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I think a lot of money is lost more quickly than random because:
1. Trader has no method of selecting trades.
2. Poor risk control.
3. Bad money management.
Most RT's are beyond that, and face:
4. Second-guessing your method.
5. Switching between methods.
A system with good paper results will be decimated when you try to improve
on it with personal judgment. No matter what level of sophistication exists,
the trader will guess wrong. The winners never look sure before they win,
and the losers are always a surprise. A few such mistakes superimposed on
the system can radically change the bottom line.
The system projects sound principles on a block of future trades as a
group. Mistakes are made by focusing on the one current trade, whose results
are unknown (and unknowable). All further clues to the outcome of the
current trade are misleading. Otherwise they would be part of the system.
A good system will call for trades you don't want to take. Many people
have a big problem taking all the trades, and the second-guessing works
to undo the edge.
Traders using several methods will likewise use subjective criteria for
deciding which trades to take. Unless they take all trades of all methods
used, they will pick wrong by deleting winners.
The common error is focusing on this one current trade, about which nothing
whatever can be known, except it's probability as a member of a larger set.
We need to take all of the next 40 trades, not just some, for the edge
to work.
Commissions and slippage grind away against the trader, but I don't think
they are the reason for the money that is actually lost so quickly by so
many who try this game. It's not very hard to find a method that overcomes
these costs. Some option spreads can even put the odds in your favor.
I think money is lost because traders are drawn seductively to the worst
immediate real-time choices. The solution may be to trade today from
tomorrow's perspective.
Respectfully,
Wayne Moody
wlm95@xxxxxxxxxx
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