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Amen brother! Thank you
-----Original Message-----
From: Walter Lake <wlake@xxxxxxxxx>
To: metastock bulletin board <metastock@xxxxxxxxxxxxx>
Date: Tuesday, February 09, 1999 12:39 PM
Subject: trading thoughts
>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
>> >
>
>
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