everyday surely by every 2/3 weeks. These people just take salaries from market like a job.

Does trying to emulate something like that result in risk aversion? Is it possible to be playing it too safe, avoid being underwater for more than a few days/weeks and come out profitable consistently.
To be honest with you, am yet to see a trader making money every day or every week. It does not mean that they don’t exist but they sure does not come and chest-thump in public forums. If they do, we are looking at a seasoned salesman and not a trader :) The need for steady money like a weekly paycheck will unhinge our thinking and force us to deviate from our plan of action that was so well thought out prior to the start of the trading day.

Please do remember the following points about profitable (albeit consistently) traders –

1. Consistently profitable traders do not care about anything or anyone’s opinions of what the market will or might do. They never watch what other traders do as they are independent in making their trading decisions. They don’t carry the notion if someone is trading longer than themselves, they should be naturally smarter (this is the most absurd thinking of newbie traders) :)

2.Another common gangrene of newbie traders is that they don't like to give money back to the market, so they decide to try and modify the system to filter out trades like that last losing one. They begin to add indicators to charts, coming up with more longwinded combinations, frantically testing to see what removes the worst signals while leaving in place the positive trades. A few times round this loop and their chart starts to resemble like a 2 year old drawing on the wall. Consistent traders never jump systems or modify their system for every losing month.

3. It is common for many traders to set high expectations about themselves and their performance in trading. When the expectations are not met, they beat themselves up mentally and get stressed out. In turn, they are subjecting themselves to make trading errors. Losses start to mount, and their mood worsens. Soon, they find themselves in a deep psychological drawdown. You can't just snap out of it. It will take a lot of extra effort and psychological resilience to get back up to par and (only few ever come out of it successfully). This high expectation creeps into our mind in two ways – either through internal stimulus (we set it) or through external stimuli like other people’s so called ‘claimed’ performance. What is the best way to solve 50% of this problem? Stop comparing our performance with others. I am so itching right now to give a suitable ‘adults-only’ analogy for this high expectation issue but restraining myself as this is a public forum :) :)

4. Trading is not like riding a bicycle, in the sense that, once we get over the threshold of learning how to ride, we’re finished. There are various stages of profitability a trader must go through, each one requiring different technical and emotional skills. The trader first has to get to the point in his profitability where he can overcome transaction costs and all the negative emotions that subvert a novice trader, so that he consistently breaks even. The next level of profitability, is when a trader can actually support himself (and his family), through his trading profits. Accordingly, the bar for his emotional skill-set must be raised, because trading is now his livelihood. Not only are the pressures of trading still there, but the everyday pressures of life are now ubiquitous. And last, is the level where we’re trading to make optimal (as much money as we can make, given the amount of capital you are working with) money. Only, you can go through all these stages for you and nobody can. Please do not expend your energy on ‘performance’ comparisons.

So Lemondew - market is just like life, It is never going to make anything worthwhile, easy. There is always going to be a price or a premium to pay. Instant gratification comes at a cost, and the price you pay is the lack of a long-term payoff. Forget about those ‘super traders’ (99% of the times, he/she is just trying to sell you something) and put in a little effort up front in the planning stages, and then relax/just follow your plan to the letter. Thinking too much can damage your trading, not to mention your stress levels!!

Thanks for posting this question. I truly mean it. It is surprising that nobody has any serious question on the topics am posting (except on money mgmt.). Maybe, it is not invigorating anybody’s mind (the primary intention of the member-only thread). This is why I requested a feedback from you all (to change the approach) but that also came out empty :(

As someone said - "A prudent question is one-half of wisdom."
 
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praveen98

Well-Known Member
Dear Madan,
Thank you for posting the Topic 6 on "Trading Psychology"....I would like to add few more pointers for the importance of mind set to trading....I am quoting below my own experiences ....And request you to give suggestions on ways to handle and overcome the difficulty...

1. At the end of the day when i see a chart i will find out great(good R:R) opportunities that are not found by me when the market is live....
I don't know whether this is a common problem or not. But i faced it for many months and started to observe my behavior when the market is open. And found out that i am watching ticker for more time instead of chart and deviating from my plan to take signals from the chart ...as the market unfolds and find out the same signals in the evening and get frustrated.
Then i observed that my trading time frame is very small and i am not able to concentrate. And fear of missing out a move is also playing tricks with my approach.
To work out of this difficulty i increased my trading time frame to 15M and set an alarm on a website with talking clock which spells out time for every 15M. Then i started to move away from terminal and come back to see after every 15M listening voice alert , if any opportunity is there. Some times this problem and bad trading behavior may be due to not so reliable data feed also. In the initial days it was difficult to move away from terminal but i practiced this consciously and could over come problem.
And after reading Psycho cybernetics, i think visualization technique is much better than the one i adapted.

2.After a losing trade, whenever i have a profitable trade and it shows profit around the previous loss amount i used to get out of the trade, so that my account will reach the previous peak...even when the trade is promising and appears to make more profit?

I am not out of this problem completely. This is a recurring problem to me. Now i am trying to come out ahead of this problem utilizing Visualization technique detailed in Psycho Cybernetics...

3. Difficulties faced when using the same trading instrument for two different trading styles?
I find it very difficult to manage between day trading and swing trading positions simultaneously on a single instrument especially when the signals are in opposite directions. I am clueless how to handle this problem, instead of trying both styles on same instrument, now i am day trading BNF and swing trading NF.

4. Scaling up after initial hiccups....
I thought during initial failures that once i can find out a profitable trading system, i can scale it up and enjoy the profits...But after finding out a trading system working for me i found out that scaling up is not cake walk as i thought before. It is very difficult and i am not out of this difficulty as of now. I think, Scaling up should be done in very small
increments as instead of looking at each loss as a percentage of account, started seeing it as absolute number which will create unease. And this unease can lead to hesitation in pulling the trigger. So i am trying to do it in small increments so that it will be easy on psyche.
5. I used to do swing trading with small quantity in the initial days(CM) and later moved to day trading (NFO)...And when i wanted to swing trade in NFO, i am facing fear of overnight risk. Still not out of the fear totally, there is a comfort in CM swing exposure than in NFO the difference is M2M.
And now i am understanding that becoming a good trader is a continuous evolution process and we have to move ahead correcting our behavior continuously . And the previous problems may recur in one form or the other....One has to stay alert and do course correction...

I request Madan and other members to present their way of tackling these problems...

@madan You quoted in the post that " the gap is only small that separates marginally profitable and highly profitable traders" You mean to say that if we can adapt the fact that what we are earning is not easy money but earning after so much effort and struggle, facing unlimited risk on each trade. :)
I request you to give specifics of Hypnosis or visualization or any other technique to tackle the issues listed above....
 
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