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Thanks for the beautiful comments guys -- I needed that!
I see now that my real "mistake" was in viewing the loss of money on a
trade as a "mistake" rather than a possible -- and acceptable -- outcome
of a risk freely taken. The clarification of that distortion in my
thinking makes a big difference for me. It kind of frees me up to know
what I should be doing and I certainly thank you all for that.
There is an interesting analogy between trading and the casualty-fire
insurance business, which carefully, and methodically differentiates
between perils -- fire, hale, vandalism, etc. -- from risk, the
probability of a given peril affecting a particular property. That is
they "win" if you pay your premium and your house doesn't burn down, and
they "lose" if it does. If your house does burn, they may change their
"methodology" (e.g. raise your premium or refuse to insure you), but
nowhere in their rich lexicon of terminology is the word "mistake".
Their stop losses are called "limits of liability" while their real
gains are realized by investing your premium money in the markets where
they seem to do pretty well too.
Leo
Neal Hughes wrote:
>
> Right on AL!
>
> Leo, because anything can happen in a trade, it is important to
> build a methodology which caters to all possibilities. Building
> this methodology seems to be a never-ending process unless you
> keep it real simple.
>
> To make a mistake, you have to fail in implementing your
> methodology. So even if you take a loss, you have not made
> a mistake if your methodology was to take that loss in order to
> reduce your risk.
>
> Every trade in which you apply your methodology correctly
> is a good trade, regardless of the financial outcome. So the
> real focus becomes building a profitable methodology, rather
> than the stress of taking a loss in any particular trade.
>
> -Neal.
>
> At 02:34 PM 10/9/97 -0500, Al Taglavore wrote:
> >Leo,
> >
> >I will inject my 2 cents worth of info to your post. You have answered
> >part of your delima in that TRADING is not like most mistakes that are made
> >in life. As such, if you use the logic that has made you successful in
> >your particular field in life, this will usually guarantee you failure in
> >trading. In life, you are taught to avoid risk. In TRADING, you are
> >accepting risk. You are making a decision without having all of the facts.
> > If you DO have all of the facts, the trade is over. To get a clear
> >understanding of my comments, read Mark Douglas' book The Disciplined
> >Trader, or read any of the works of Bob Koppel (The Inner Game of Trading,
> >The Intuitive Trader). Any methodology will create a large number of
> >mistakes. It is how you learn to control those mistakes. The STOP is your
> >safety net. Using your example of the gasoline , if you had to pour gas on
> >some material so that the material would ignite, you would pour the gas,
> >then move the gasoline container so that if the fire you started got out of
> >hand, you would not have an explosion. Good Trading.
> >
> >Al Taglavore
> >
> >----------
> >> From: Leo Karl <leokarl@xxxxxxxxxxx>
> >> To: Greatelto@xxxxxxx
> >> Cc: metastock-list@xxxxxxxxxxxxx
> >> Subject: Re: Trading....
> >> Date: Thursday, October 09, 1997 1:56 PM
> >>
> >> Jerry,
> >>
> >> I appreciate your encouraging comments.
> >>
> >> What I have a particular problem with is not so much recognizing a bad
> >> trade as "figuring out why" it was bad. That is, it seems to me trading
> >> is unique in that the recurrence of MOST mistakes that we make in life
> >> can be avoided by not repeating the same action. For example, you
> >> probably wouldn't light a match around gasolene a second time. But if
> >> you go long in a stock that subsequently drops severely, what was the
> >> mistake that you could learn from? After all, sometimes they go up
> >> under identical conditions.
> >>
> >> I'm sure you don't have the entire answer to this dilema, but maybe you
> >> could throw some light on how you personally go about recognizing, then
> >> learning from trading "mistakes".
> >>
> >> Thanks again.
> >>
> >> Leo
> >>
> >> Greatelto@xxxxxxx wrote:
> >> >
> >> > Leo said...."Your comments were exceedingly useful in illuminating some
> >of my
> >> > own shortcomings. That is, while I totally share your impatience, I
> >> > have doubts about my ability to to truly *accept* my mistakes. It may
> >> > be that you guys are better than I at differentiating having made a
> >"bad
> >> > trade", from viewing yourself as a "bad trader". That might sound
> >> > simple to you, but those of us who sometimes can't make that
> >distinction
> >> > can find ourselves in deep grief."
> >> >
> >> > Leo, always remember, the "greatest trader" in the world will make a
> >"bad
> >> > trade" at some point in time. It was a business decision and he was
> >wrong.
> >> > What does he do? He figures out why, files it in his memory, takes a
> >lick
> >> > at the wound and goes on. In this business, nobody is perfect!! A
> >loss is
> >> > the cost of doing business....that's it.
> >> >
> >> > Jerry
> >>
> >
> >
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