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Is trading a winner's game? Or is it a loser's game?
In winner’s games, participants win through actions that require exceptional skill. In loser’s games, participants succeed by avoiding actions that cause failure.
Most traders have profitable trades, they know how to make winning trades. In a sense they are profitable traders. It's their losing trades that make them negative in the end. What if you could eliminate your losing trades as much as possible? Would you be profitable?
In his paper "The Loser's Game" Charles Ellis argues that institutional investing is a Loser's Game. I think maybe one could say the same of trading.
Ellis writes, and I quote: "Ironically, the reason institutional investing has become the Loser's Game is that in the complex problem each manager is trying to solve, his efforts to find a solution – and the efforts of his many urgent competitors – have become the dominant variables. And their efforts to beat the market are no longer the most important part of the solution; they are the most important part of the problem."
Ellis ends his paper with a recommendation for those who are determined to try to win the Loser's Game.
He writes, and I quote again:"For those who are determined to try to win the Loser's Game, however, there are a few specific things they might consider.
First, be sure you are playing your own game. Know your policies very well and play according to them all the time. Admiral Morrison, citing the Concise Oxford Dictionary, says: "Impose upon the enemy the time and place and conditions for fighting preferred by oneself." Simon Ramo suggests: "Give the other fellow as many opportunities as possible to make mistakes, and he will do so.”
Second, keep it simple. Tommy Armour, talking about golf, says "Play the shot you've got the greatest chance of playing well." Ramo says: "Every game boils down to doing the things you do best, and doing them over and over again." Armour again: "Simplicity, concentration and economy of time and effort have been the distinguishing feature of the great players' methods, while others lost their way to glory by wandering in a maze of details." Mies Van der Rohe, the architect suggests, "Less is more." Why not bring turnover down as a deliberate, conscientious practice? Make fewer and perhaps better investment decisions. Simplify the professional investment management problem. Try to do a few things unusually well.
Third, concentrate on your defenses. Almost all of the information in the investment management business is oriented toward purchase decisions. The competition in making purchase decisions is too good. It's too hard to outperform the other fellow in buying. Concentrate on selling instead. In a Winner's Game, 90 per cent of all research effort should be spent on making purchase decisions; in a Loser's Game, most researchers should spend most of their time making sell decisions. Almost all of the really big trouble that you're going to experience in the next year is in your portfolio right now; if you could reduce some of those really big problems, you might come out the winner in the Loser's Game.
Fourth, don't take it personally. Most of the people in the investment business are "winners” who have won all their lives by being bright, articulate, disciplined and willing to work hard. They are so accustomed to succeeding by trying harder and are so used to believing that failure to succeed is the failure's own fault that they may take it personally when they see that the average professionally managed fund cannot keep pace with the market any more than John Henry could beat the steam drill."
The Loser's Game by Charles D. Ellis
(The Financial Analysts Journal, July/August 1975, 19-26. Reprinted in January-February 1995)
I find the best results happen when I succeed in avoiding large losses by closing losing trades quickly. So, yes, I agree that trading is a losers game.
Continuing our long tradition of encouraging members to have Trade Journals, we are announcing our newest Journal Challenge, sponsored by Ninja Mobile Trader VPS!
Prizes -- the top five trading journals will receive prizes:
The opposite of distribution like shown in the last two posts (#235 and #236) is accumulation.
The first trade was a two points with-trend scalp. Why exit the trade for a two points win? It was with-trend and there was more to gain. Because it feels good, we have a winner and our ego will be pleased. It's hard to let a trade run. It feels uncomfortable, to possibly lose what could have been gained. One can never lose taking a profit, right? Wrong. There will be losers, maybe more than winners. It's very difficult to maintain a 70%-80% win-rate over a longer period of time. And there are costs involved. The winners must be big enough to cover the inevitable losses and costs. Doing what feels comfortable will not pay. That's a trader's dilemma, always feeling uncomfortable while in the mean time making a profit.
The second trade was held a little longer which paid off with a nine point winner, almost five times the first trade's profit. Now, that pays the bills.
You should take what the market is willing to give and nothing less just because it feels good.
I constantly tinker with and trying to come up with rules about when and how to trail my runners and never seems to be able to come up with something I feel comfortable with. If you are willing to share, in your second trade, what made you hold through the pullback in the middle of trade?
Maybe we should conclude then that there is no way to trail a runner and feel comfortable.
I don't think you'll ever come up with something you'll feel comfortable with. That's what I was trying to convey in the first place. A trader will need to accept uncertainty, there is no way around. You will always feel uncomfortable when in a trade. But rather than hoping a losing trade will turn or fearing a winning trade will turn we should do the opposite which feels unnatural hence uncomfortable for us to do.
Hope. I hoped that price would go up a little more. After the accumulation/reversal at the bottom the market/trend was up. The pullback in the middle of the trade was just a normal pullback testing the breakout and a good spot to enter long or scale up. I was still more or less breakeven. I gambled with my profit. I don't gamble with my losses, I gamble with my profits, hoping for more. I was watching the VPOC from the swing down and YL as possible targets. There was a sharp breakout (see arrow on the chart attached) which printed a Low Volume Node (also visible on M5 footprint chart). That's where price stalled and I got out.
