Edge VS Mentality

[Sledge 13]

Blowfish,

 

I needed to make everything as real as possible so i fooled myself into thinking my paper account was my real account. Using only 1 contract at a time i could feel the rush of making a trade. This is obviously done after i have my strategy in place For all beggining traders out there treat paper accounts as if they are real accounts. Thats the only way youre gonna learn without losing "real" money. Use it as a educational tool to prepare yourself for the real world.

 

This is one of the best pieces of advice that ANYONE can read. If you new and trying to learn via Demo Trading- Trade it like it is real!

 

I have known people who launched Demo Accounts with far more capital than they could actually ever start their account with in real life- Why? Makes it a pointless excercise IMO.

 

I even talked with one trader while doing Demo's (this was in prep for utilizing a real account- so no time to be fooling around) that decided to buy 100 lots on a currency pair, said "oh it was funny, I was up like a half million and then was down like $1.5 million by the end of the day- it was funny!" I just looked at them and said "Hmm" That was a wasted day to actually learn something if you ask me.

 

Trade it like its real!

[jonbig04 10]

This is one of the best pieces of advice that ANYONE can read. If you new and trying to learn via Demo Trading- Trade it like it is real!

 

I have known people who launched Demo Accounts with far more capital than they could actually ever start their account with in real life- Why? Makes it a pointless excercise IMO.

 

I even talked with one trader while doing Demo's (this was in prep for utilizing a real account- so no time to be fooling around) that decided to buy 100 lots on a currency pair, said "oh it was funny, I was up like a half million and then was down like $1.5 million by the end of the day- it was funny!" I just looked at them and said "Hmm" That was a wasted day to actually learn something if you ask me.

 

Trade it like its real!

 

 

 

It is real....

[Sledge 13]

It is real....

 

You are 100% Correct. I explain to people that even if you are placing trades on a demo- it is the live market, it rips through your emotions of euphoria, fear, indecision, greed and countless others if you sit and watch it with a "live trade" in play.

 

When they still scratch their head at me- not understanding- I say "Look this isn't like a video game- where their is some pre-defined outcome" "Their is no princess to save at the end of the castle- and if you hit the right buttons or jump to the right mushroom- that their is one and only one way to "win the game." The only difference between a $2 Grand Win on a Demo and a $2Grand win on a live account is the fact that you decided to test a theory without risking the money for real- BUT BUT BUT- ONLY if you approach a demo- as if it were real $, you think long and hard about your trades, you plan and execute- just as if their was real $ on the line- not wanting to lose the "fake $" and take it JUST as seriously as if it were real. You'll get pissed if you lose $100 on a Demo, just as if you lost $100 for real!

 

My .02 on that!

Aaron

[jonbig04 10]

You are 100% Correct. I explain to people that even if you are placing trades on a demo- it is the live market, it rips through your emotions of euphoria, fear, indecision, greed and countless others if you sit and watch it with a "live trade" in play.

 

When they still scratch their head at me- not understanding- I say "Look this isn't like a video game- where their is some pre-defined outcome" "Their is no princess to save at the end of the castle- and if you hit the right buttons or jump to the right mushroom- that their is one and only one way to "win the game." The only difference between a $2 Grand Win on a Demo and a $2Grand win on a live account is the fact that you decided to test a theory without risking the money for real- BUT BUT BUT- ONLY if you approach a demo- as if it were real $, you think long and hard about your trades, you plan and execute- just as if their was real $ on the line- not wanting to lose the "fake $" and take it JUST as seriously as if it were real. You'll get pissed if you lose $100 on a Demo, just as if you lost $100 for real!

 

My .02 on that!

Aaron

 

I have the broken calculator, pencils, and twisted paper clips to prove that it's very much real to me lol:o

[Mindset 10]

Here is a simple test about the importance of edge vs mentality.

 

Pick a strategy that you know makes money eg open range breakout.

Write down entry , exit and stop parameters.

Trade EXACTLY according to this plan.

Repeat this exact trade 20 times.

 

It will make you money ( not necessarily in the 20 trades ) BUT do you have the mindset to do it?

 

95% of people cannot do this - If you think you can try a demo account if you like. But assess at the end of 20 how you did - and don't lie to yourself.

 

I have been trading full time for 6 years and never found anyone who can get to 20 without "interfering" with it!

 

So the edge is there, but the mentality to follow the chosen plan may prevent someone from adopting the correct behaviour modifications to become a successful trader.

 

What's important is NOT the edge - it's the ability to follow it.

 

For the first 3 years of my trading I thought the edge was the thing and it really isn't. Doesn't stop me constantly striving to develop a better mousetrap however!

 

Just to spur the conversation on however - to follow the plan you have to "own" the edge .... discuss.

[sevensa 10]

Your whole premise is based on picking a winning strategy. "Pick a strategy that you know makes money eg open range breakout."

 

Without that, your mindset is useless. If you don't have a winning strategy and follow the 20 trades exactly per the rules, you will have a great mindset, but still not be profitable.

 

What's important is NOT the edge - it's the ability to follow it.

 

A great mindset, will not turn a losing strategy into a profitable one, esepcially if you follow the rules 100%. You need both. An edge and the ability to follow it. Even your arguement assumed you start with a winning strategy to "test" your mindset.

 

This is like saying to be a Formula 1 champion, you just need to be a good driver and that the car is irrelevant.

[Head2k 10]

I came to conclusion that I cannot develop the proper mindset without consistently profitable strategy. I think that the proper strategy and proper mindset are closely bound together.

The proper strategy is the one you develop yourself, specify it to the least point and thoroughly test it. With this procedure you build the proper mindset - the confidnce in the strategy, flexibilty, readiness, sense for nuances.

I think that wrong mindset is often caused by laziness during building a strategy.

[wasp 10]

Its 50/50.

 

Without discipline, no matter how good the plan, you will fail.

 

Without a plan, no matter how much discipline you have, you will fail.

[Mindset 10]

I knew I shouldn't have done this.

 

Let me give you a winning strategy then. This is on the mini Dow.

 

Wait for 60 minutes from the day open.

Buy the breakout, sell the breakdown from the opening range.

 

Put your stop the other side of the range.

Close at end of day.

 

Now I am NOT saying that you will make money in 20 trades - but you certainly should not lose much. Most of the time you should make money (about 97% of the time). Trade it and develop it as you go along.

One thing I do guarantee though - you will be a much better trader at the end of the 20 trades than you were at the beginning.

 

"This is like saying to be a Formula 1 champion, you just need to be a good driver and that the car is irrelevant."

There is a certain misunderstanding here - of course edge is important. You must have a positive expectancy. BUT in my opinion gaining the right mindset has very little to do with edge and is MUCH more important in the long run.

To continue the analogy - this is a lifelong race, winners get to the end, 95% retire or crash- so does it matter if you drive a Mcclaren or a Ford?

[firewalker 10]

Its 50/50.

 

Without discipline, no matter how good the plan, you will fail.

 

Without a plan, no matter how much discipline you have, you will fail.

 

Also, if you have a plan where you're right 7-8 times out of 10 instead of 5/10, I think it's more easy to stay disciplined.

[Mindset 10]

Also, if you have a plan where you're right 7-8 times out of 10 instead of 5/10, I think it's more easy to stay disciplined.

 

"Fail to plan = plan to fail"

 

Also how can you objectively measure how you are doing/ whether you are getting there if you don't know what you want to do ( "make money " is not an objective - 200% gain on capital is).

 

From my minimal research I have found most traders hover around the 50-55% "right" mark. One or two very successful ones average about 40%.

 

I am talking long term averages here.

[DbPhoenix 42]

 

From my minimal research I have found most traders hover around the 50-55% "right" mark.

 

If that's the case, I'm not surprised that you've "never found anyone" with the necessary discipline.

[jonbig04 10]

The very successful traders I know are "right" about 30% of the time. Its about profit via R/R. Being right is pointless. IMO

[Mindset 10]

If that's the case, I'm not surprised that you've "never found anyone" with the necessary discipline.

 

You'll have to explain that comment dbphoenix.

I myself average 45% "right". You seem to be implying that your average is significantly higher? - if so I take my hat off to you.

[firewalker 10]

The very successful traders I know are "right" about 30% of the time. Its about profit via R/R. Being right is pointless. IMO

 

Have you personally tried trading something where you're right 50% or less?

I'm sure some traders "with the right mindset" manage to do just fine, but I'm not one of them. And I think that a lot of people would have much less trouble if they could trade something which means being right 80% of the time. Nearly all of the time that means trading less though, and being very very patient. And that's another matter

[jonbig04 10]

Have you personally tried trading something where you're right 50% or less?

I'm sure some traders "with the right mindset" manage to do just fine, but I'm not one of them. And I think that a lot of people would have much less trouble if they could trade something which means being right 80% of the time. Nearly all of the time that means trading less though, and being very very patient. And that's another matter

 

ha I'm right WAY less than that!!:rofl: But I'm sure there is no "correct" way, different personalities for different methods etc. However my R/R is what I keep in check so being wrong doesn't bother me.

[DbPhoenix 42]

ha I'm right WAY less than that!!:rofl: But I'm sure there is no "correct" way, different personalities for different methods etc. However my R/R is what I keep in check so being wrong doesn't bother me.

 

On the other hand, you've only just begun being mentored in whatever it is you're doing, so perhaps you ought to let all of this percolate for several months before drawing any conclusions.

 

Just a thought.

[zdo 20]

Isn't the win/loss ratio system / edge specific?

Certain systems do just fine at 30% W/L

Others need > 50%, etc

 

Finding just any old edge will not work. The type of system one can 'manage' / 'stick to' / 'implement the appropriate mentality' is determined long before he or she begins trading...One must find an edge that really fits him or her individually - at ‘true nature’ level. That is why I recommend not separating their discovery and development at all… not making one more important than the other because it seems first temporally or in priority.

grasshopper had to grab that pot with both forearms...

[jonbig04 10]

On the other hand, you've only just begun being mentored in whatever it is you're doing, so perhaps you ought to let all of this percolate for several months before drawing any conclusions.

 

Just a thought.

 

 

 

Thats true. Thats what I meant about being right way less than 50% . However I do believe being right second to being profitable.

[DbPhoenix 42]

However I do believe being right second to being profitable.

 

Theoretically. But most beginners will find it difficult to stick with a system that's right only 30% of the time, profitable or not. Which is where discipline becomes an issue. Discipline is far less an issue, if an issue at all, working with a system with a hit rate of 60 or 70% or better.

[Mindset 10]

DbPhoenix

Do you think it's realistic for a beginning trader to find a trading method that is 60% + right? And Profitable?

 

Maybe you have got to that great place with your experience but for a beginning trader I think that is unrealistic.

[Jaronimo 10]

A great mindset, will not turn a losing strategy into a profitable one, esepcially if you follow the rules 100%. You need both. An edge and the ability to follow it. Even your arguement assumed you start with a winning strategy to "test" your mindset.

 

This is like saying to be a Formula 1 champion, you just need to be a good driver and that the car is irrelevant.

 

 

Thats a great post, and so true. I think its pretty funny how many people focus on "edge" or "mindset" and think they have what they need. The reality is there is no single thing you can do in trading that will make you successful. Its a package deal. You need the whole package to become and stay successful long term in this business.

 

The other thing I think is funny is how people talk about how one thing is more important than the other. Not true in my opinion. Your Formula 1 example is a great, good driver, bad car, still equals loser. You gotta have the whole package.

 

I think there are two types of people, those that focus on what they are good at, and those that focus on what they are bad at. I personally focus on the mental aspect of the trading, because seeing an edge has always been easy for me, but I struggled with the mental/discipline aspect of trading for a while. So thats the part that I must stay ever vigilant with.

 

It sucks to blow out a weeks worth of profits just because you veered from your system and thought you could out-think the market. I have done that in the past, now I have a rule to keep that from happening. I have a post-it note next to my screen that says "Never try something new while the market is open" (I believe I got that gem from a Bill Eng book). What that means to me is if that revolutionary idea pops up during trading, write it down and check it out later to see if its valid. Something that simple has saved me tons of money. Enough here, I am getting off topic.

[Jaronimo 10]

DbPhoenix

Do you think it's realistic for a beginning trader to find a trading method that is 60% + right? And Profitable?

 

Maybe you have got to that great place with your experience but for a beginning trader I think that is unrealistic.

 

 

I would not get caught up with the percentage right. Whats 60% right today may be 70% right next month, and 40% right the month after that. Things change and go through cycles.

 

The edge that you gave up because it was 35% right could have huge profitability if used with the correct money management. While the edge that is 80% right may only pay out a few tics.

 

Go for the whole package, percentage correct is only 1 aspect of it.

[DbPhoenix 42]

DbPhoenix

Do you think it's realistic for a beginning trader to find a trading method that is 60% + right? And Profitable?

 

 

Perhaps if beginning traders weren't in such a rush to place their bets and spin the wheel, they'd have a more thorough and practical understanding of what's realistic.

 

But we're already at the point where people aren't reading the thread but beginning again, so what's being said has been said already, and repetition simply makes the thread longer still. So happy trading, everyone.

[jonbig04 10]

This thread and it's topic have never been far from my mind. I've been learning a lot in the past few months and I have drawn some conclusions. We all know that a trader needs both discipline and an "edge". But I still hold to my opinion that you really don't have to have much of an edge to make it as a successful trader, you just need to be completely disciplined. It's true that without any edge at all you will never amount to anything, but the simply fact is you don't NEED that much of an edge to be a successful trader. When I say successful, I mean a trader who can make a very good living trading, call it six figures a year. As far as I know, most traders don't do that. Don't get me wrong, my absolute end goal is to be able to read PA like a book and have impeccable discipline, but I maintain that this is an END goal. When I started this thread I scarcely knew any other traders. Now I know a lot of them. I've seen, with my own eyes, a trader make 7 figures in a day. I know traders who average well into six figures a week, I know traders who have never made a penny, and I know traders who average a hundred ES points a week on SIM, but can't make a dime cash. I know all kinds of traders! And its great because I can really take an objective step back and see where the problems are. The truth is very few hard working, PA based traders are making consistent good money trading. Despite the fact that they seem to know every kind of PA formation and can spot things that I could never see. To me its almost as if they are trading to learn PA, as opposed to making money. I'm learning to trade to make money. PA is just a vehicle on that road to profitability. It seems like a lot of traders are so bogged down because they are trying to "master" PA and its every aspect. Why? Why not just develop a system that makes, say 5 ES points a week, consistently week after week. Laugh if you want, but just do some basic arithmetic and if you slowly build your capital, you will find that soon 5 points a week trading hundreds of contracts can be pretty lucrative indeed.

 

While its true a lot of traders fail because they are looking for a shortcut in indicators, and don't want to put together a system and are basically...lazy. I really tend not to focus on those because it seems to me a lot of hard working traders are out there making no money. And I really believe that's because they spend their time trying to master PA as a whole, instead of using PA to eek out a slight edge and then maintain complete discipline in order to heavily capitalize off of that edge. Sure I want to master PA too, but for right now I just want to make a couple hundred thousand a year from home and to do that, all I need is slight advantage and complete discipline. When we get there THEN we can start trying to quantify every nuance of PA.

 

Maybe I'm wrong and all my peers are making six figures a year already, but I don't think so. If you aren't, yet you manage to make a few points a week consistently may I ask why?

 

Just my $0.02.