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Norman Winski and Wayne Moody posted some great
thoughts on trading in general, what the markets
are, and what they are NOT.
I heartily agree with all their statements
The market should be treated like
a living creature. A creature that adapts to changes
with stunning speed. It's sole intent and existence
is to offset risk, and in the end bring the score
card to zero. And it does it very well.
Sometimes as traders, we spend a little too much time
dwelling on the "technicals" of the "game". I'm
certainly as guilty as anybody. But I also spend a
lot of time watching the people that trade, because
THEY are really the only relative constant in
trading. If the only calculations and insights you
use in trading are price driven, you're in big
trouble.
To anyone who hopes to make a living from trading,
you should read Miyamoto Musashi's "Book of Five
Rings", Sun Tzu's "The art of war", and Antonio
Machiavelli's "The Prince"
I don't remember the name of the author, but you
should also find and read "Ender's Game".
These books won't give you any magical martial
power over the markets, and they won't teach
you how to trade, but they will PREPARE you to
trade. They will help you understand your role
in the markets, and they will help you take the
market for what it is (At the time! :) ).
So many traders spend all their time looking for
the "perfect" system, and that "one trade" that will
set them up for life. They spend their time eyeing
expensive systems that have eye-popping results, and
seem to spend very little time thinking about what
they will do if a trade DOESN"T go their way.
This will sound strange, but you know what I spend
most of my time thinking about when I'm trading?
Getting the trade to zero! All I'm looking for
from a system most of the time, is to get me to just
a little better than zero. Not much just a little,
80% of the time.
The point being this:
The Markets greatest power is
it's ability to constantly move you to ZERO. In the
end, you become frustrated, and angry, you lose
your self-control, and THAT is when the market
will really start taking Empire state building
sized chunks out of your equity.
Why not use the power of ZERO in YOUR trading.
If the Market can be so succesfull against you
using this one tactic, can't YOU use it to your
benefit??
Here's an example:
I have ten positions on. I'll get 80% of them to
zero, and the other 2 I'll bail out of quick.
WHEN THIS STRATEGY GOES RIGHT:
I'll have 2 $300 or less losers, and I'll have 8
possible remaining chances to make money, all of
them with a worst return scenario of ZERO. 3 are
stopped at ZERO, 2 make $100.00 and one is a $500.00
winner = $100.00 for the day.
But, every once in a
while I'll be "in the zone". I'll be golden, and
everything I trade for the day runs like Carl Lewis.
On that day, I'll make $3000.00 instead of $100.00
WHAT HAPPENS WHEN THIS STRATEGY DOESN"T WORK:
Same ten trades, same stats, only this time, I'm
having a bad hair day, and 2 are $300.00 losers,
and 8 are stopped at ZERO or a little worse on the
slippage. For the whole day, I've lost say, $800.00
Theoretically (Don't we LOVE that word!), under this
scenario, every time I trade, I have a possibility
of making $3000.00 or losing $800.00, or making a
small gain of $100 bucks. Start playing with THOSE
stats, and it won't take you long to see, that using
the power of ZERO increases trading longevity, and
maximizes the chances of wind-fall profits while
minimizing chances of BAD losing trades.
I can hear the calculators firing up. "NOT STATISTICALLY
VALID!!", is the cry. "What happens if you LOSE money
on all ten trades.!!"
Allow me to clarify why this works:
1. Are there days when I lose all ten trades?
You bet. That's the life of a trader, and at those times
I work HARD to keep those losses to a bare minimum.
2. Let's examine this from a psychological point of
view. YOU are trading for THE BIG BUCKS.... I'm
just trading for ZERO. YOU are trading so your kids
will have something to eat.......I'm just trading for
ZERO. YOU HAVE TO MAKE MONEY!!!.....hmmmm.. that's nice,
just give me ZERO.
I think you'll find that when you're just trading for
ZERO, you place a lot less pressure on yourself.
And by the way, those 10 consecutive losses rarely
happen. I get so many trades to breakeven, I almost
always have a winner or two (Another psychological
boon.)
I'm being realistic of course. I'm not saying you
have to slap your trade to breakeven + a tic the
minute the position goes five ticks in your favor,
... all I'm saying, is to spend time looking for the
FIRST opportunity to go to ZERO losses, while still
mainaining reasonable chances for profit.
Wayne stressed the importance of being a DYNAMIC
trader. By that I mean that, you should adapt as
the market changes. If you see something new that
you don't understand (I know that's all the time
for me! :) ). Don't worry about it. Concentrate on
what other available resources you have to come
at a trade from a different angle.
The other day I was carping on RT about not
understanding how the metals could just sit
there, with everything else going bananas.
Did I stay up all night watching the Bundesbank and
the Bank of Japan? Nope, I just said "beats me",
and spent alot of time thinking about how OTHER
traders would trade silver.
Dynamic is good, STATIC is hoW the markets spell
DEAD.
The other day a trader commented that he was
suprised that I, primarly being an Intraday
trader, was taking so many 3 day to 2 week
positions in the market.
I was totally suprised. I hadn't even thought
about it. Simply put, many markets were trending
strongly, and I needed a larger time frame to
take advantage of it.
Maybe we as traders should think less about
labeling ourselves as INTRADAY or POSITIONAL,
and think more about WHERE'S THE MONEY.
A trader's trading manual in a paragraph:
Be dynamic. Use the power of ZERO. No labels.
If you know yourself, you know the markets.
Siegbert Tarrasch, in his day, one of the most
powerfull chess players in the world, sat
studying variations of a complicated gambit
strategy.
After Siegbert finished making a
particular move, an onlooker piped up and
said, "THATS BAD, according to theory."
Tarrasch fixed the speaker with an icy stare,
and said, "I AM theory !! "
So should we all be
Walt Downs
CIS Trading
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