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Thank you Yuki, I really enjoy reading your comments, and will read them a
few times...;-)
you make a lot of sense... btw, there are no uptic rules on some of the
American ETFs and commissions are really so low that I can ignore them. This
makes it tempting to "play", which i am essentially doing. Haven't found my
true niche yet.
thanks again Yuki, i am sure a lot of others also enjoyed your post!
herman.
-----Original Message-----
From: Yuki Taga [mailto:yukitaga@xxxxxxxxxxxxx]
Sent: Friday, September 24, 2004 9:03 AM
To: Herman van den Bergen
Subject: Re: [amibroker] OT: Shorts vs Longs (Yuki please)
Hi Herman,
Friday, September 24, 2004, 7:18:11 PM, you wrote:
HvdB> What do you think about trading shorts in RealTime/Intraday?
Timing is everything. But short timing is more difficult, IMO. As
long as you define your risk and stick to it though, fine. And as
long as your potential dwarfs your risk, or your probability is high
enough to compensate. This dual requirement eliminates a lot of
trades of course, but that is exactly as it should be.
HvdB> It seems that if we reduce the trade duration to the intraday
HvdB> level (minutes to hours, no overnite holds) and we are watching
HvdB> the trade in real time, that there is little risk in going
HvdB> short. Also some of the ETFs appear quite safe. Do you also
HvdB> trade Intraday?
I do a little intraday trading, but almost always I hold a bit
longer. But I no longer build huge positions and hold them long
term, like I once did. But very little in and out the same day. Very
little. I just don't find risk:reward I'm happy with very often
intraday. Often, I can find the *monetary* risk:reward, but not the
*probability*, or vice versa. I don't often find them coexisting
intraday. Part of that may simply be because we have two very
*short* intraday periods here: 2 hours before lunch, and 2 1/2 hours
after a 90 minute break. Sometimes, they are more like two separate
days than a single day.
HvdB> Theoretically i feel that if my timing is correct I should be
HvdB> able to reverse each trade,
Well, theoretically . . . ^^_^^ if your timing is right. But
reversing every trade is a fool's errand, IMHO. We don't sell only
because we are sure the market is about to turn down. We sell when
we are reducing risk (partial liquidation to try and ensure break
even or better on an initial position), and we sell when the
expectation of further gain comes with a greater risk:reward ratio
than the original entry, or at least a greater risk:reward ratio than
we are willing to now accept. Selling doesn't mean we always *expect*
a tradable decline. And even when a tradable decline comes, often you
have to be as agile as a cat to get it. Less agility is needed on
the long side, IMO.
HvdB> however i don't stick to that... i enter on signals but exit
HvdB> before my exit signal most of the time (never capturing the
HvdB> entire price move). This for two reasons: 1) I hate losing even
HvdB> small profits 2) it gives me more time to enter/modify/transmit
HvdB> order lines. btw, i don't trade stocks <$5.
Nobody captures the entire move. Nobody. So don't worry about that.
But taking the small profits to avoid the small losses is a
prescription to mediocrity at best, or ruin at worst. It is how I
started trading many long years ago, and it simply doesn't work.
Fortunately I realized and accepted that very quickly, and I changed
my ways. One of the big changes was learning to actually play
*through* the initial profit target with a portion of the position.
It is impossible to hit a home run without doing that, of course.
You must define a risk that you can live with, and then accept that
risk to its full jeopardy when you enter a trade. An exception here
or there is okay, of course -- there are always extenuating
circumstances. But if the exceptions start adding up, you are either
making weak entries or are unable to reign in your emotions. Often
the emotions get in the way when the probabilities and/or rewards are
too low. Of course, if the risk is too high, that will have your
synapses firing like crazy. ^^_^^
You define your risk before entering, and you accept it, fully. If
you cannot hold to it, you are probably not making entries consistent
with successful trading, and you might need to look at that. One
psychological trick you might try to improve on risk acceptance
(assuming your entries are indeed okay) is to imagine, before
entering the trade, that you have lost the entire amount that you
intend to risk. Really, seriously, try to imagine that it is gone --
poof -- and that such a result, while not fun, is actually okay. It
may help you hold, or it may help you set more realistic risk
parameters.
My guess might be that, in addition to not liking the small losses,
you may not be taking trades with large enough profit potentials.
When serious profit potential is not there (serious at least in
relation to risk, and combined with a high enough probability of
course), it's easy to get nervous about small losses. Also, if you
don't play the winners through to your target (assuming gains and
probabilities make losing okay), you will have great difficulty ever
taking enough risk to be successful. Instead of accepting a necessary
amount of risk, you'll be bailing out early on both sides of your
entries, and your broker will love you. At the end of every day
however, you'll need some serious stress antidote.
The key to the game is taking on risk, and living calmly with it. And
that means taking just the right amount of risk, understanding that
it cannot be zero, or too low, nor of course can it be too high. It
must be, as Goldilocks said, "Just right". That is the key thing I
would tell anyone attempting to trade any financial market. If you
cannot accept enough risk, you have to demand *extreme*
probabilities, and you will either make very few trades in that case
(fine, too, in that case), or you will spin your wheels endlessly, or
churn yourself into oblivion either financially, or psychologically,
or both.
BTW, when you read my bias against shorting, remember that over here,
I have a nice advantage in shorting that US equity traders don't
have: essentially no uptick rule. (There is one now, introduced a
couple of years ago, but it only applies to 50 times the round lot
size or larger, and a lot of stuff here still has a round lot size of
1,000 shares, so I -- or others -- could squeeze off a pretty big
short on demand in many cases.) But I make more money on the long
side, even in periods like 6/1/00 through 4/1/03. I would have made
more money, probably, if I'd gone massively short at the beginning of
that period, and covered at the end, but I'm not even close to being
that smart.
Sure, there are successful and good short traders. It's just that
the ones I know are always in and out of therapy, and they often have
really annoying nervous ticks, stutters, or other socially
undesirable traits. (^_-) My life is much more relaxed, I think.
Yuki
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