Pipskateer

What a shame that a nice thread which started off in such an interesting direction down "Informative Boulevard" has taken a disheartening and unneccessary detour onto "Pissing Contest Avenue." Ah well, we're all human, right? :doh: Let me add my then... Not looking to take any sides here, but maybe to refocus to a beneficial direction? I've never been a corporate professional or institutional trader who has ever worked at a bank or trading firm, but I have traded for my beans and tater money. I've also had the opportunity to learn some very valuable trading and money management insights from one of the very BEST traders in the institutional field. Take that information at face value or leave it. I have traded on/off for at least nine years. Much of that time was spent working with a highly focused group of like-minded Fibonacci traders of varying levels of proficiency and personal success. I still fondly consider every one of them as friends and colleagues, although I'm no longer an active member of that group. My trading career "AHA moment" came after a few years of pursuing the Holy Grail 100% NO FAIL System, finally culminating within the group I mentioned above. My personal revelation was not that the HG did not exist...but that it doesn't matter whether it exists or not, provided...you build your trading method on a foundation of mathematically profitable money management rules. Let's refocus on what really matters about trading, which is making consistent profits and KEEPING them. In that context, it really doesn't matter WHAT system you trade, where you got it, whether it is one you built yourself, or whether you purchased a "black box" system. What REALLY matters when all the dust settles is whether a particular system produces something called a "Positive Expectancy." Why do we hear that constantly-repeated statistic in the trading world about 95% of all traders failing? It's for one reason ONLY....it's that we are trading in mathematical combinations, largely unplanned, which are not resulting in a positive expectancy over "X" number of trades taken. I know that negative expectancy MUST be unplanned because no one in their right mind would knowingly set out to trade a losing system, right? Yet, the 95% failure rate still prevails. There is a fairly simple math formula for expectancy of a system. It is as follows: Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss) Put into practical terms, let's say over a series of 100 trades, your "system" produces 70% wins with winners averaging $100 profit per trade. You lose only 30% of the time with average losers of $250 per trade. Here is what your expectancy would be using the above equation: Expectancy = (0.70 X $100) - (0.30 X $250) Expectancy = $70 - $82.50 Expectancy = - $12.50 This is an example of a system with NEGATIVE Expectancy. Most traders never EVER bother to calculate this, nor do they know how. Did you also notice that the entire calculation depends on having amassed a sufficient number of sample trades whereby a probability or precentage of win/loss can be determined? How many traders actually do sufficient testing of their system to even come up with the input values needed to calculate expectancy? I suspect far too few ever get that far. :helloooo: Now that we have that foundation laid, we can begin to look at the reasons WHY a particular trader's results yield negative rather than positive expectancy. I believe there are basically two broad categories of trading styles which represent the extreme ends of the trading spectrum: Mechanical Traders and Intuitive Traders. All traders will fall somewhere between these two extremes, usually leaning more closely to one side or the other. The mechanical trader employs a systematic, (hopefully) fixed set of rules for trade entry and exit. The intuitive trader instead trades mostly by "touch and feel" relying on his/her internal intuitions about the market. There are successful and unsuccessful traders in both categories and in the hybrid grey area that lies in between, but I think there are far more mechanical traders who end up ditching their (proven?) system rules based on a sudden spark of "intutition" (emotion) which usually ends in disaster. Relying on an unproven sense of trading intuition is like a Japanese Katana blade in the hands of an amateur...it's more deadly to the user and spectators than it is to the enemy. Again, the deciding factor of ALL trader success or failure, regardless of whether one trades mechanically or by intution, is always, always, ALWAYS whether or not a particular trader achieves "Positive Expectancy". And how can that ever be reliably achieved if it is never proactively set forth as an informed, conscious, FOUNDATIONAL objective? I am of the mindset that successful intuitive traders are the rare breed exception and that such success is only achieved by those possessing a certain level of inherent ability and aptitude after much practice, honing of skills, and raw trial and error. Realistically, there just aren't that many traders who will ever be capable of trading profitably via intuition. Thus, it is my personal opinion that the overwhelming majority of traders would stand a much better chance of achieving positive expectancy if they would focus on developing the discipline necessary to trade within a well-defined rule-set, purposely constructed to operate within a framework of mathematically sound money management parameters. Most traders need to leave intuitive trading to those who are prepared and committed to do ALL that is necessary to safely master it. In that mindset, let's focus on a mechanical trading perspective from here forward. I believe that failure to achieve Positive Expectancy, speaking in the context of mechanical, fixed rules-based trading, is due to two very distinct possibilities. A. The trader, whether intentionally or unintentionally, is NOT following the system rules consistently, yielding results that fall outside of mathematically profitable money management parameters. B. The system rules are inherently mathematically flawed with regard to money management parameters by design. I think it's pretty much that simple. If the rules are mathematically sound, and the trader is not turning a profit, then he/she is fudging on the rules and is most likely shooting from the hip or failing to execute properly for whatever reason. If the rules ARE being followed properly and the trader is still not turning a profit, then the rules must be inherently flawed from a math/money managment standpoint. In either case, these errors should be uncovered by properly test-trading the system. I recommend demo trading first to validate proper trade rule execution before proceeding on to low-leverage live trading for the reality factor. Maybe I'm preaching to the choir...maybe I'm "Captain Obvious" here...but I'll boil this all down to the lowest common denominators. There are basically three "vital signs" of a mathematically sound trading process, REGARDLESS of the entry/exit strategy employed. They are: Reward To Risk Ratio Win/Loss Ratio Risk % Per Trade When the dust settles, when it's all over but the crying, whether you bought a black box system from a "scammer", or whether you built your own system from the ground up...ALL trading performance results, whether by intentional design or by unplanned default, are a function of a net blend of those three factors above. The only question is...whether the resulting blend of factors was the CAUSE or the EFFECT in the final expectancy value achieved. The most common reason that traders fail to achieve positive expectancy (besides not ever PLANNING for it by consciously building it into their process from the start) is that far too often traders have a lop-sided fixation with only PART of the overall expectancy equation. Specifically, they are 99.9% of the time usually bent towards considering the Win/Loss factors of a particular system they are enamoured with. The FACT is...trading with positive expectancy will only happen consistently when the trader purposefully builds the correct MIX of money management factors into the foundation of his/her trading plan, as opposed to tacking on money management as an afterthought. You must design your trading plan and system to incorporate the correct blend of Win/Loss, Reward/Risk, and Risk % Per trade factors FIRST and then come up with entry/exit criteria that fit into those paramerters. AND...you must decide on the blend of factors that best fit your psychological risk tolerances. For example, some traders could never tolerate trading a system that had a high losing percentage of trades even though the Reward/Risk factor was sufficiently high to produce net-positive expectancy. Still other traders could never perform under the pressure of utilizing a system that offered a very high win rate, but which had an inverted Reward/Risk profile where the losing trades were significantly larger than the winners. But no matter which trade entry system, or blend of money management factors "feels" psychologically tolerable to a trader, it won't matter one hill of beans if the net result is consistently negative expectancy. Anything less is just a hobby or a bad gambling habit. Do you know what YOUR expectancy values are over the last 100 to 1000 trades? You'd better... :missy: Sorry if I deviated from the OP's direction, but it seems that was already done several pages ago. I hope I've given you something of value to consider here.