jstnbrg 

A question about these trading rooms, as I've never been in one: can you talk to the moderator? Can you ask him what he saw this time that made him deviate from his rules? If not, what are you paying for?

Yes, in the good rooms you can. I've been in four and (taken three trials also - curiosity and I DON'T trade live in a trial room nor recommend it) I will not divulge who any of the rooms are as this forum is not about sales pitches OK?. I am currently in one and do NOT take every trade, I am discretionary also. The moderator trades a live account and makes money DAILY, yes daily. NOTE!!- I didn't say there is never a losing trade, I said he (we) make money daily. And I am happy.
The difference between a good room / moderator / mentor trader is the really good ones know how to take money out of the market daily. It's about positive expectancy and law of averages with a proven track record. I KNOW you've heard it thousands of times; but it is true. Plain and simple. The good ones teach money management and are truly interested in your success. YES, there are people that give a damn about others. I am tired of hearing, " if his / her system is so good why would they want to share it with anybody." BECAUSE - Some people care! And trading is a lonely business. A room can be rewarding. Personally, If I was that good I would do it (be a room mentor moderator) because I've given back my whole life so it's in my mental makeup.
I was also in a room where the moderator was so confident in his methodologies he allowed PM's between members. You cannot get any better than that - he was that confident that traders could talk with each other.
The "bad" rooms prohibit any contact with other traders and some don't even allow you to post. STAY AWAY for obvious reasons.

I'm not advocating you all go out and join a room. I am just responding to jstnbrg. OK?

I hope this post is "on topic" enough for this thread...

I'm posting because the discussion of the importance of psychology has been critical for me and also very difficult for me to understand during my development and posting here will help me reinforce my own beliefs. My premise is that psychology becomes important only once a trader has developed an edge and that developing an edge is actually the most important (and difficult) piece of the puzzle in becoming consistently profitable. I think that developing traders would do well to understand that no amount of discipline, self-control, and clear thinking will help them until they have a robust method with a positive expectancy. That said, a developing trader will never be able to develop a robust edge without removing, at least to a large degree, the mistakes (both in perception and execution) that stem from insufficiently developed psychology. This may seem like a chicken-and-egg cop-out on the fundamental question but I think the distinction is important to consider.

We all know that it is easy to pick winning trades but that trading profitably on a consistent basis is a different beast entirely. So why do I think developing a method with a positive expectancy is more important than perfecting psychology? A post in forex factory I've kept with me from David Hanover (he's an excellent source of good thoughts on the subject of trading) mirrors my thinking:

"This must be about the 99th time I’ve posted this type of message.
It’s addressed to all of those well-meaning folk who believe that:

-- you can succeed in forex with MM and discipline alone
-- the system doesn’t matter; it’s all about the trader, his mindset, and his mastery of self
-- it’s possible to profit in the long term by using random entries
-- trading psychology books (like Mark Douglas'), and/or clichés posted on forums, tell you most of what you need to know

Consider this:

An EA will trade according to strict MM rules, and with perfect discipline. Writing an EA that “enters every emerging move, cuts losses short, lets profits run, and risks only 1% (or 2%) of your account per trade” is a very simple algorithm to program. An EA will trade 24/7, executing a plan flawlessly, consistently, tirelessly, emotionlessly. It removes the trader, his mindset, and any lack of self-mastery, from the equation altogether. An EA automatically guarantees all of the following: Adherence to strict MM rules. Perfect accuracy of execution. Endless patience. Unwavering discipline. No fear, greed or hesitation. Immunity from hunches, guesswork or outside ‘noise’. Around-the-clock trading that’s unaffected by tiredness, illness, stress, negative attitudes. No data entry errors. Much more recreational time for the trader, away from his PC.

But I think it’s fairly obvious that, if long-term profit was this easily attainable, then everybody would own such an EA, and we’d all be forex millionaires.

So here's my point: If MM and discipline are all that’s needed, and an EA addresses them perfectly, why do the vast majority of EAs ultimately fail? The answer is much the same reason why 95% (or whatever the number is) of traders do likewise. Their ‘market knowledge’ of how, when – and possibly why – prices move, simply isn’t good enough. Their analysis isn’t intelligent or accurate enough to locate ‘on-balance’ profitable price patterns, cycles, or behavior that’s potentially robust enough to last a lifetime. Or, failing that, they’re not smart enough to periodically evaluate whether such an inefficiency is still operating as profitably as it did previously, and if necessary adapt accordingly."

end-of-quote

It is so easy for developing traders (like I have done and may still be doing) to delude themselves into thinking that they DO have a winning methodology and it is because of their lack of psychological "prowess" that they are not consistently profitable. Our human nature and cognitive biases will cause us to mistakenly interpret our results to support whatever hypothesis we have about the importance of psychology vs. method. My message to developing traders is this: Do not delude yourself into thinking you have a winning methodology until you do. Psychology and method must evolve together and psychological "prowess" will only come into line when you gain confidence that your approach *WORKS*. You will only get to this point after you've put in enough screen time using a consistent approach - this is why Mike's challenge to leave everything the same for two weeks and Gary's excellent post here are both critical to understand.

Surly

jstnbrg 

The poster makes a good point. Almost all great pit traders that I knew could be very creative in getting out of bad trades. I was like that. Sometimes I would just take a loss, but often, for example, if the yield curve was very strong and I was long Five Year Notes, I would sell 30 year bonds against the trade and then just wait a long time. If the curve continued strong (and why shouldn't it, I'm basically saying it was a trend day) I could often scratch a bad loser. Of course, unless I continued scalping, I would forgo profit opportunities while I was waiting, often in the end a bad deal for a relatively high frequency trader. Guys who traded the curve for a living usually averaged into trades; their first entries on a FITE (five year/ten year spread) were often initially bad, and they would add more units at "better" prices, or they would "butterfly" off the trades, selling NOBs (ten yr./thirty yr. spreads) against their bad FITEs. Sometimes I would have on a FOB that I had done deliberately, not selling 30 yrs. against a bad 5 yr. position but because I liked the trade, and it maybe would be a disaster. If one side of the spread was trending and the other was not, I might get out of the loser and just let the winner run. It was amazing how many times that worked, and often I'd go for a much larger profit on the good leg than I usually took while scalping. It was in the category of "heroics". Many years after the fact, my reaction to this seat-of-the-pants risk management is like the car ad where the caption warns "Professional driver on a closed course, don't try this at home". It's bad trading for all but the best capitalized and experienced traders, because if you are successful a couple of times you forget about your discipline. When I did it in the pit I still set myself an absolute "get out" point. In my opinion, all trades can be categorized in one of 4 ways, each of which requires a different exit strategy. The four categories are, 1: a good entry level with a well conceived trade, 2: a poor entry level with a well conceived trade, 3: a good entry level with a poorly conceived trade, and 4: a poor entry level with a poorly conceived trade. In the first case the trade will never be much against you and you squeeze the trade for a large profit. In the second, you can afford to wait even though you initially take heat because the market will eventually make you whole. In the third you may get a quick profit, and you should take it because time is going to turn the trade against you. In the fourth you should take your loss the second you realize it was a poorly conceived trade, because time will just make it worse. The big trick is recognizing case 3, because the profit may blind you to the fact you made a mistake. I realize that some of this may seem odd to the non-pit trader; why would someone make a poorly conceived trade? The reason is because in the pit we did not always get to choose the trades we made. Our job was to create liquidity and that meant often taking trades we did not like. This was especially true in the 30 Year Bond pit. Harris Brumfield, founder of Trading Technologies and a truly great trader with cojones the size of watermelons, left the bond pit because brokers were constantly taking him out of trades he wanted to be in. A question about these trading rooms, as I've never been in one: can you talk to the moderator? Can you ask him what he saw this time that made him deviate from his rules? If not, what are you paying for?

Thanks for sharing. I attended a seminar in Chicago a few years a back and I visited both the CBOT and the CME. It was quite an experience. Ben Lichtenstein of Traders Audio gave us a tour of the CME, it was really exciting to actually get to walk on the trading floor. I can only imagine how active it was in the "good ol' days".
I find it ironic that a lot of floor traders struggle to adapt to screen trading; I wouldn't have lasted five minutes in the pit!

Surly 

I hope this post is "on topic" enough for this thread... I'm posting because the discussion of the importance of psychology has been critical for me and also very difficult for me to understand during my development and posting here will help me reinforce my own beliefs. My premise is that psychology becomes important only once a trader has developed an edge and that developing an edge is actually the most important (and difficult) piece of the puzzle in becoming consistently profitable. I think that developing traders would do well to understand that no amount of discipline, self-control, and clear thinking will help them until they have a robust method with a positive expectancy. That said, a developing trader will never be able to develop a robust edge without removing, at least to a large degree, the mistakes (both in perception and execution) that stem from insufficiently developed psychology. This may seem like a chicken-and-egg cop-out on the fundamental question but I think the distinction is important to consider. We all know that it is easy to pick winning trades but that trading profitably on a consistent basis is a different beast entirely. So why do I think developing a method with a positive expectancy is more important than perfecting psychology? A post in forex factory I've kept with me from David Hanover (he's an excellent source of good thoughts on the subject of trading) mirrors my thinking: "This must be about the 99th time I’ve posted this type of message. It’s addressed to all of those well-meaning folk who believe that: -- you can succeed in forex with MM and discipline alone -- the system doesn’t matter; it’s all about the trader, his mindset, and his mastery of self -- it’s possible to profit in the long term by using random entries -- trading psychology books (like Mark Douglas'), and/or clichés posted on forums, tell you most of what you need to know Consider this: An EA will trade according to strict MM rules, and with perfect discipline. Writing an EA that “enters every emerging move, cuts losses short, lets profits run, and risks only 1% (or 2%) of your account per trade” is a very simple algorithm to program. An EA will trade 24/7, executing a plan flawlessly, consistently, tirelessly, emotionlessly. It removes the trader, his mindset, and any lack of self-mastery, from the equation altogether. An EA automatically guarantees all of the following: Adherence to strict MM rules. Perfect accuracy of execution. Endless patience. Unwavering discipline. No fear, greed or hesitation. Immunity from hunches, guesswork or outside ‘noise’. Around-the-clock trading that’s unaffected by tiredness, illness, stress, negative attitudes. No data entry errors. Much more recreational time for the trader, away from his PC. But I think it’s fairly obvious that, if long-term profit was this easily attainable, then everybody would own such an EA, and we’d all be forex millionaires. So here's my point: If MM and discipline are all that’s needed, and an EA addresses them perfectly, why do the vast majority of EAs ultimately fail? The answer is much the same reason why 95% (or whatever the number is) of traders do likewise. Their ‘market knowledge’ of how, when – and possibly why – prices move, simply isn’t good enough. Their analysis isn’t intelligent or accurate enough to locate ‘on-balance’ profitable price patterns, cycles, or behavior that’s potentially robust enough to last a lifetime. Or, failing that, they’re not smart enough to periodically evaluate whether such an inefficiency is still operating as profitably as it did previously, and if necessary adapt accordingly." end-of-quote It is so easy for developing traders (like I have done and may still be doing) to delude themselves into thinking that they DO have a winning methodology and it is because of their lack of psychological "prowess" that they are not consistently profitable. Our human nature and cognitive biases will cause us to mistakenly interpret our results to support whatever hypothesis we have about the importance of psychology vs. method. My message to developing traders is this: Do not delude yourself into thinking you have a winning methodology until you do. Psychology and method must evolve together and psychological "prowess" will only come into line when you gain confidence that your approach *WORKS*. You will only get to this point after you've put in enough screen time using a consistent approach - this is why Mike's challenge to leave everything the same for two weeks and Gary's excellent post here are both critical to understand. Surly

Great post! This sums up my stance perfectly.

I think there might be some confusion, or possibly disagreement, with regard to terminology .

Poor risk and money management might, or rather will, ruin a profitable system. But there has to be a an edge to begin with. To say it's easy to find a system with positive expectancy is a fallacy, and I think it's dangerous for traders to delude themselves with such thoughts.
Know what your system is. Discretionary traders are actually using an automatic system too. They're relying on the pattern recognition and modelling done by the marvelous biological computer that is our mind. Intuition comes from the subconscious and/or unconscious mind. This means one can not necessarily easily quantify one's method, but it does not mean calculations aren't being performed.
If you have a profitable method, you can program it. There would be no discretion needed. If you can't program it, that means your system is a grey box. The grey, in this case, is referring to your own grey matter. It might be that the process is subconscious and one can "dig up" the information if one tries, or your impulses might stem from the unconscious mind and you are at the mercy of the unknown.

It's impossible for a retail trader to compete with the HFT machines, but it's not impossible to run profitable algorithms from one's own home. The opposite is usually perpetuated by those who failed develop such algorithms.

In both cases psychology plays a big part. You need rational and logical thinking to be able to trade either way. If one's perception is not clear, one will not be able to develop and/or execute a solid system.

Good luck, and good trading!

Lornz 

Thanks for sharing. I attended a seminar in Chicago a few years a back and I visited both the CBOT and the CME. It was quite an experience. Ben Lichtenstein of Traders Audio gave us a tour of the CME, it was really exciting to actually get to walk on the trading floor. I can only imagine how active it was in the "good ol' days". I find it ironic that a lot of floor traders struggle to adapt to screen trading; I wouldn't have lasted five minutes in the pit!

That's because the edge that pit traders used is gone completely on the screen. Fortunately.

MetalTrade 

That's because the edge that pit traders used is gone completely on the screen. Fortunately.

Yes, I am aware of that. I was just pointing out that I would be eaten alive in such a stressful environment, regardless of edge...

Lornz 

Yes, I am aware of that. I was just pointing out that I would be eaten alive in such a stressful environment, regardless of edge...

Bah, strange remark. In fact, I think the stress level on the screen is bigger, because it's harder to make money.

It was way easier for the boys in the pit to make money.

MetalTrade 

Bah, strange remark. In fact, I think the stress level on the screen is bigger, because it's harder to make money. It was way easier for the boys in the pit to make money.

I don't get stressed when it comes to screen trading, I actually find it soothing. The vastness of information easily accessible by a keystroke gives me a "zenlike" feeling of being in control. On the other hand, having people yelling and shoving me around, I find quite stressful....

Just to clarify, I grew up playing sports and the problem is not that I am physically impaired. It's just that, at least for me, trading is an intellectual exercise. And my intellect is far more efficient in less disturbing atmospheres. I'm not claiming that my experiences are indicative for all traders, I simply conveyed my thoughts on the subject from a personal perspective...

I find it amazing that more don't follow the "Battle of the Bots" since this shows pure rules/execution at its core. Maybe there is a big silent majority following these? no psycho involved /flawless execution .(2/3 of the grail? )..

The comments here reaffirm my belief, no matter what the percentages of success vs. failure or method used, that trading is still the hardest way[path] to make[ing] an easy living.