Edge VS Mentality

[DbPhoenix 42]

I think you’re an ‘outlyer’ who believes you are in the central stddev’s and thinks that most will have your same general set of challenges.

 

Not really. But here are a couple of books in which you might be interested:

 

Reality Therapy

 

A Guide to Rational Living

[jonbig04 10]

"The Disciplined Trader" is a great book. I don't say that lightly, as I've read A LOT of books, but its amazing to me how he is able to identify and explain human behavior in the market. If anyone hasn't read it I really encourage you to do so, it really will open your eyes to the reasons we act the way we do while trading..or a lot of other activities for that matter.

[Head2k 10]

I will offer my newbie's point of view: This debate is pointless. Without a winning strategy your discipline won't save you. Without discipline your strategy won't save you. How can you recognize a good strategy if you dont have the discipline to follow it completely? How can you recognize if you are being disciplined if your strategy is vague?

 

If your strategy is losing but at least precisely defined, it should be much less difficult to disclose its weakness. The worst one can have is IMHO a vaguely defined strategy, because then you are not able to define if you are being disciplined and thus you are not able to unfold if it is the strategy or your discipline being responsible for your vanishing account.

[Kiwi 16]

Correct Head2k,

 

People seem to argue one side or the other as though the major legitimate authors etc don't get it. But they do - at least on the psych side. None of the psych side argue that psych without a strategy will do a blind bit of good (Shull, Douglas, Steenbarger, Kiev).

 

It may be that there are people on the "you need a good strategy" side who believe that there are no psych issues to deal with if you have a solid tested strategy. I'm not certain of that but I've heard it said that anyone who doesn't think that they have issues with fear etc simply has never traded big enough. I favour that view.

 

We do seem to get into these "my view is more valid than your view" arguments though. Who knows why? Perhaps because they don't work with the market? Perhaps its because internet forums without argument get boring?

[Bearbull 10]

I will offer my newbie's point of view: This debate is pointless. Without a winning strategy your discipline won't save you. Without discipline your strategy won't save you. How can you recognize a good strategy if you dont have the discipline to follow it completely? How can you recognize if you are being disciplined if your strategy is vague?

 

If your strategy is losing but at least precisely defined, it should be much less difficult to disclose its weakness. The worst one can have is IMHO a vaguely defined strategy, because then you are not able to define if you are being disciplined and thus you are not able to unfold if it is the strategy or your discipline being responsible for your vanishing account.

 

Precisely, we appear to be going in circles. Initially we all jump into the trading arena attracted by the prospect of making easy and very lucrative living, then embark on the hopeless search for the holy grail, some macho guys who have made it in other businesses are under the impression that because they have been successful in other areas that they can walk into this field and achieve control and milk the market., Have known a few with property portfolios of over 1-5million who have blown away their accounts in a single day trading S&P when 1pt was $500, thinking that if they made money with a couple of contracts, they should be able to do it with 10 or 50 or even 100 contracts, citing the famous example of walking on a plank of wood 4ft wide by 30ft in length placed on the ground first and then raised progressively first 50ft above ground, then 100ft and so on, assuming if the first task can be achieved , then the subsequent ones should not pose much problems with some mind control, it is easy to say but in practice well;)

 

You are right, after the fruitless search for the holy grail or a system or a methodology that will "WORK", the wannabe trader hopefully realises that it is only he or she who can make it "WORK" then muster enough motivation and discipline to embark on the task of formulating a strategy with rules, followed by thorough testing and proving to him or herself whether it is consistently profitable or not (making the required modifications along the way) and then working on the mindset and discipline part to implement that strategy.

When Douglas talks about successful traders having discipline and flexibility to go with the "FLOW" of the market, first one has to learn to understand the price action to figure out which way the market is likely to FLOW:crap:

[Head2k 10]

I am a newbie and currently I am in that "holy grail search" phase. Well, I do not search the holy grail exactly, but I am learning different approaches and diffenent angles of viewing what is happening in the market. I believe only a few newbies actually really search the holy grail per se. I believe that the most of them, like me, are going through different methods to find the one that suits them, that they can preliminarily believe and which they want to build their strategy on. And even even if they find one, they search more. There could be some another method or approach worth implementing. It is like in other branches. You first learn the basic knowledge of a lot of things related to your occupation to form some base, and then you specialize and work up in a narrower field.

[ztrader 10]

I will offer my newbie's point of view: This debate is pointless. Without a winning strategy your discipline won't save you. Without discipline your strategy won't save you. How can you recognize a good strategy if you dont have the discipline to follow it completely? How can you recognize if you are being disciplined if your strategy is vague?

 

If your strategy is losing but at least precisely defined, it should be much less difficult to disclose its weakness. The worst one can have is IMHO a vaguely defined strategy, because then you are not able to define if you are being disciplined and thus you are not able to unfold if it is the strategy or your discipline being responsible for your vanishing account.

 

Exactly my point. Very well said, Head2k.

 

So, ideally we have to marry the two and based on "KNOWING THYSELF and on our personal circumstances and resources, you can then decide which one you will give priority to. Either way you will need both to become a successful trader.

 

ENJOY!

 

ztrader

[DbPhoenix 42]

If your strategy is losing but at least precisely defined, it should be much less difficult to disclose its weakness. The worst one can have is IMHO a vaguely defined strategy, because then you are not able to define if you are being disciplined and thus you are not able to unfold if it is the strategy or your discipline being responsible for your vanishing account.

 

Exactly. Although something can also be learned if, when the strategy isn't playing out as it had been during the testing phases, one's first reaction is (a) "hmmm, I must have missed something; let's run this again" or (b) "oh god what a loser I am; my father was right after all".

[Kiwi 16]

or (b) "oh god what a loser I am; my father was right after all".

 

LOL :rofl:

[jonbig04 10]

It was never about which approach is better as if you can only use one (even though the title does make it seem that way) what every noobie should be looking for is why SO many traders fail, or at least, leave a boat load of profit on the table. I simply can't go about trading the way every single other person does when almost every single other person either fails completely, breaks even, or make modest amount of money. No I'm not looking for some holy grail. I don't expect some billionaire trader to come in and say "Oh you just have to use THESE indicators...". I expect the answer is much more complex and a lot less tangible than than. That's what this thread is about. Consider this:

 

"In a clash of the titans that is likely to be remembered for years to come,John Arnold took on Amaranth’s Brian Hunter last year in a battle over the direction of natural-gas prices. Hunter, the bull, got the horns when prices — along with his ability to trade out of the supremely dark corner into which he had painted himself — weakened in the summer. Arnold, formerly of Enron, squeezed his foe like a laundress wringing out a wet tube sock.

In the end,Arnold and his team of 10 traders — including right- hand man Michael Maggi and natural-gas guru Bill Perkins — walked away from the dustpile with a mountain of cash. Amaranth was wiped off the map.

Arnold claimed the bulk of the profits. He guided Centaurus to gaudy returns (on an estimated $2billion in assets) of 317 percent before fees. Apart from one “lousy”year (only 178 per- cent in 2005), the fund has always finished above 200 per- centsince inception in 2002.

 

 

Of course that is an extreme example, but you get the point. I had to disagree with DB when he said that it was simply that most noobie's don't take the time to develop a winning strategy. I'm sure this IS the case a lot of the time, but I'm not talking about Joe Schmoe looking for the holy grail and who thinks about trading for an hour a day, I'm talking about the people who study and study until their faces are blue, or the people who do have a method, but can only manage to bring in 100k per year. Of course he knows much much more than me and I have learned a lot from him, but I can't bring myself to believe that the difference between the average decent trader and John Arnold who's never had a less than +150% on billions is simply hard work (i.e. strategy development). That would be too easy. There are too many people willing to put in the work and time that simply don't achieve the millions that are left on the table each day in futures trading.

 

So I have to ask myself, what is the difference? I have a hunch, but will save it for later today.

[Sledge 13]

I will offer my newbie's point of view: This debate is pointless. Without a winning strategy your discipline won't save you. Without discipline your strategy won't save you. How can you recognize a good strategy if you dont have the discipline to follow it completely? How can you recognize if you are being disciplined if your strategy is vague?

 

If your strategy is losing but at least precisely defined, it should be much less difficult to disclose its weakness. The worst one can have is IMHO a vaguely defined strategy, because then you are not able to define if you are being disciplined and thus you are not able to unfold if it is the strategy or your discipline being responsible for your vanishing account.

 

Excellent points all the way around. To have one without the other is like swinging at baseballs being pitched at you in a dark room.. sometimes you'll get lucky and hit a ball or two.. but a lot of times- you are going to be in pain when those balls hit you square in the face.. and you never saw them coming!

[Sledge 13]

I'm talking about the people who study and study until their faces are blue, or the people who do have a method, but can only manage to bring in 100k per year.

 

IMO, the words "Only" and $100K" should never be placed together in a sentence. $100K a year will set you just fine if you are working some day job for $25K and a boss breathing down your neck every day.

 

Here is my thought with that being said. Even if you only have a $10K account to start- you can still make 150% returns-- if you have an edge, if you are diciplined to stick to that edge. If you are looking for the percentage- that can be achieved, if you are worried that because 150% to you is starting with $10K and ending the year with an account balance of

$25K vs. some mega trader whose 150% means he starts with $10 Mil and ends his year with $25 Mil- well he had to pay his dues to get there. He never walked into the market trading 1000 lots at a time making each tick or pip worth thousands of dollars.

 

There are too many people willing to put in the work and time that simply don't achieve the millions that are left on the table each day in futures trading.

 

Never worry about $ left on the table. If you make $1000 in a day- is that a good day? If you make $50 in one day- is that a good day? Trying to squeeze every tick out of a market is impossible. Is it possible to make educated entries and educated exits to bank money- absolutely. Lofty goals are great, to desire to be a successful trader who is a high roller- well, that is up to each individual and their desires.

 

Remember this: Before we ever took a step on this earth, we crawled first.

Aaron

[jonbig04 10]

IMO, the words "Only" and $100K" should never be placed together in a sentence. $100K a year will set you just fine if you are working some day job for $25K and a boss breathing down your neck every day.

 

Here is my thought with that being said. Even if you only have a $10K account to start- you can still make 150% returns-- if you have an edge, if you are diciplined to stick to that edge. If you are looking for the percentage- that can be achieved, if you are worried that because 150% to you is starting with $10K and ending the year with an account balance of

$25K vs. some mega trader whose 150% means he starts with $10 Mil and ends his year with $25 Mil- well he had to pay his dues to get there. He never walked into the market trading 1000 lots at a time making each tick or pip worth thousands of dollars.

 

 

You are right. Making a $100k trading is a great accomplishment, and to the people that do it you get kudos from me. However most people don't get there. You seem to be implying that the 100k trader is simply "paying his dues" and you may be right, but the statistics say over 95% of the time, you're wrong. That trader will usually blow his account, and if he doesn't he will stay in his comfort zone of 100k, trading only the amount of contracts that can handle without losing sleep.

 

 

Never worry about $ left on the table. If you make $1000 in a day- is that a good day? If you make $50 in one day- is that a good day? Trying to squeeze every tick out of a market is impossible. Is it possible to make educated entries and educated exits to bank money- absolutely. Lofty goals are great, to desire to be a successful trader who is a high roller- well, that is up to each individual and their desires.

 

Remember this: Before we ever took a step on this earth, we crawled first.

Aaron

 

 

I submit that, continuing with the crawling metaphor, the vast majority of people and traders never get up and walk. And walking is what I want to do and is what this thread is about.

[Paul71 10]

It was never about which approach is better as if you can only use one (even though the title does make it seem that way) what every noobie should be looking for is why SO many traders fail, or at least, leave a boat load of profit on the table. I simply can't go about trading the way every single other person does when almost every single other person either fails completely, breaks even, or make modest amount of money. No I'm not looking for some holy grail. I don't expect some billionaire trader to come in and say "Oh you just have to use THESE indicators...". I expect the answer is much more complex and a lot less tangible than than. That's what this thread is about. Consider this:

 

"In a clash of the titans that is likely to be remembered for years to come,John Arnold took on Amaranth’s Brian Hunter last year in a battle over the direction of natural-gas prices. Hunter, the bull, got the horns when prices — along with his ability to trade out of the supremely dark corner into which he had painted himself — weakened in the summer. Arnold, formerly of Enron, squeezed his foe like a laundress wringing out a wet tube sock.

In the end,Arnold and his team of 10 traders — including right- hand man Michael Maggi and natural-gas guru Bill Perkins — walked away from the dustpile with a mountain of cash. Amaranth was wiped off the map.

Arnold claimed the bulk of the profits. He guided Centaurus to gaudy returns (on an estimated $2billion in assets) of 317 percent before fees. Apart from one “lousy”year (only 178 per- cent in 2005), the fund has always finished above 200 per- centsince inception in 2002.

 

 

Of course that is an extreme example, but you get the point. I had to disagree with DB when he said that it was simply that most noobie's don't take the time to develop a winning strategy. I'm sure this IS the case a lot of the time, but I'm not talking about Joe Schmoe looking for the holy grail and who thinks about trading for an hour a day, I'm talking about the people who study and study until their faces are blue, or the people who do have a method, but can only manage to bring in 100k per year. Of course he knows much much more than me and I have learned a lot from him, but I can't bring myself to believe that the difference between the average decent trader and John Arnold who's never had a less than +150% on billions is simply hard work (i.e. strategy development). That would be too easy. There are too many people willing to put in the work and time that simply don't achieve the millions that are left on the table each day in futures trading.

 

So I have to ask myself, what is the difference? I have a hunch, but will save it for later today.

 

 

He couldn't stop Enron collapsing, so i guess JD Arnold isn't God, just another trader, but with more liquidity at his fingertips. Besides, he has a team,...there is no 'I' in team.

 

Tell you what, let's use Nick Leeson, in a conversation about stops.

[jonbig04 10]

"He's not God" is exactly what I'm saying, you are missing my point. I don't know anything about the guy, but I bet he didn't walk into Enron and they said "Oh here's 500 million dollars"... he started somewhere, just like us. But he can actually execute his strategy on ridiculous sums of money, he didn't cap out at 100k or breaking even. He pushed and pushed and eventually the amount of money he was risking didn't bother him. Ask yourself how you would feel after a down 10 million dollar day. I bet he had to go through it.

 

Contrary to what a lot of people have said I think its that indifference to money that I think makes the difference between a normal trader and someone like Arnold.

 

Trading is a business yes, but its unlike any business that I know of. Yes money is the bottom line, but its the fact that he probably didn't sit around and go "Oh no I have 10 million on this ohhh ahhhh" and pine over and over about it to the point where it affected his judgment probably made him be able to take huge bets and huge losses, and ultimately huge gains.

 

Money holds a distinct power over all of use and I think maybe releasing ourselves from its grip might be the key to large profits. We must respect it of course, but it is not our master. We control our profits and losses, they don't control us.

 

Maybe its this indifference regarding money that makes the difference between $100,000 per year and the 4 million dollars per day this guy can make.

 

Thoughts?

[jonbig04 10]

One more thing:

 

Ask yourself this. On Monday take your exact strategy and setup, but instead of trading your usual amount imagine you have $10 million on it. Do you act differently? Does it affect you? Think about it honestly. Does it affect you? If so I submit to you that there is mental work yet to be done which is what this thread is about.

 

I know it would affect me haha.

[Paul71 10]

One more thing:

 

Ask yourself this. On Monday take your exact strategy and setup, but instead of trading your usual amount imagine you have $10 million on it. Do you act differently? Does it affect you? Think about it honestly. Does it affect you? If so I submit to you that there is mental work yet to be done which is what this thread is about.

 

I know it would affect me haha.

 

 

Arnold had no edge, bud. He took his own wealth and knowledge, formed a team comprising of ex-Enron colleagues and probably thier asset worth, and exploited a once in a life time opportunity.

 

You'll never get that kind of edge, Jon.

 

That's fortunate opportunity, not edge, there's a difference.

 

Even Arnold would probably agree that what he did was opportunistic, and not an ongoing edge.

[jonbig04 10]

Arnold had no edge, bud. He took his own wealth and knowledge, formed a team comprising of ex-Enron colleagues and probably thier asset worth, and exploited a once in a life time opportunity.

 

You'll never get that kind of edge, Jon.

 

That's fortunate opportunity, not edge, there's a difference.

 

Even Arnold would probably agree that what he did was opportunistic, and not an ongoing edge.

 

 

You are still not focused on my main point. I just used Arnold as an example. He is just some arbitrary hedgie that I looked up and has no bearing on my point.

 

However just in my brief reading of his accomplishments I tend to disagree. He made Enron an estimated $750 million dollars. He then left after Enron collapsed and formed a hedge fund (with 5 million) that has made returns excess off 175%-350%(while managing first millions and then billions) since 2002. What you are saying is once in a lifetime has been occurring for the past 5 or 6 years. As far as I'm concerned, he's got some talent. But like I said it doesn't matter as that is just some arbitrary figure I used to illustrate my main point.

[Head2k 10]

I think in percents of my trading account. I dont have enough money to think in millions. Dreaming is nice, can be sort of a motivation, but one should be aware of reality. There is no mental work to be done regarding this issue for me. I have a very small trading capital and I can only rise it step by step. With my current experience, chasing a dream would mean a quick end for me. In the beginning I am quite lucky, as the initial steps down were smaller than if my trading capital was greater

[Nvesta81 10]

I posted a reply to this thread a few days ago and it must of got deleted, sorry if I offended anyone.

 

I'll try again. I think it's safe to assume that there's no mathematical formula that works consistently enough to predict stocks or futures, is this a reasonable statement to make? Now, being that no human on this earth can be more disciplined than a computer operating on strict rules before entering trades then one can only assume that there must be room for discretion in trading. To me, that is the contradiction I see often among traders. If you leave room for discretion that means you leave room to falt your own signals. At this point you can be the most calm and collected trader on earth, there's really no logical explanation one can give me other than "gut feeling" that would allow a trader to by-pass a trade that signals an entry that his backtesting and notes have classified as an edge. It just seems like you're all arguing in circles with this 'psychology vs edge' business. If a trader has specifically designed a system of trading by following strict rules that prove to give him an edge, then he must follow those rules each and every time with no exception otherwise the edge would be lost. It's simple logic really.

 

It seems clear to me, you either have an edge or you do not. Lets be honest here, if you know that your 'edge' has the potential to falter now and again, then it has the potential to falter a x number of consecutive times just enough to make you question if it's a valid method or not, at which point it's no longer a question of discipline but a question of hope.

 

I also find it kind of strange that it is rare that you see traders come out and say it plainly that they are making good money on a consistent basis by day trading, unless they are trying to sell something.

 

I hope this post doesn't offend anyone and gets deleted once more. I don't see how my skepticism can't be of some value to this thread. I don't see anything wrong with questioning the validity of the profession.

[jonbig04 10]

I posted a reply to this thread a few days ago and it must of got deleted, sorry if I offended anyone.

 

I'll try again. I think it's safe to assume that there's no mathematical formula that works consistently enough to predict stocks or futures, is this a reasonable statement to make? Now, being that no human on this earth can be more disciplined than a computer operating on strict rules before entering trades then one can only assume that there must be room for discretion in trading. To me, that is the contradiction I see often among traders. If you leave room for discretion that means you leave room to falt your own signals. At this point you can be the most calm and collected trader on earth, there's really no logical explanation one can give me other than "gut feeling" that would allow a trader to by-pass a trade that signals an entry that his backtesting and notes have classified as an edge. It just seems like you're all arguing in circles with this 'psychology vs edge' business. If a trader has specifically designed a system of trading by following strict rules that prove to give him an edge, then he must follow those rules each and every time with no exception otherwise the edge would be lost. It's simple logic really.

 

It seems clear to me, you either have an edge or you do not. Lets be honest here, if you know that your 'edge' has the potential to falter now and again, then it has the potential to falter a x number of consecutive times just enough to make you question if it's a valid method or not, at which point it's no longer a question of discipline but a question of hope.

 

I also find it kind of strange that it is rare that you see traders come out and say it plainly that they are making good money on a consistent basis by day trading, unless they are trying to sell something.

 

I hope this post doesn't offend anyone and gets deleted once more. I don't see how my skepticism can't be of some value to this thread. I don't see anything wrong with questioning the validity of the profession.

 

 

 

If what you're saying is true than no one would ever make money consistently from trading or investing. That's obviously not the case, and is not what I'm arguing for or against here.

[Nvesta81 10]

If what you're saying is true than no one would ever make money consistently from trading or investing. That's obviously not the case, and is not what I'm arguing for or against here.

 

The mere 5% making money might be speculating from fundamental information rather than a technical trading strategy. I'm not arguing that it's impossible to make money, clearly it's not, but I am arguing that having an edge is much more important than being the Yoda of trading. I am also questioning whether or not it is possible to define a 'technical' edge if you leave any sort of room for discretion. The 'force' doesn't work in the stock market.

[Paul71 10]

You are still not focused on my main point. I just used Arnold as an example. He is just some arbitrary hedgie that I looked up and has no bearing on my point.

 

However just in my brief reading of his accomplishments I tend to disagree. He made Enron an estimated $750 million dollars. He then left after Enron collapsed and formed a hedge fund (with 5 million) that has made returns excess off 175%-350%(while managing first millions and then billions) since 2002. What you are saying is once in a lifetime has been occurring for the past 5 or 6 years. As far as I'm concerned, he's got some talent. But like I said it doesn't matter as that is just some arbitrary figure I used to illustrate my main point.

 

 

:doh:

 

 

Arnold is an energy trader with dosh and an expert team around him. If that's an edge, then you've got no chance, sweet pea.

 

Good luck.

[Head2k 10]

I think it's safe to assume that there's no mathematical formula that works consistently enough to predict stocks or futures, is this a reasonable statement to make? Now, being that no human on this earth can be more disciplined than a computer operating on strict rules before entering trades then one can only assume that there must be room for discretion in trading. To me, that is the contradiction I see often among traders. If you leave room for discretion that means you leave room to falt your own signals. At this point you can be the most calm and collected trader on earth, there's really no logical explanation one can give me other than "gut feeling" that would allow a trader to by-pass a trade that signals an entry that his backtesting and notes have classified as an edge. It just seems like you're all arguing in circles with this 'psychology vs edge' business. If a trader has specifically designed a system of trading by following strict rules that prove to give him an edge, then he must follow those rules each and every time with no exception otherwise the edge would be lost. It's simple logic really.

While this sounds logic, I think it is based on wrong premises. There really is no mathematical formula that would predict a market, but there are some formulas that can predict the market with a certain degree of probability. There are automated systems which work. Chosing a discretionary system you can make room for your judgement. Some things are difficult to programe. Even a stupid trendline. But in most of discretionary systems some objective (i.e. which can be automated) component can be isolated. I think it is a good idea to define automated and subjective components of your system and study them separately. A filter "I won't enter if I have a feeling that something is wrong" can be IMHO a legitimate part of your strategy and you can study its performance. But these are just ideas of a newbie who hasnt found/developed his edge yet, so please take it with a grain of salt.

[Nvesta81 10]

While this sounds logic, I think it is based on wrong premises. There really is no mathematical formula that would predict a market, but there are some formulas that can predict the market with a certain degree of probability. There are automated systems which work. Chosing a discretionary system you can make room for your judgement. Some things are difficult to programe. Even a stupid trendline. But in most of discretionary systems some objective (i.e. which can be automated) component can be isolated. I think it is a good idea to define automated and subjective components of your system and study them separately. A filter "I won't enter if I have a feeling that something is wrong" can be IMHO a legitimate part of your strategy and you can study its performance. But these are just ideas of a newbie who hasnt found/developed his edge yet, so please take it with a grain of salt.

 

What you said does make a lot of sense and is a subject worth expanding on in my book. It's much easier to toss words around like edge and mentality but much more valuable to be able to define these things in-depth and see how they interrelate in specific circumstances as you just did. Good post.