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Of all the successful traders I know and have followed this is not an accurate statement. All the traders I know simply adapt their bias to the market condition and execute their methodology based on the oppertunities that the market gives them. Some periods very fertile with lots of oppertunities and profit potiential, others are slow and wear on patience and discipline.
The point I am trying to make is that they don't try to make X$ or X% in any given period, they focus on executing their methodology (discretionary/mechanical it doesn't make a difference). But I absolutely agree that trading undercapitalized and overleveraged is a recipe for failure, for both psycological and risk management perspectives. Although any business that had such little capital and the fixed and variable costs of trading would also be doomed for failure.
Once I figure out how to make a sig it will be this:
Trading Success = Trading Plan with Edge(10%) * Effective Money Management(30%) * Winning Psycology(60%)
-Ray Barros
Markets are not random. If that were the case, then profitable expectancy edges would not exist, and trading and financial markets would be no more popular than craps, roulette, and slots at the casino. But, to continue the casino analagy, poker is much more popular than the no-skill risk games because(though there is enourmous amount of luck) a skilled player can construct an edge with strategy and discipline which will result in long term success.
I haven't read much of Big Mike's Price Level thread, but if you're interested in exploring whether price lines/levels are random here are two very thought provoking blog posts from Adam @ SMB Capital which explore how price "acts" at randomly placed levels, and he offers a subjective way to test whether the levels you use in your trading offer any edge over random ones.
Appears my post count is too low to post links, just google: "randomness revisited levels", should be the first result.
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
@bobbyacim: Don't be so hard on yourself. The bad news is, you gave back what you had made. The good news is, you finally started on the road to making money. Trading from a position of knowing what you are doing is psychologically different from trading without a clue and knowing that you are clueless. You just discovered that. Without an edge, you just feel lost all the time. With an edge, you can feel cheated when you lose money, and, as you discovered, may engage in irrational and/or self destructive behavior because the market has taken YOUR rightfully earned money.
My friend, you've just started down the real road to successful trading. You've just discovered why @Big Mike feels that most successful traders spend most of their time in the Psychology section of this forum (emphasis on "successful").
I can tell you from 16 years of personal experience trading on the floor of the CBOT that even with an edge, it is only when you learn how control your personal demons that you will get the benefit of that edge. Maybe the answer will be trading just the first 1/2 hour, maybe it will be something else. In my case, I did not become consistently profitable until I started setting an easily attainable goal for myself and leaving as soon as I hit that goal. What prompted it was that after 3 years of slightly profitable trading, I had two devastating losses in the same month (one on September 1st, when I lost 40% of my year, which I recovered in the next 3 1/2 weeks, just to lose the same amount the last day of the month). I went home that day and cried. I was very afraid my career was over. I was getting married in a few months and the heat to start producing was really on. I was profitable, but not profitable enough to support myself and my fiancee and her kids, and I owed a friend $30,000, collateralized by my exchange membership. To make a long story short, I realized that if I didn't try to hit home runs or take every possible tick but only focused on the safest setups and taking the smallest possible profits, I could make money almost every day and find 3 to 4 winning trades per day. The market opened at 7:20, and if I hit my goal by 7:30 I was out of there. If it took me till noon, fine. The sense of discipline and control that routine gave me was very calming. The free time was nice too.
That month was the last month I lost money for 6 1/2 years, and, when paired with a rule that told me when it was OK to increase my size, allowed me to geometrically increase my income and net worth. I was able to double my size pretty much every four or five months until I hit the limits the liquidity of my pit would allow.
You also just discovered one of the most potentially destructive psychological dynamics of successful trading, the "big ego", or overconfidence. My worst losses almost always came after prolonged periods of unusual profitability. After awhile, I learned to read the signs that I was setting myself up for this kind of failure, the clearest being that I would start giving other guys a lot of advice.
I can't tell you the number of guys I knew who had to hit bottom before they were able to become successful. One guy had to sell his car. Another worked in a parking garage for four years while trading on the old MidAmerica (mini contracts) exchange, even though the rest of his family were lawyers. (And that guy wound up making tens of millions, one of the two best traders I ever knew. Extremely bright, extremely dedicated).
(By the way, the reason I talk about guys is not because I am a misogynist but because there were almost no women trading on the floor. Most of the women I knew who worked in the pits were order fillers; a few were options traders).
So view this as a necessary bump in the road, and expect it to happen again. Don't get mad when you lose money, losing is a necessary part of trading. Make rules, stick to them, and get mad when you break them. But get mad constructively, analytically, in a way where you learn from your mistakes and learn not to repeat them.
"You don't need a weatherman to know which way the wind blows..."
I have gone through the similar experience as jstnbrg, and as of last 6 months i have been good. But .... This might a long story but i would love and appriciate if someone gives me concreate answer, as really i am struglling with these issues:
Issue 1:
Example is last night, EUR/USD pair, EU entered the correction, though me knowing what is happening, i have decided to attempt a bit of scalp on a long. Entered long at 1.4701, three failed attempts to break, and finally i have closed the trade @ 1.4712. So the trade ended profitable, now here comes the issue. By my method, two candles later i should have been in short collecting +100 pips, but i was not. My problem was, even i have realised that it is a short, cut my trade and got out, seen it all, but instead of trading chart, i have continued to look for the long opportunity, still not accepting everything that i know and see.... (This does not happen every day)... for some reason sometimes, my previous trade creates this bias towards certain direction, and even though i do not follow through with the bad trade, i do not go into the good one either
Issue 2
Simple patience, when i am busy and have limited time to trade and need to go to bed earlly (Im in OZZ) i may have only limited time to trade. Sometimes as if someone or something comes over me and i start chasing. The problem is that i realize it a tick to late, after i have clicked , that instant i am asking my self what have you done....
I am slowelly come to terms and controlling those better and they occur less and less, but i guess my question would be how to ensure and what mechanisams do you deploy when you do not listen to your own trade plan and methods ?!?!?! I mean is there something that you guys have practiced that worked better than just keep reapeting your self, follow the plan 'moron' As some of us a more 'brick headed' than others. For me the ultimate punishement is when trade does end up loosing, then i am good for a while, but as positive, consequitive, trades occur, my discipline lessens....
You should go back to that thread and have a think what it's really about. It does not prove that market movements are random. To me, it's all about confirmation bias. Whether it's Horizontal lines, market profile, squiggly indicators - you often see what you want to see and read meaning into the random.
There's an important piece of the puzzle that you are missing and will always miss when you look to define the market by any objective analysis technique.
The fact is - the markets are a casino. People with a lot of money are dicking around with it. It IS an auction but it is not a purely supply/demand driven auction. Or rather, the supply and demand isn't coming along for reasons related to value. It is not a pure auction. Simply put - people are regularly & intentionally pulling the pants of retail traders down and spanking them on the a$$ over & over & over again.
They know where you get in. They know how much risk you are willing to put into a trade. They know where clusters of traders will enter. They know how to shake people out.
I think it is fantastic to have some high-level view of where the market is, how it is structured and where it will go to. FT71 uses MP. Other people frame it in different ways. Still - you have to understand it's all a game and you have to understand when you are being suckered in short term if you want to make a go of day trading...
If you want to know what successful trading is about, this post by Ziad @ the eminiplayer blog sums it very well. I re-read it every couple of days just for motivation, and to keep me grounded.
Broker: Advantage Futures, Ninja/TT and InvestorRT/IQFeed.
Trading: Treasury futures
Posts: 312 since Nov 2010
Thanks Given: 194
Thanks Received: 912
Issue 1:
You've already solved the problem by articulating it, IMO. I'd guess the reason for the problem is because earlier successful trades often repeat themselves, and your subconscious knows that. Conversely, a horrible loser will create a bias to go the opposite way next time, and the price where you put on that loser will be more or less where you try to do the opposite next time.
Issue 2
Self-hatred.
I had the same problem early in my career, and it was exactly what was holding me back. When I decided to stop concentrating on working hard and start concentrating on going home a winner every day, things instantly turned themselves around. You sound a lot like me. Try setting an easy goal to attain, and turn off your machine when you hit it. This doesn't mean you have to get out of the last trade the second you hit your goal, but you should become much more defensive when you do. If you've hit your goal and you have the least doubt about the trade you are in, then it's Miller time. If it's really early, reward yourself by doing something fun.
The problem reasserted itself much later in my career in a different way. The previous paragraph was about what happens within one day. Later on, in a really "big" market, I had a two week stretch where I averaged about $50 thousand every day, at that point by far my best 3 month performance ever (but in 2 weeks). I went on vacation (spring break for the kids) but came home a day early to trade Unemployment. Within 20 minutes of getting on the floor, I had broken my most important rule three times on the same trade and I was down $200,000. In my mind, I had become a god of trading, and the very fact that I was in the trade meant I must be right. Man, was my wife pissed! She had told me not to cut the vacation short, and she had stayed at Hilton Head while I went home and she had to make two separate trips to Savannah to drop various friends and relatives off at the airport, about 2 hours round trip. I guess I could have helped with that, but instead I had to go play Supertrader and get a snootful of green kryptonite.
Beware too much success. Really.
"You don't need a weatherman to know which way the wind blows..."
Thanks, unfortunatelly, you have told me and confirmed my fears, of the discipline required. I have done similar thing last night, started trading at about 5PM Aus eastern time caught a big up on cable (cashed 110pips) and then instead of packing at about 9PM continued all the way till 2:30 AM just to stay at same level, full night of frustrations and wins/losses. I guess if i get platform to send e-mail to my wife when i reach the target, her 'evilness' will get me to bed.
Thanks a lot again, i do fully understand what you saying and unfortunatelly is all in us. It is amazing how we can complicate things for no reason and make solutions complex where simple rules are all we need....
I guess humans - money - emotions, good did not intend for all us to be able to manage those things effectivelly.