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New comments are inserted. Difficult to snip without losing continuity.
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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.
>
>A trader with no method of selecting trades would achieve results that were
>purely random and would therefore only lose costs.
By "having no method" I don't mean random. There are Reasons for each trade
but they are inconsistent and do not constitute a method in the sense that
we RT's would define it. Some of the reasons may be emotional. He buys
just because the contract has been strong, with no particular reason to
buy today except impatience and desire for action. On a sharp dip, he
panics and sells at a loss. Market rebounds higher. Now he's learned
to wait for a dip, but the next dip turns into a rout and he again
panics and sells at a loss. And so on, with constantly modified behavior.
This isn't a method, but some beginners actually trade this way. Most of
us probably have, to some degree. If you change your method in the middle
of a series of trades, you're not trading with a method. The results
will be much worse than random because we are motivated to switch and
change things after a drawdown, which in effect locks in the drawdown.
It's a cycle of moving from failure to failure as if we wanted it.
The changes typically focus on entry rules (selecting which trade).
A lot of new traders have a toolkit of half-baked ideas for entering
trades, and pretty soon something looks tempting enough to buy. But it's
not a plan to trade that entry consistently for 30 trades or 6 months.
There may not even be an exit plan on the downside or upside. He has
a Reason for being in the trade (it's not throwing darts) but he's
not trading with a selection method because the next trade will
have a different reason. I therefore think that lack of method is
a big cause of actual non-random losses.
>There is no such thing
>as a losing system, because if you did the opposite of a hugly negative
>expectancy system you would have a tremendously profitable one. All
>'losing' systems are really random market entry/exit, and taking or fading
>the system would end up with basically the same results given a large
>enough set. By the way this does not include paying too much for an option
>or arb trading. I am concerned here with postion taking with futures.
You lost me here. If random system (buy at random day and time, sell after
1 month at random time of day) has 50% winners and loses costs, and...
Bad system has 30% winners and loses 20 times costs, then...
How is the Bad System really random market entry/exit?
How would taking or fading the Bad System end up with basically the same
result?
>> 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.
>
>I disagree here. If one had enough money to stay in the game, in the end,
>assuming he/she never found an edge, what would be lost is commissions.
Yes, if trading is truly random. But the question here was why traders
go broke or lose more money and/or lose it more quickly than you would
expect at random.
>It is very difficult to find a method that overcomes these costs.
Not really. The "mathematical expectation" of one trade's profit has to
exceed the costs. The percent cost per trade is low. You wouldn't want
to even try a system with an expectation that low.
>It is also very, very difficult to make the next step you mentioned which
>is commitment to this method.
Yes.
>I do not think there is a beast luring people to the wrong side of trades.
The beast is us. After putting our best stuff into our plan, we start
seeing all the little reasons that this trade might not be so hot.
For non-intuitive traders, there are thousands of ways to lose and
one way to win: the method you created.
>Emotions make people act outside of their systems, but the worst trading
>one can do is random. If it were worse than random, it it merely the
>inverse of a winning system.
It can be worse than random, and not be the inverse of anything meaningful.
You can jump from system to guru to hotline, leaving each when it's been
a disappointment. You won't abandon something when it's making good money.
You'll switch when it has underperformed. As the switches pile up, your
track record will be a series of worse than random episodes. If you
switched after a winning streak, you would have a chance to trade better
than random. If you switched at a set time, say every 3 months, the
results would approximate random numbers. But that's not human nature.
Respectfully,
Wayne Moody
wlm95@xxxxxxxxxx
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