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Dick Webb wrote:
>Does anyone have experience with asking yourself questions that lead
>to good answers?
As regards systems fine-tuning, no. As regards psychological shortcomings
which affect trading results, yes. For the benefit of those who are new to
trading, here is my offering.
Flashback:
Several years ago, I bet on pro football - excessively. After writing an
involved program to factor all the variables I felt were necessary, I
backtested a few years of data and decided to give it a shot with real
money. During the first 3 - 4 weeks of each season, my winning percentage
exceeded 75% (betting only $100 per game). Then I'd get cocky and forget
about money management and discipline - I'd start to bet $500 - $1000 per
game and that week I'd lose 5 out of 6 wagers. Then I'd have to suck it up,
go back to $100 - $200 per game, and spend the rest of the season sweating
it out right through the Super Bowl just to break above even for the year.
This cycle continued season after season, and even though my winning
percentage was over 60% each year, my bankroll didn't increase by more than
5% in all that time. To avoid the stress on my marriage, I decided to stop
gambling.
Fast forward:
Some years ago (and since my football gambling), I learned about a great way
to make money - commodities! After paper-trading for some time, and
backtesting several months worth of data in most of the markets, I decided
it was time to give it a shot with real money. Over the first 4-5 months, my
winning percentage was over 85% - then I got cocky, forgot about money
management and discipline, and decided to write a number of calls in a
market that decided it was time to explode. After giving back just over
half my account, I decided to go long a few contracts in feeder cattle. I
could have sworn there was about to be a fifth wave advance, but what I
thought was just a fourth wave correction never stopped - and neither did
the margin calls. After stampeding downhill for a few days, those cows
decided to jump off the edge - the gap down on that final morning's open
took the rest of my account and put me into debit. As a result of the
sleepless nights during the call-writing and nearly vomiting when watching
the feeders gap down, a number of questions occurred to me. Over the next
several months, I had to face a few hard facts about myself - so to get back
to the subject of questions, here are mine with the answers I had to
contemplate.
1) Do I rely too much on luck as opposed to skill? Answer: Yes
2) Am I trading or just gambling with my money? " : Gambling
3) Do I have a gambling problem? " :
Yes
4) Do I want to be a gambler or a trader? " :
Trader
5) What do I need to change? "
: Self-discipline
6) Have I ever demonstrated self-discipline? " : No
7) Is it possible for me to be disciplined? " :
Yes
8) Can I take responsibility for my trading results? " : Yes
I think it was Brent who once pointed out that doing what doesn't work over
and over again is the definition of insanity. If I ask myself those
questions now, the answers that need to be different are different, with one
exception: I still honestly believe I have a gambling problem, because it's
still hard to take those losses when I know I have to exit a trade that's
not working. I am disciplined enough to take the loss anyway, and I don't
risk an inordinate amount of my account on a trade. Maybe someday, I'll be
happy with all my answers to these and the other questions I haven't yet had
to face - I guess learning the truth about oneself is the biggest part of
becoming a successful trader and, more than even the potential profits, can
be the most enjoyable part of the game. The truth does set you free, but
only if you're willing to accept it.
Regards,
Dennis C.
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