solfest

Read Trading in the Zone, Enhancing Trader Performance, Trade Your Way to Financial Freedom, and Way of the Turtle.

You mean GB007.

I thought the "dramatic verbage" was the best part.

bobcollett I have the same problem.

An edge is an edge. You either have one or you don't. If you do then all you have to do is stick to the plan. I do realize there are a myriad of reasons why doing that is so hard.

After a few years of trading I have come to the realization that the key to winning is all in my head. This is a psychological battle with myself. The market participants are irrelevant. There is no giant war against the big banks or hedge funds or you my fellow independents. The game (war sounds so nasty) is me against me. Or as I once penned Bad Solfest against Good Solfest. I have an edge and the key to success is to only trade within that edge. Good Solfest follows that plan, Bad Solfest wants to make up new rules every time he has a losing trade. Bad Solfest tries to play everyone’s game, Good Solfest only wants to play his game. Let me put this another way, wander over to your bookshelf and pick up your well thumbed copy of Trading in the Zone, by Mark Douglas. Douglas has a great analogy on page 102 about casinos. He states a casino has a 4.5% edge over all the players in the game of blackjack. A small edge. The casino is very confident in their edge, they don't question it, they don't get concerned if they lose money to some players. They know they have an edge and if the game is played by their rules they will win in the long run. How do they know this? They have stats, millions and millions of games played. They know. If someone comes into their house and tries to change the rules (they call it cheating) they take them into a room with no windows and break their kneecaps. That's how we know if we want to play we have to play by their rules. We also know that if we play enough we will lose and they will win. Why people play a game with that reality is beyond me. Or is it the same reason people keep trading even though they are losing money every month? The successful trader has to be "the house". The game has to be yours not someone else’s. It's your game because you set the rules, your plan is the rule book, and you have set the standards for the game. There are two issues that must be done right in order for your "casino" to be profitable, your plan must have an edge and you must never deviate from the plan. How do you know what your edge is? Stats, stats, and more stats. It's all you have; it's the only way to know. Do you have them? If you don't have the stats to back up your plan and you are trading live you are a dead man. You are not the casino, you are the drunk tourist from Hoboken, and let me repeat, you are a dead man. Get the simulator out of the closet and get yourself a database of trades that means something. If the edge is not there with the current plan you have some work to do. Now let's assume the stats are there, the edge is solid, now all you have to do is execute. Why is that so hard? Recency bias? We humans are stupid? No, no that's a little harsh, we're just emotional, and the emotions that come roaring out when we are dealing with money are ego, fear, and greed. How do we combat these emotions? How do we act like the casino with the small edge? We keep our stats and we measure our success based on something other than money. We know what we have to do, so let's measure our success on how well we do it. It’s our game and we keep the score. The game is not scored by profit or loss but by how many plan certified trades you take. You lose points by missing qualified trades and by taking muts (made up trades). You can figure out the scoreboard any way you want along those lines. Make adherence to the plan the only thing that matters. You are the house, the casino, so when you let the other players into your establishment make sure you only play against them by your rules. If you cheat (don't play by your own rules) I will come to your house, take you into a windowless room and break your kneecaps.

Just for fun let us consider 3 different trading days, days that we have all lived through if we are in this business of trading. These days could happen any time in no particular order. So let's just call them all Mondays, Mondays that start off 3 different and random weeks in the year. Monday #1) We start off our day with a winning trade, let's say net $300. We followed our system, we took the signal, and we were rewarded with a winning trade. The next signal comes along and we enter again, result, losing trade net -$100. Signal again, loser again net -$100. Signal again, loser again net -$100. Day ends with the net result of, ZERO. Monday #2) We sit in front of our computer for the entire day, we see no signals and we do nothing all day. Day ends with the net result of, ZERO. Monday #3) We start off the day with a valid signal and a losing trade, net -$100. Next signal, net -$100. Next signal, net -$100. Next signal, aha, a winner for $300. Day ends with the net result of, ZERO. Now you may say, Solfest those results and outcomes are all the same, all ZERO. True the results are all ZERO but the outcome I'm talking about is what happens the Tuesday after one of those random Mondays. Let's start with Monday #1, our first trade was a winner, we have started the week demonstrating the genius we know we are. We then proceed to see all that genius disappear throughout the rest of the day. We end the day feeling defeated and angry. Now comes Tuesday, first trade is again a winner, ya baby, the next signal comes along and.... we don't want to push the button, we remember Monday, we don't want to lose those profits again, we don't want to lose this feeling of genius again. We don't push the button. In fact we don't push the button again all day, we have our little genius in the bank and we're not letting go. What happens that day? You know, it's a given, all the signals work and you would have made thousands not hundreds. Ok now Monday #2, we have sat for an entire day, that's right one whole day, and done nothing, nothing. It's terrible, we are a trader we should trade. People ask what you did today, answer, I did nothing. Now comes Tuesday, again no signals, no signals, no signals, almost a signal, ah close enough, I've seen this work before, let's go, nothing ventured nothing gained. Result, loser. Is there a worse result then a non signal loser? Yes, a non signal winner. That leads to more non signal trades as I am now smarter than the market, smarter than my system, I am a genius discretionary trader. I have read about these people, they can feel the market. Right? Wrong, the result ultimately is a string of losers with no rational thought behind any of the trades. Lastly, Monday #3. We followed our plan and we were rewarded. We took our losers and we stayed focused and "traded our way out of this mess". Surely this means I have arrived as a trader. Now Tuesday. First trade loser, second trade, loser, third trade, loser, fourth trade, loser, fifth trade, loser, BLOODY STUPID MOTHER OF ALL &!&@%$&!%. Solfest smashes new 24 inch monitor with coffee cup and quits trading for a month, or changes the trading plan for a month because it obviously doesn’t work, or does any number of other juvenile things. Of course the next month would have been the most profitable month his system has ever seen. So, our 3 Mondays all had the same result, ZERO, but our 3 Tuesdays all take different turns based on the different ways we got to ZERO on the previous Monday. Sound familiar? What do we do? I have often thought that I could hire a 12 year old, train him to follow the blue bars, pay him minimum wage to sit there for the 5.5 hours, offer him a $20 bonus for every valid signal he takes, and deduct $20 from his pay for every non valid trade he takes. I think the 12 year old's trading results might be better than mine. (gasp) So maybe what we need to do is frame our trading success or failure outside monetary results. Not a new idea I know. The question is how? I have tried to grade the day based on how well I followed the system. But soon I stopped the grading and just looked at the money. Maybe it has to be tangible, remember humans are stupid. We like shiny things, but they cost alot of money. Hmmmm, what else do humans like? Sex and food. That's it, no sex on days with non valid entries. (Freudian slip) Ah but that would be punishing your innocent spouse, hehe, only a man would say that. Ok then, food. Every day I follow all signals perfectly I go out and buy myself an ice cream treat of some kind. That starts the anticipation chip in our brain, we want the ice cream at the end of the trading day. The kicker is we must deny ourselves the ice cream if we fail to follow the plan. So that’s my new reward system. Like a dog, do a trick, get a treat. It's "stupid" enough it just might work

Before I answer that statement let's have a look at why people want to be traders. 1) They can't sleep. 2) They just got fired. 3) They have never been hired. 4) They want to make lots of money. 5) They know a guy and he....... 6) They don't like their boss. 7) They don’t want to be "corporate". 8) They want to work when they feel like it. 9) They can do this work from the beach. 10) Women love traders. Now let's have a look at what I think it takes to be a successful trader, or more precisely to become a successful trader. 1) A complete understanding and acceptance of risk management. That's it? Ok let me flesh that out a bit. I used to work as a lender in a bank. Banks have a department called risk management. The people that wind up there usually did not do so well in the sales (lending) side of the business. I wonder if they still call it sales? Never mind that's another topic. Where were we? Oh yes risk managers, risk managers are generally men who are old, bald, ugly, have no friends, and don't do all that well in social situations. They are most comfortable in their 17th floor cubicle where they do not see any human life form other than their comrades. What does this have to do with trading? Nothing I just like making fun of risk managers. No no no bear with me here. So I as the lender in the bank meet a client, the client tells me a very long story about why they need money for this great business idea they have. I fall for it hook line and sinker and spend the next 2 days writing up a credit request that I send to risk management. Now the fun begins. One of my "partners" in risk calls me up to "discuss" this proposal, they start out nicely enough as they have been taught to do after the Johnson incident. Then they forget all that partner crap and really start laying into me. Insufficient net worth, no current ratio, no experience, tough industry, won't withstand a cyclical downturn, debt service ratio too weak, why would I send this piece of crap down here and waste their time, how long have you been in this business you stupid moron. All righty then. Is there a point to all this? There is, I have to stop crying first. Ok, I'm better now. Let's get back to trading. So I'm all set up, charts, broker, front end, Mark Douglas in hand, and now I see a "trade", WHAM I pull the trigger, SLAM hits my stop in 3 seconds, WHAM go again, I am a day trader and I am fast baby, SLAM hits my stop in 7 seconds, and on and on we go. Now let’s add risk management. Remember all those annoying questions? How much capital do I have equals my position size. How many losing trades am I allowed to take? How many winning trades before I stop? What is that based on? What are my stops? When do I stop trading, daily stops, weekly stops, monthly stops, and on and on we go. This is the reason why you should not be a trader. You are the risk management department. In banking the lender cannot be the risk manager or bad things happen. In our business the trader is the risk manager, and, bad things happen. YOU MUST PRESERVE CAPITAL. In my opinion that is the first and last thing all traders must think about. Not charts, not set ups, not what will I do with all my profit. Capital preservation. It's not sexy, it's not fun, it's not exciting, and it has rules, rules that must be followed or you’re fired. In other words it's everything that you hated about your other job. If you want a fun, exciting, and sexy job try on line poker. If you want to be a trader/risk manager shave your head bald, insult all your friends until they leave, stop bathing, wear polyester, and sniff constantly.

I trade crude oil and have always used a BE + 1 stop. I am only trading one contract and do not use a target for exiting the trade. So I find that getting to BE helps to give me some "emotional capital" to stay with the trade as it is now theoretically risk free. I have not done the statistical analysis I should have on this but my memory database (which is flawed) keeps the BE move in the plan. I am trading range bars and go to BE + 1 after 13 ticks, the size of the range bar traded. http://tradingcrude.blogspot.com/