|
PureBytes Links
Trading Reference Links
|
Some interesting trading thoughts from the GET list.
Copyright@xxxx Walter T. Downs All Rights Reserved. Distribution is
> > allowed with due credit to the author. http://cistrader.com
Aiming for the Right Target in Trading
> > By
> > Walter T. Downs
> >
> > When trading goes right, it can be a great feeling. When trading goes
> > wrong it can be a nightmare. Fortunes are made in a matter of weeks and
> > lost in a matter of minutes. This pattern repeats itself as each new
> > generation of traders hit the market. They hurl themselves out of the
> > night like insane insects against some sort of karmic bug-light; all
> > thought and all existence extinguished in one final cosmic "zzzzzzt".
> > Obviously, for a trader to be successful he must acknowledge this
> > pattern and then break it. This can be accomplished by asking the right
> > questions and finding the correct answers by rational observation and
> > logical conclusion.
> >
> > This article will attempt to address one question:
> >
> > "What is the difference between a winning trader and a losing trader?"
> >
> > What follows are eleven observations and conclusions that I use in my
> > own trading to help keep me on the right track. You can put these ideas
> > into table form, and use them as a template to determine the probability
> >
> > of a trader being successful.
> >
> > OBSERVATION # 1
> >
> > The greatest number of losing traders is found in the short-term and
> > intraday ranks. This has less to do with the time frame and more to do
> > with the fact that many of these traders lack proper preparation and a
> > well thought-out game plan. By trading in the time frame most
> > unforgiving of even minute error and most vulnerable to floor
> > manipulation and general costs of trading, losses due to lack of
> > knowledge and lack of preparedness are exponential. These traders are
> > often undercapitalized as well. Winning traders often trade in mid-term
> > to long-term time frames. Often they carry greater initial levels of
> > equity as well.
> >
> > CONCLUSION:
> >
> > Trading in mid-term and long-term time frames offers greater probability
> >
> > of success from a statistical point of view. The same can be said for
> > level of capitalization. The greater the initial equity, the greater the
> >
> > probability of survival.
> >
> > OBSERVATION # 2
> >
> > Losing traders often use complex systems or methodologies or rely
> > entirely on outside recommendations from gurus or black boxes. Winning
> > traders often use very simple techniques. Invariably they use either a
> > highly modified version of an existing technique or else they have
> > invented their own.
> >
> > CONCLUSION:
> >
> > This seems to fit in with the mistaken belief that "complex" is
> > synonymous with "better". Such is not necessarily the case. Logically
> > one could argue that simplistic market approaches tend to be more
> > practical and less prone to false interpretation. In truth, even the
> > terms "simple" or "complex" have no relevance. All that really matters
> > is what makes money and what doesn't. From the observations, we might
> > also conclude that maintaining a major stake in the trading process via
> > our own thoughts and analyses is important to being successful as a
> > trader. This may also explain why a trader who possesses no other
> > qualities than patience and persistence often outperforms those with
> > advanced education, superior intellect or even true genius.
> >
> > OBSERVATION # 3
> >
> > Losing traders often rely heavily on computer-generated systems and
> > indicators. They do not take the time to study the mathematical
> > construction of such tools nor do they consider variable usage other
> > than the most popular interpretation. Winning traders often take
> > advantage of the use of computers because of their speed in analyzing
> > large amounts of data and many markets. However, they also tend to be
> > accomplished chartists who are quite happy to sit down with a paper
> > chart, a pencil, protractor and calculator. Very often you will find
> > that they have taken the time to learn the actual mathematical
> > construction of averages and oscillators and can construct them manually
> >
> > if need be. They have taken the time to understand the mechanics of
> > market machinery right down to the last nut and bolt.
> >
> > CONCLUSION:
> >
> > If you want to be successful at anything, you need to have a strong
> > understanding of the tools involved. Using a hammer to drive a nut in to
> >
> > a threaded hole might work, but it isn't pretty or practical.
> >
> > OBSERVATION # 4
> >
> > Losing traders spend a great deal of time forecasting where the market
> > will be tomorrow. Winning traders spend most of their time thinking
> > about how traders will react to what the market is doing now, and they
> > plan their strategy accordingly.
> >
> > CONCLUSION:
> >
> > Success of a trade is much more likely to occur if a trader can predict
> > what type of crowd reaction a particular market event will incur. Being
> > able to respond to irrational buying or selling with a rational and well
> >
> > thought out plan of attack will always increase your probability of
> > success. It can also be concluded that being a successful trader is
> > easier than being a successful analyst since analysts must in effect
> > forecast ultimate outcome and project ultimate profit. If one were to
> > ask a successful trader where he thought a particular market was going
> > to be tomorrow, the most likely response would be a shrug of the
> > shoulders and a simple comment that he would follow the market wherever
> > it wanted to go. By the time we have reached the end of our observations
> >
> > and conclusions, what may have seemed like a rather inane response may
> > be reconsidered as a very prescient view of the market.
> >
> > OBSERVATION # 5
> >
> > Losing traders focus on winning trades and high percentages of winners.
> > Winning traders focus on losing trades, solid returns and good risk to
> > reward ratios.
> >
> > CONCLUSION:
> >
> > The observation implies that it is much more important to focus on
> > overall risk versus overall profit, rather than "wins" or "losses". The
> > successful trader focuses on possible money gained versus possible money
> >
> > lost, and cares little about the mental highs and lows associated with
> > being "right" or "wrong".
> >
> > OBSERVATION # 6
> >
> > Losing traders often fail to acknowledge and control their emotive
> > processes during a trade. Winning traders acknowledge their emotions and
> >
> > then examine the market. If the state of the market has not changed, the
> >
> > emotion is ignored. If the state of the market has changed, the emotion
> > has relevance and the trade is exited.
> >
> > CONCLUSION:
> >
> > If a trader enters or exits a trade based purely on emotion then his
> > market approach is neither practical nor rational. Strangely, much
> > damage can also be done if the trader ignores his emotions. In extreme
> > cases this can cause physical illness due to psychological stress. In
> > addition, valuable subconscious trading skills that the trader possesses
> >
> > but has no conscious awareness of may be lost. It is best to acknowledge
> >
> > each emotion as it is experienced and to view the market at these points
> >
> > to see if the original reasons we took the trade are still present.
> > Further proof that this conclusion may have validity can be seen in even
> >
> > highly systematic traders exiting a trade for no apparent reason, and
> > pegging a profitable move almost to the tick. Commonly, this is referred
> >
> > to as being "lucky" or being "in the zone".
> >
> > OBSERVATION # 7
> >
> > Losing traders care a great deal about being right. They love the
> > adrenaline and endorphin rushes that trading can produce. They must be
> > in touch with the markets almost twenty-four hours a day. A friend of
> > mine once joked that a new trader won't enter a room unless there is a
> > quote machine in it. Winning traders recognize the emotions but do not
> > let it become a governing factor in the trading process. They may go
> > days without looking at a quote screen. To them, trading is a business.
> > They don't care about being right. They focus on what makes money and
> > what doesn't. They enjoy the intellectual challenge of finding the best
> > odds in the game. If those odds aren't present they don't play.
> >
> > CONCLUSION:
> >
> > It is important to stay in synch with the markets, but it is also
> > important to have a life outside of trading. It is a rare individual who
> >
> > can do anything to excess without suffering some form of psychological
> > or physical degradation. Successful traders keep active enough to stay
> > sharp but also realize that it is a business not an addiction.
> >
> > OBSERVATION # 8
> >
> > When a losing trader has a bad trade he goes out and buys a new book or
> > system, and then he starts over again from scratch. When winning traders
> >
> > have a bad trade they spend time figuring out what happened and then
> > they adjust their current methodology to account for this possibility
> > next time. They do not switch to new systems or methodologies lightly,
> > and only do so when the market has made it very clear that the old
> > approach is no longer valid. In fact, the best traders often use
> > methodologies that are endemic to basic market structure and will
> > therefore always be a part of the markets they trade. Thus the
> > possibility of the market changing form to the extent that the approach
> > becomes useless, is very small.
> >
> > CONCLUSION:
> >
> > The most successful traders have a methodology or system that they use
> > in a very consistent manner. Often, this revolves around one or two
> > techniques and market approaches that have proven profitable for them in
> >
> > the past. Even a bad plan that is used consistently will fair better
> > than jumping from system to system. This observation implies that
> > stylistic foundations of a trader's market approach must be in place
> > before consistent profitability can occur.
> >
> > OBSERVATION # 9
> >
> > Losing traders focus on "big-name" traders who made a killing, and they
> > try to emulate the trader's technique. Winning traders monitor new
> > techniques that come on the trading scene, but remain unaffected unless
> > some part of that technique is valuable to them within the framework of
> > their current market approach. They often spend much more time looking
> > at how the market seeks and destroys other traders or how traders
> > destroy themselves. They then trade with the market or against other
> > traders as these situations arise.
> >
> > CONCLUSION:
> >
> > Once again, we can note that the individuality of a trader and his
> > comfort level and knowledge regarding his system are far more important
> > than the latest doodad or Market guru.
> >
> > OBSERVATION #10
> >
> > Losing traders often fail to include many factors in the overall trading
> >
> > process that affects the probabilities of overall profit. Winning
> > traders understand that winning in the markets means "cash flow". More
> > cash must come in than goes out, and anything that effects this should
> > be considered. Thus a winning trader is just as thrilled with a new way
> > to reduce his data-feed costs or commissions as he is with a new trading
> >
> > system.
> >
> > CONCLUSION:
> >
> > ANYTHING that affects bottom line profitability should be considered as
> > a viable area of study to improve performance.
> >
> > OBSERVATION #11
> >
> > Losing traders often take themselves quite seriously and seldom find
> > humor in market analysis or the trading environment. Successful traders
> > are often the funniest and most imaginative people you will ever meet.
> > They take joy in trading and are the first to laugh or relate a funny
> > story. They take trading seriously, but they are always the first to
> > laugh at themselves.
> >
> > CONCLUSION:
> >
> > Its no wonder that one of the first things psychiatrists test for when
> > treating a patient is whether or not the patient has any sense of humor
> > about his affliction. The more serious the tone of the individual, the
> > more likely that insanity has set in.
> >
> > SUMMARY OF CONCLUSIONS AND OBSERVATIONS
> >
> > Both winning and losing traders consider trading a game. However,
> > winning traders take the game not as a diversion but as a vocation which
> >
> > they practice with an intensity and dedication that rivals the work
> > ethic of a professional athlete. Since the athletic metaphor seems
> > appropriate, I will sum up on that note.
> >
> > If trading were a game like basketball perhaps novice traders would
> > realize more readily that what appears as effortless ease of the
> > professional trader in sinking three-point shots is in fact the product
> > of endless hours spent shooting hoops in deserted back yards and empty
> > playgrounds.
> >
> > As in sports, the governing factors are internal and external. We deal
> > with the market and ourselves. Both are like weapons and they can be
> > used proactively or destructively. Each and every trade should be taken
> > with professional care and planning
> >
> > In order to bring these observations home in an even more compelling
> > form, lets add an element of ultimate risk to life and limb and say that
> >
> > our "sport" is more like target practice with a handgun. While it is
> > certainly important to hit the target, it is more important to make sure
> >
> > the gun isn't pointed directly at ourselves when we pull the trigger.
> >
> > Minute differences in how we take aim in the markets can have amazing
> > impact on the final outcome. The difference is clear: One method is
> > accurate target practice. The other is Russian Roulette.
> >
> > Copyright@xxxx Walter T. Downs All Rights Reserved. Distribution is
> > allowed with due credit to the author. http://cistrader.com
> >
|