You've Got a Great Trading System. So Why Are You Losing?

[umeshmandal]

You've Got a Great Trading System. So Why Are You Losing?

You've done your homework. Countless hours of
seeking out the right guru (or piecing together
your own system). Weeks of monitoring your
guru's daily trade picks (or paper-trading and
back-testing your homemade system). You've done
it by the book. No seat of the pants trading
for you!

OK, now you're confident. It's time to put your
money where your homework is.

You've had your coffee and your first trade
signal is before you. Confidence high. Trade made.
First loss. Not a problem. You understood before
you started that successful traders both win and
lose and losing is part of the overall winning.

You've also heard more then once that successful
traders don't win on every trade. Moving on,
still confident. Next trade made. Another loss,
but this one hurt your pride a little because
you got stopped out early in the trade, and then
the market rebounded and would have hit your
profit target if you weren't stopped out.

You double check. Yep, you placed the stop where your
trading system told you to place it. You kind of
had a feeling that the early weakness in the market
was just profit-taking from the previous day's
trading, but you're trading a system and you must
stick to it. Wounded, but resilient.

After a good night's sleep and a few mouse clicks,
your new daily trades are in front of you. Hey,
this one looks good! It's a little bit more risk
than yesterday's trades had, but look at that profit
potential! With a smiling face, the trade is executed.

With a nice start to the trade, you're feeling good
and you've moved your stop to breakeven, just like
your system said. Surprise piece of news - market
reverses - blows through your stop - an unexpected
loss. Is something wrong with the system? Has the
overall market personality changed, affecting your
system to the Core, rendering all your back-testing
irrelevant? Your confidence turns to doubt.

You decide to watch the next trade I mean, isn't
it wise to make sure the system gets back on track
before you throw good money after bad? Isn't that
what a conservative trader does? Trade watched.
It wins!

In your head, you beat yourself up a little because
you know that when you started your live trading,
you made an agreement with yourself to take the
first 10 trades no matter what and here you
wimped-out and missed a big winner that would have
gotten you even.

What's happening?!!

What's happening is that you are out of control.
Your emotions are ruling your trading. The above
scenario plays out in every trader from time to
time.. newbee and veteran alike.

The winning trader senses what is happening and
nips it in the bud. The winning trader spend time
EVERY DAY, working on the discipline of trading.
Reads a chapter in his favorite psychological
trading book, scans the ten commandments of
trading that hangs on the wall over his/her desk,
listens to his/her mental training software for
futures traders Something Every Day before
trading begins.

There are many more losing traders than winning
traders and it's seldom about the trading system.
In my career, I've come across at least 50 systems
that I consider A1, yet I know for a fact that MOST
traders that have traded on these systems have lost.
Why? They were not in control of their emotions.

Are you?


(Recd. in mail from ccmb420 an exMember here)

 

[umeshmandal]

Learn to take a LOSS!!

(Copy pasted from the Net)

In trading financial markets, you MUST learn to take a loss - that is fundamental to the profession. Failure to limit both the number and size of losses will immediately give rise to anxiety.

No strategy wins every time, so what causes losses, and why do traders react so badly when a trade fails? Here are my top 20 reasons in random order:

gambling
over-trading
impulse trading
lack of screen time
poor trading strategy
over-leveraging trades
having low trading capital
needing to make money quickly
failure to have a written trading plan
unsuitable method for the market traded
false expectations that they must always win
risking money that the trader cannot afford to lose
lack of experience in how price and markets move
risking a higher percentage of the account than prudent
trading in a time-frame that is unsuited to the traders ability
trading with capital that the trader really can not afford to lose
failing to commit to a strategy that has been proven over time to work
failing to focus on executing the strategy exactly as specified in the plan
getting into live trading before thorough and full preparation has been completed
trading in line with personal expectations instead of reacting to what the market is doing

For the new trader, the anxiety is both natural and more intense and unless he learns to overcome every one of these trading issues (the list is not exhaustive) he is doomed to repeat the losing process throughout his trading career. Intervention is clearly needed to fast-track the process.

There are things the trader can do for himself before taking the rather drastic step of outsourcing his initiative to an independent professional.

I recently read a quote attributed to Ed Seykota as mentioned in Jack Schwagers book: Market Wizards. Seykota said:

A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That's the kind of thing winning traders do.

One of the easiest things traders can do, to avoid the anxiety that comes from risking and losing money is to take steps to address the problems head-on. But what if the trader is not aware of the problem causing the losses and the resulting anxiety?

My answer to that is to copy down the list above, and do some Internet research and add to the list. Do not think these things do not apply to you. If you are a trader these issues certainly will have been an issue for you at some time, and may currently still be causing havoc in your trading. I have had to deal with these issues myself, and I have no shame in saying I continue to deal with some of them.

But: What role does psychology play in trading the financial markets? A very, very big role indeed. When the comparison is made between new and experienced traders, the difference is obvious the experienced trader displays much less anxiety and emotional reaction to losses than his newbie counterpart. It is the knowledge and experience that makes that difference.

But is it a natural thing to simply address the listed issues and move forward in a relaxed and successful manner? Certainly not, because statistically (we are told) that somewhere in the 90-to-95% range of traders lose money in trading, and some traders have been doing this for years. In fact you will need to dig quite deeply to actually find a trader who is making a living from trading.

If this is the case, what hope does a trader have of ever reaching the winning circle? Can it be done?

The reason I write this blog is that I utterly believe any and all traders have the potential to reach professional status in trading foreign exchange. If I didnt believe it, I would long ago be doing something else. This gives rise to more questions how does a trader bridge that gap between failure and success what is required to make that difference who or what can truly help him?

Firstly I say that the trader must exhaust all possible avenues himself so that he is NOT wasting his time and money in consulting a professional, when these things could already be dealt with through a little research and diligence. The next thing is to discuss problems with peers on a good quality forum. Frequently it is possible to build rapport with one or two experienced traders who can help overcome the difficult issues.

But occasionally the makeup of the trader does not fit in with this pathway, and seeking help from a good market-coach becomes a logical next step. An experienced coach can usually spot the problem in one session, with a few simple questions.

But occasionally (and I might add rarely) it might be necessary to consult a psychologist. For example: If a trade is set up and triggered, but the trader cannot take that trade, then yes, he may need to obtain psychological assistance to deal with that blockage.

Traders who experience this kind of "freezing-up" at the moment of committal to a trade, usually find the genesis of the problem goes back to a record of painful losses earlier. Such things can usually be fixed through taking baby steps and tiny trades, under strict strategy guidelines, until the problem is gone.

This step (to employ a psychologist) should be in the last resort basket, with the proviso that the choice of psychologist be restricted to a specialist in assisting traders, and in particular, one who is/has been a trader.

There is a big difference between using market psychology and using a psychologist. Under normal circumstances in a traders progression to profitable trading, only one of these two are usually necessary.

Be certain first that the issue is not a coaching issue. The greater battle is won through having a strategy that you trust, and confining risk to small numbers, and having the confidence to take EVERY setup that your method finds for you.

 

[AMOL007]

Re: Learn to take a LOSS!!

(Copy pasted from the Net)

In trading financial markets, you MUST learn to take a loss - that is fundamental to the profession. Failure to limit both the number and size of losses will immediately give rise to anxiety.

No strategy wins every time, so what causes losses, and why do traders react so badly when a trade fails? Here are my top 20 reasons in random order:

gambling
over-trading
impulse trading
lack of screen time
poor trading strategy
over-leveraging trades
having low trading capital
needing to make money quickly
failure to have a written trading plan
unsuitable method for the market traded
false expectations that they must always win
risking money that the trader cannot afford to lose
lack of experience in how price and markets move
risking a higher percentage of the account than prudent
trading in a time-frame that is unsuited to the traders ability
trading with capital that the trader really can not afford to lose
failing to commit to a strategy that has been proven over time to work
failing to focus on executing the strategy exactly as specified in the plan
getting into live trading before thorough and full preparation has been completed
trading in line with personal expectations instead of reacting to what the market is doing

For the new trader, the anxiety is both natural and more intense and unless he learns to overcome every one of these trading issues (the list is not exhaustive) he is doomed to repeat the losing process throughout his trading career. Intervention is clearly needed to fast-track the process.

There are things the trader can do for himself before taking the rather drastic step of outsourcing his initiative to an independent professional.

I recently read a quote attributed to Ed Seykota as mentioned in Jack Schwagers book: Market Wizards. Seykota said:

A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That's the kind of thing winning traders do.

One of the easiest things traders can do, to avoid the anxiety that comes from risking and losing money is to take steps to address the problems head-on. But what if the trader is not aware of the problem causing the losses and the resulting anxiety?

My answer to that is to copy down the list above, and do some Internet research and add to the list. Do not think these things do not apply to you. If you are a trader these issues certainly will have been an issue for you at some time, and may currently still be causing havoc in your trading. I have had to deal with these issues myself, and I have no shame in saying I continue to deal with some of them.

But: What role does psychology play in trading the financial markets? A very, very big role indeed. When the comparison is made between new and experienced traders, the difference is obvious the experienced trader displays much less anxiety and emotional reaction to losses than his newbie counterpart. It is the knowledge and experience that makes that difference.

But is it a natural thing to simply address the listed issues and move forward in a relaxed and successful manner? Certainly not, because statistically (we are told) that somewhere in the 90-to-95% range of traders lose money in trading, and some traders have been doing this for years. In fact you will need to dig quite deeply to actually find a trader who is making a living from trading.

If this is the case, what hope does a trader have of ever reaching the winning circle? Can it be done?

The reason I write this blog is that I utterly believe any and all traders have the potential to reach professional status in trading foreign exchange. If I didnt believe it, I would long ago be doing something else. This gives rise to more questions how does a trader bridge that gap between failure and success what is required to make that difference who or what can truly help him?

Firstly I say that the trader must exhaust all possible avenues himself so that he is NOT wasting his time and money in consulting a professional, when these things could already be dealt with through a little research and diligence. The next thing is to discuss problems with peers on a good quality forum. Frequently it is possible to build rapport with one or two experienced traders who can help overcome the difficult issues.

But occasionally the makeup of the trader does not fit in with this pathway, and seeking help from a good market-coach becomes a logical next step. An experienced coach can usually spot the problem in one session, with a few simple questions.

But occasionally (and I might add rarely) it might be necessary to consult a psychologist. For example: If a trade is set up and triggered, but the trader cannot take that trade, then yes, he may need to obtain psychological assistance to deal with that blockage.

Traders who experience this kind of "freezing-up" at the moment of committal to a trade, usually find the genesis of the problem goes back to a record of painful losses earlier. Such things can usually be fixed through taking baby steps and tiny trades, under strict strategy guidelines, until the problem is gone.

This step (to employ a psychologist) should be in the last resort basket, with the proviso that the choice of psychologist be restricted to a specialist in assisting traders, and in particular, one who is/has been a trader.

There is a big difference between using market psychology and using a psychologist. Under normal circumstances in a traders progression to profitable trading, only one of these two are usually necessary.

Be certain first that the issue is not a coaching issue. The greater battle is won through having a strategy that you trust, and confining risk to small numbers, and having the confidence to take EVERY setup that your method finds for you.

Yes

"Trading success is highly dependent on not just an efficient plan but a strong belief and sailing through that plan to its logical conclusion."

:thumb:

 

[Bakul Shah]

QUOTE=umeshmandal;568033]You've Got a Great Trading System. So Why Are You Losing?

You've done your homework. Countless hours of
seeking out the right guru (or piecing together
your own system). Weeks of monitoring your
guru's daily trade picks (or paper-trading and
back-testing your homemade system). You've done
it by the book. No seat of the pants trading
for you!

OK, now you're confident. It's time to put your
money where your homework is.

You've had your coffee and your first trade
signal is before you. Confidence high. Trade made.
First loss. Not a problem. You understood before
you started that successful traders both win and
lose and losing is part of the overall winning.

You've also heard more then once that successful
traders don't win on every trade. Moving on,
still confident. Next trade made. Another loss,
but this one hurt your pride a little because
you got stopped out early in the trade, and then
the market rebounded and would have hit your
profit target if you weren't stopped out.

You double check. Yep, you placed the stop where your
trading system told you to place it. You kind of
had a feeling that the early weakness in the market
was just profit-taking from the previous day's
trading, but you're trading a system and you must
stick to it. Wounded, but resilient.

After a good night's sleep and a few mouse clicks,
your new daily trades are in front of you. Hey,
this one looks good! It's a little bit more risk
than yesterday's trades had, but look at that profit
potential! With a smiling face, the trade is executed.

With a nice start to the trade, you're feeling good
and you've moved your stop to breakeven, just like
your system said. Surprise piece of news - market
reverses - blows through your stop - an unexpected
loss. Is something wrong with the system? Has the
overall market personality changed, affecting your
system to the Core, rendering all your back-testing
irrelevant? Your confidence turns to doubt.

You decide to watch the next trade I mean, isn't
it wise to make sure the system gets back on track
before you throw good money after bad? Isn't that
what a conservative trader does? Trade watched.
It wins!

In your head, you beat yourself up a little because
you know that when you started your live trading,
you made an agreement with yourself to take the
first 10 trades no matter what and here you
wimped-out and missed a big winner that would have
gotten you even.

What's happening?!!

What's happening is that you are out of control.
Your emotions are ruling your trading. The above
scenario plays out in every trader from time to
time.. newbee and veteran alike.

The winning trader senses what is happening and
nips it in the bud. The winning trader spend time
EVERY DAY, working on the discipline of trading.
Reads a chapter in his favorite psychological
trading book, scans the ten commandments of
trading that hangs on the wall over his/her desk,
listens to his/her mental training software for
futures traders Something Every Day before
trading begins.

There are many more losing traders than winning
traders and it's seldom about the trading system.
In my career, I've come across at least 50 systems
that I consider A1, yet I know for a fact that MOST
traders that have traded on these systems have lost.
Why? They were not in control of their emotions.

Are you?


(Recd. in mail from ccmb420 an exMember here)[/QUOTE]

A good psychology, which I am facing these days while testing a new strategy. I made losses 3 times in a row, which my system also generated while back testing in past 2 years. I lost all my nerves. My system also generated profits in 3 sucessive trades. So why am I facing the worst case secario?

What is your adivce in such situations? Stick to system!!!

 

[SaravananKS]

Re: Learn to take a LOSS!!

Great!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!