Edge VS Mentality

[ztrader 10]

In about 25 posts or so, we have read the two sides of the Edge vs Mentality.

 

Db advocated well the necessity for consistenly profitable trading strategy stating:

If you do not have evidence of a consistently profitable trading strategy, then your problem is not "psychology". It is not "discipline". It is not ego or greed or fear. Yourproblem is that you don't have a consistently profitable trading strategy. ... You have to have a consistently profitable trading strategy.

On the other hand, smwinc contended:

Some of the most consistent traders I know have particular setups, and they just don't really question it.

,,,,,,,,

I do NOT think the problem is exactly about having a profitable strategy. It's about having a profitable strategy, and trading that and only that.

 

Both have presented strong arguments on the EDGE and on the MENTALITY and both were nominated posts. The two posts in fact indicated that it is not a question of EDGE vs. MENTALITY, rather they raised the issue of which one should you have first.

 

MINDSET or what I also called PDF = patience - discipline - focus - is really hard to come by in the trading world as most are consumed searching for the so called and non-existing "holy grail" that by the time most come around to thinking or discussing about it, is when a trader is already struggling or have lost good amount of money, time, and effort in the quest for that "consistently profitable system"

 

The EDGE or CONSISTENTLY PROFITABLE SYSTEM is by enlarge, something that almost all commercial vendors of softwares and systems, and forum thread authors on systems and methodologies tout about everyday on their websites, email spam promotions, and postings. Db suggested that one should have evidence and to this I will add and say compelling evidence of a consistently profitable trading strategy. What are those evidences and when are they compelling enough? Well, there are talks about backtesting results, playback, still images of charts with marked entries and exits. Those are evidences; are they compelling enough to you? So, we go to past performances, proof of actual trades, and to some extent actual brokers statements or even push it to audited trading and bank statements. At the bottom of which we will see a disclaimer saying that "your results may differ or vary" or even lose your money using such system.

 

To accept any claimed of "consistently profitable system" you must be convinced that there is a compelling evidence. YOU have to judge it yourself right in front of your very eyes, clicking on your very own mouse for entries and exits, in real time, live data, with real money for sufficient amount of time. Now, here is where your MINDSET - patience, DISCIPLINE, and focus - will be TESTED. You now have to PROVE YOURSELF to the system that IT IS IN FACT without any reasonable doubt "consistently profitable system" that suits your style and resources.

 

I believe that these tell us that:

• without a claimed "consistently profitable system", we cannot really test if we have the trading disciplines to become a successful trader;
  
• without testing our trading disciplines, we cannot judge if we have a "consistently profitable system" to become a successful trader.
  

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.

 

smwinc also brought up something here of real importance when he wrote:

...consistent traders .... don't really question it.

Here, I believe he is referring to "faith" in your system. It so happened I read something last night along that line and let me quote here:

What is faith? It is the confident assurance that something we want is going to happen. It is the certainty that what we hope for is waiting for us, even though we cannot see it up ahead. [Hebrew 11:1]

That is FAITH. That is POSITIVE EXPECTANCY, a mindset a trader should have.

 

Db further alluded:

If you elect to view trading as a game, then don't be surprised at how much money you can lose and at how fast you can lose it.

I confess that I have compared trading to a game mainly, to football as an analogy in presenting levels of support and resistance or zones and the interactions between the two teams: the BULLS and the BEARS, on those lines of defense and offense. Also, trading has been called and is a zero sum game where we have winners and losers. Trading is also the only game where we make and break our own rules.

 

If instead you view trading as a business, then don't be surprised at the amount of time and effort required to make it a profitable one.

Trading IS IN FACT A BUSINESS not a game nor a job. There have been a lot mentions in passing that trading is a business yet there hasn't been an extensive discussion of it as such. Having been in business and management consulting, I have made the "development of a business plan" an integral part of my system and coaching program, from 3 days, 3 weeks, 3 months to 3 years and longer. I work with traders in my group "organizing" and writing up their "YOU TRADING, INC".

 

In treating trading as a business, there is no boss, you are on your own with no accountability other than to yourself. This is when and where the discipline in most instances "goes out the window". You may have disciplined yourself in the past with your exercise, diet, etc. With everybody telling you to spend countless hours of screen time, there is that temptation to let go of that good old habits and start forming new bad ones. Trading the market will constantly put you to test. You will have a lot PROVING TO DO, to yourself and no one else.

 

Best wishes and ENJOY!

 

ztrader

Edited August 7, 2008 by ztrader

[Guest forsearch]

Trading IS IN FACT A BUSINESS not a game nor a job. There have been a lot mentions in passing that trading is a business yet there hasn't been an extensive discussion of it as such. Having been in business and management consulting, I have made the "development of a business plan" an integral part of my system and coaching program, from 3 days, 3 weeks, 3 months to 3 years and longer. I work with traders in my group "organizing" and writing up their "YOU TRADING, INC".

 

In treating trading as a business, there is no boss, you are on your own with no accountability other than to yourself. This is when and where the discipline in most instances "goes out the window". You may have disciplined yourself in the past with your exercise, diet, etc. With everybody telling you to spend countless hours of screen time, there is that temptation to let go of that good old habits and start forming new bad ones. Trading the market will constantly put you to test. You will have a lot PROVING TO DO, to yourself and no one else.

 

Excellent points, ztrader.

 

I'm curious about your business plan for trading. Would you be able to point me to a resource that could get fellow traders like myself started on developing one?

 

thxs

 

-fs

[firewalker 10]

Excellent points, ztrader.

 

I'm curious about your business plan for trading. Would you be able to point me to a resource that could get fellow traders like myself started on developing one?

 

thxs

 

-fs

 

I know your question was directed at ztrader, but this might be an example:

 

It's from someone I knew at another trading site.

Trading Plan Template.pdf

[DbPhoenix 42]

The EDGE or CONSISTENTLY PROFITABLE SYSTEM is by enlarge, something that almost all commercial vendors of softwares and systems, and forum thread authors on systems and methodologies tout about everyday on their websites, email spam promotions, and postings. Db suggested that one should have evidence and to this I will add and say compelling evidence of a consistently profitable trading strategy. What are those evidences and when are they compelling enough? Well, there are talks about backtesting results, playback, still images of charts with marked entries and exits. Those are evidences; are they compelling enough to you? So, we go to past performances, proof of actual trades, and to some extent actual brokers statements or even push it to audited trading and bank statements. At the bottom of which we will see a disclaimer saying that "your results may differ or vary" or even lose your money using such system.

 

To accept any claimed of "consistently profitable system" you must be convinced that there is a compelling evidence. YOU have to judge it yourself right in front of your very eyes, clicking on your very own mouse for entries and exits, in real time, live data, with real money for sufficient amount of time. Now, here is where your MINDSET - patience, DISCIPLINE, and focus - will be TESTED. You now have to PROVE YOURSELF to the system that IT IS IN FACT without any reasonable doubt "consistently profitable system" that suits your style and resources.

 

I believe that these tell us that:

• without a claimed "consistently profitable system", we cannot really test if we have the trading disciplines to become a successful trader;
  
• without testing our trading disciplines, we cannot judge if we have a "consistently profitable system" to become a successful trader.
  

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.

 

There appears to be an underlying assumption that one is using somebody else's strategy. This is not what I was referring to. The "consistently profitable trading strategy" is one which the would-be trader develops himself. It is not something which one obtains somewhere else. Given that many if not most beginners obtain strategies from elsewhere, if buying a book or a course or a manual or a seminar or software with little red and green arrows were all there was to it, then the success rate would be far higher than it is.

 

If one does not have the patience and/or the discipline and/or the focus to develop his own trading strategy, it is unlikely that he will have the patience, etc, to follow somebody else's. And whereas considerable faith might be required in the latter case, the only faith required in the former is in one's ability to follow the procedure.

 

As to "knowing" oneself, there are questions that have to be answered, like how much time do I have to devote to this. But this is not the same as the introspective quest for enlightenment which is implied in these discussions. If the answer to this question is "not much", then the would-be trader is already well on the road to reaching some sort of conclusion.

 

As to a "business plan", yes, such a document is handy, and the process of completing it is valuable. However, it has been my experience that most people who create these frameworks are so pleased with themselves from having written the list of things to do that they bask permanently in the glow of having written the list but never actually do many -- or any -- of the things they've listed. Which is why I suggest cutting to the chase of developing the strategy itself.

 

It is through the process of creating/developing his own strategy that the trader learns something directly -- not by proxy -- about how price moves, how his indicators act, how his software and datafeed and trading platform behave. This trader doesn't have to take anybody's word for anything. He needn't have "faith". He avoids putting himself in the position of wasting money on what turns out to be nonsense. And he can do it all for so little money that it amounts to a pittance. But he has to be willing to pull up his socks and walk the journey. Otherwise, he may as well just open up his wallet and say "here".

[zdo 20]

It's all Edge

It's all Mentality

 

it’s all ‘strategy’

it’s all ‘psychiology’

 

C’mon guys - It’s a continuum! Only a few on the tails will be able to just concentrate on one and ignore the other. Most have to go up the middle of them and work both of them. Everyone is different and each individual will have more challenges in some aspects than in others. A long time ago, ‘Mike’ Douglas stated that he had only trained one beginner who was ready to go apply an edge right out the gate. Every one else had pre-existing “psychological damage” ( his term ) that needed to be addressed first. Even if he has encountered a few more since then, it confirms the industry statistics of a pretty high failure rate…

Db you are right about ‘learning directly -- not by proxy’ and ‘faith’ But I have to disagree with you slightly. From the sounds of it you’re one of the exceptions; but for most a modicum of pre-existing “psychological damage” needs to be addressed first before one can perceive with enough clarity to begin to formulate a ‘self derived’ strategy / edge.

 

“The key to understanding the difficulties of instigating change is understand the role of subconscious habits... The important point to be understood is the degree to which the process of stimulus – response is handled by the subconscious. The widespread conviction that the process is dealt with directly by the conscious part of the mind, and that emotions are therefore only ‘fall-out’ from the process is essentially false… the strategy for dealing with the original stimulus is … formed within the subconscious part of the mind…It is only after this point that consciousness enters the process. Conscious thought will be used to determine the details of the response – that is, to determine the appropriate tactics” From The Psychology of Technical Analysis by Tony Plummer (pg 232).

Basically, each of us brings a quantity and quality of pre-existing habits and biases to the table that will forever condition our responses and adaptability. These should be brought to awareness and neutralized very early in each person’s trading career or most don't stand a chance of discovering and or applying a functional strategy. Doing this is only a minor issue for some, important for others, and absolutely crucial for still others.

Db your counsel from out in the tail is appreciated by all – but most traders have to go up the middle – dealing with both ‘strategy’ and ‘sychiology’ at the same time.

[jonbig04 10]

This has turned into a great discussion. What I do find interesting is that I don't think anyone has agreed completely with Douglas who basically says, while edge IS essential, correcting your way of thinking is, to put it in his numbers, 80% of the battle to profitability and even someone with mediocre technical knowledge can succeed if he has mastered his emotions. It doesn't really matter. Either way I think we all can agree we that both are essential. I just thought it was interesting that no one just flat out agrees with him.

[DbPhoenix 42]

Basically, each of us brings a quantity and quality of pre-existing habits and biases to the table that will forever condition our responses and adaptability. These should be brought to awareness and neutralized very early in each person’s trading career or most don't stand a chance of discovering and or applying a functional strategy. Doing this is only a minor issue for some, important for others, and absolutely crucial for still others.

 

Db your counsel from out in the tail is appreciated by all – but most traders have to go up the middle – dealing with both ‘strategy’ and ‘sychiology’ at the same time.

 

All of this has to do with implementing the strategy, not with creating/developing it. Since most beginners skip these initial steps, I suggest that they don't "have to go up the middle" but rather elect to do so.

 

Developing a strategy is rather cut and dried. All of the angst about proving that one is not the loser that everyone thinks he is (or whatever psychological tarpit one elects to stir up) can come later.

[DbPhoenix 42]

This has turned into a great discussion. What I do find interesting is that I don't think anyone has agreed completely with Douglas who basically says, while edge IS essential, correcting your way of thinking is, to put it in his numbers, 80% of the battle to profitability and even someone with mediocre technical knowledge can succeed if he has mastered his emotions. It doesn't really matter. Either way I think we all can agree we that both are essential. I just thought it was interesting that no one just flat out agrees with him.

 

You're being selective. Have you read Zone in its entirety? What is the first principle of consistency?

[firewalker 10]

You're being selective. Have you read Zone in its entirety? What is the first principle of consistency?

 

The first one is the easiest one(*).

 

I've seen people have a lot more trouble with the fourth, even if they have a consistently profitable strategy:

"I act on my edges without reservation or hesitation."

 

I'm not talking about myself here, but I'm not afraid to admit I have troubles in certain areas as well (but pulling the trigger isn't one of them).

 

(*) In case someone needs their memory refreshed, here are all 7:

http://www.traderslaboratory.com/forums/blogs/firewalker/170-the-seven-principles-of-consistency-douglas.html

[DbPhoenix 42]

The first one is the easiest one(*).

 

I wouldn't call it the easiest one. That one little sentence can take months out of your life. If you're lucky.

[jonbig04 10]

You're being selective. Have you read Zone in its entirety? What is the first principle of consistency?

 

No I haven't read "Zone" yet. I have it, and will read it when I'm finished with "The Disciplined Trader". I do not feel that I am being selected. I didn't take the quotes from above out of some random chapter in the middle of the book, but directly from the beginning section entitled "Why I Wrote this Book". In that section he says "There must be a difference between these two groups of traders (he's referring to the 95% that blow their accounts and the 5% that end up with that money)-the difference is that that traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from a mental discipline. When asked for their secrets of success they categorically state that they didn't achieve any measure of consistency in accumulating any measure of wealth from trading until they learned self discipline, emotional control, and the ability to change their minds to flow with the market" he goes on to say (later in the page)...all traders experience confusion, frustration, anxiety, and the pain of failure. The few traders who pass through this phase to accumulate wealth are those who eventually confront and work through some very difficult psychological issues about what it means to be a trader..."

 

 

I didn't start this thread just for the hell of it. I am new to trading, but I am not new to the dedication it requires to become disciplined and be successful at something. I started my first company 3 years ago. I have made and lost substantial amounts of money. I've experienced great success in starting my second company and have watched it build up around me in the form of friends, multiple houses, and pride. I've also watched everything I created evaporate into thin air. I've felt the anguish and frustration of gaining everything, only to lose it a couple years later. Its quite something to build and easily afford a house worth just under a million dollars, and less than 2 years later wonder where your next meal is going to come from all before the age of 21. I didn't say all this for you sympathy or praise, only to try to differentiate myself from the 21 year old who got off of his mom's couch yesterday from playing xbox and suddenly decided to day trade because it seemed lucrative. No. I am trying to dig through what trading is about to get to the very bottom. 95% of traders blow their account, I would guess their are a few more that make a decent living or break even. That's great, but it's not what I'm interested in.

 

I am interested in the ones (since this is a zero sum game) who take the majority of the profits from the 95%. I'm sorry, but if you're making $100,000 a year, while that's a great accomplishment there is still something missing. I don't know the math, but I'm guessing (given the 95% rule) there is a ridiculous amount of money going out the door everyday in futures markets. There has to be. If you are taking full advantage of that (i.e. in the top 5%) you have to be raking it insane sums of money. Douglas himself says that. If you are not, then you are probably in the 95% or some other smaller percentage who break even or make a tiny fraction of what is really being made. You might say "oh making six figures in trading is almost impossible, if you think you can get to that or past it you are sorely mistaken". Maybe you are right. Maybe I never will. But I will tell you this: somebody is. I want to do, what THEY do. I want to trade how THEY trade. Having said that I think that just maybe Douglas had it right. Maybe most "successful" traders think they are disciplined when in fact they never fully addressed their mental set backs and because of that they are limited to breaking even or making 100k a year when there is far more than that to make. Maybe not. I don't know, but I'm trying to find out. I find it interesting that almost no one agrees with douglas, but if he's right how could they? If he is correct than 95% or more people won't agree with him. The people that would don't care to because they are off on their yacht drinking scotch (that was just at tempt to lighten the post).

 

I've posted this question on other boards too and get even more disagreement. Of course I do realize that the fact that he is disagreed with doesn't make him right...but it is what would happen. I don't mean any disrespect to anyone, I am just trying to get tot he very very bottom of what this is all about, and I think that's important.

[firewalker 10]

I wouldn't call it the easiest one. That one little sentence can take months out of your life. If you're lucky.

 

For sure it can take a long time. I'm not questioning that.

But I've talked to some people who, despite having a very decent profitable strategy, are unable to perform when it's with real money (just to give an example). Developing an identifying an edge can definitely take hundreds or thousands of hours. Not to mention throwing it all away and starting again from scratch for several times.

 

Overcoming those psychological difficulties are often not a matter of "time", but more of something more fundamental that needs changing. That on the other hand is something that perhaps cannot be 'learned' in the literal sense.

[Sledge 13]

Defining an edge is, IMO, not the easiest one. Sometimes you get a legitimate edge and then tinker with it to make it better- by the time you are done "tinkering" you are completely removed from the initial "edge" and then you actually lose the edge.. been there, done it!

[DbPhoenix 42]

For sure it can take a long time. I'm not questioning that.

But I've talked to some people who, despite having a very decent profitable strategy, are unable to perform when it's with real money (just to give an example).

 

And that's the time for all the psychological mumbo-jumbo. But this is something very different from claiming that the battle is won through mental health rather than with a consistently profitable strategy. Which may be why Douglas's first principle of consistency is placed first. If you haven't objectively identified your edge(s), then where have you to go?

 

Beginners read that entries aren't all that important, that exits matter much more. So they focus on their exits rather than their entries. And they learn what "death by a thousand cuts" means.

 

Or they read that they needn't have a high hit rate. Doesn't even have to be better than 50/50. And their R:R ratio needn't be all that much. All they have to worry about is "cutting losers short" and "letting winners run". So they plug away with a 30 or 40% hit rate and an R:R of 1.5:1 and think that the reason they're doing so badly is because they're not disciplined enough.

 

If one can't define his edge, then I suggest, again, that that is where he should look before undergoing therapy. If he has all his ducks in a row and still can't make it work, then by all means bring on the shrinks.

[firewalker 10]

And that's the time for all the psychological mumbo-jumbo. But this is something very different from claiming that the battle is won through mental health rather than with a consistently profitable strategy. Which may be why Douglas's first principle of consistency is placed first. If you haven't objectively identified your edge(s), then where have you to go?

 

Beginners read that entries aren't all that important, that exits matter much more. So they focus on their exits rather than their entries. And they learn what "death by a thousand cuts" means.

 

Or they read that they needn't have a high hit rate. Doesn't even have to be better than 50/50. And their R:R ratio needn't be all that much. All they have to worry about is "cutting losers short" and "letting winners run". So they plug away with a 30 or 40% hit rate and an R:R of 1.5:1 and think that the reason they're doing so badly is because they're not disciplined enough.

 

If one can't define his edge, then I suggest, again, that that is where he should look before undergoing therapy. If he has all his ducks in a row and still can't make it work, then by all means bring on the shrinks.

 

I agree. The things you enumerate, are also the things I read about first. Things like you can make it even when you only win 1 out of 3 trades. Theoretically you can, when faced with the markets and real money it's a different ballgame. The same goes for those other things. No argument from me there.

 

Unfortunately when, after all the hard work and after all the time you put in, you finally come up with something that gives you a decent profit on a consistent basis, without risking too much that you feel uncomfortable about putting a trade on, you are still not disciplined enough to follow your plan to the letter, then what should the trader do?

 

It might be mumbo-jumbo for some, and at first I figured that's true. You don't need psychology to tell you how to define a strategy. But you might need it to help you understand why you aren't following your plan, why you are overtrading when you shouldn't, why you are having trouble pulling the trigger, why you have abnormal 'days' where you lose self-control, etc, etc,...

[Nvesta81 10]

I have my own theory that the reason most people fail in this business is because they are under-capitalized. Finding an edge is one thing, but can your account handle the draw-downs? No system is %100. Having the patience to trade through draw-downs is devastating to the psyche and perhaps that is where most mistakes are made (doubling up on contracts to make up for losses etc... )

[DbPhoenix 42]

 

Unfortunately when, after all the hard work and after all the time you put in, you finally come up with something that gives you a decent profit on a consistent basis, without risking too much that you feel uncomfortable about putting a trade on, you are still not disciplined enough to follow your plan to the letter, then what should the trader do?

 

It might be mumbo-jumbo for some, and at first I figured that's true. You don't need psychology to tell you how to define a strategy. But you might need it to help you understand why you aren't following your plan, why you are overtrading when you shouldn't, why you are having trouble pulling the trigger, why you have abnormal 'days' where you lose self-control, etc, etc,...

 

As I said, if one is unable to follow a perfectly good strategy once he has it in the can, then looking within is a perfectly legitimate course of action (or inaction, if one is coming over all introspective). People engage in all sorts of self-sabotaging behaviors, and not just with regard to trading.

 

But hand-wringing and commiseration do not make up for the lack of a profitable strategy. If more beginners were to put in more time on that particular front, the amount and degree of hand-wringing would likely be far less.

[ztrader 10]

OK, it's NY martini lunch time and I am done with my trading. Db, you are a rare bird. By that I mean, you maybe in the upper ranks in the 10% bracket of successful traders.

 

There appears to be an underlying assumption that one is using somebody else's strategy. This is not what I was referring to. The "consistently profitable trading strategy" is one which the would-be trader develops himself. It is not something which one obtains somewhere else. Given that many if not most beginners obtain strategies from elsewhere, if buying a book or a course or a manual or a seminar or software with little red and green arrows were all there was to it, then the success rate would be far higher than it is.

To believe that a trading strategy "which would-be trader develops himself" is "consistently profitable" without putting it through the real time testings I outlined in my previous post, is absurd and naive. There is no such thing as "automatic touch down" just because you [meaning traders] call the play. This applies to those obtained from third parties by most beginners or even by experienced traders [as in years of trading] as many are still struggling and looking for an answer. Here again, there is no guarantee that the "success rate would be far higher". No two or more traders using the same and let's call it "consistently profitable system" will trade the same way nor get the same results. Unless, trade order signals with entries and exit at the same prices are given. There are still so many variables that come into play in reality trading.

 

As to a "business plan", yes, such a document is handy, and the process of completing it is valuable. However, it has been my experience that most people who create these frameworks are so pleased with themselves from having written the list of things to do that they bask permanently in the glow of having written the list but never actually do many -- or any -- of the things they've listed.

In the true sense of a "business plan", and I only touched on this because it was brought up, it is considered the "bible", the official operating document in the corporate world, franchise businesses, and a structured small businesses. This is also an "imposed" discipline on accountability where executives and managers are expected to adhere to. It is not a just "list of things to do:. A trading plan is only a component of this. I am not implying here that traders should develope an extensive business plan.

 

 

It is through the process of creating/developing his own strategy that the trader learns something directly -- not by proxy -- about how price moves, how his indicators act, how his software and datafeed and trading platform behave. This trader doesn't have to take anybody's word for anything. He needn't have "faith". He avoids putting himself in the position of wasting money on what turns out to be nonsense. And he can do it all for so little money that it amounts to a pittance. But he has to be willing to pull up his socks and walk the journey. Otherwise, he may as well just open up his wallet and say "here".

Agreed. But one should still put it through the same reality testing or it would just be pure fantasy. If one "needn't have "faith""; how can one execute the entries and exit consistently everyday and be consistently profitable?

 

I am not really here to debate this topic. We all have brought up before the readers some items to take into consideration in their journey in this rough world of trading the market to become successful traders.

 

Here to everybody's success in their

.

 

Best wishes and ENJOY!

 

ztrader

[OAC 10]

I have my own theory that the reason most people fail in this business is because they are under-capitalized. Finding an edge is one thing, but can your account handle the draw-downs? No system is %100. Having the patience to trade through draw-downs is devastating to the psyche and perhaps that is where most mistakes are made (doubling up on contracts to make up for losses etc... )

 

Nvesta81,

Here what Linda Bradford Rasche has to say about mechanical systems in her article on Tape Reading:

 

"I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who where able to make a steady living for themselves with a mechanical system. (I am not counting the well-capitalized CTA's who are running a money-management program with "OPM" - other people's money.) All those other traders used some type of discretion that invariably involved watching the price action at some moment - even if just to move a stop up or down.

If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative. You may have heard the saying, "The only truth is the current PRICE." Your job as a trader will become ten times easier once you accept this. This means ignoring news, opinions, and personal biases "

[atto 20]

She must not hang out with the algo guys much. I think this is off topic, because obviously we're talking about non-automated trading in this thread, but I personally have a couple algos that do well, and I personally know a trader who cleared 8 figured last year, 100% auto. It's not for everyone, and it's not easy at all. Neither of us sell our stuff, and I know how guarded he is about his strategies.

 

Beginners should absolutely not expect to be able to use a "black box" to make good money. However, it's possible (I've only seen it work on custom algos, not bought).

 

edit: I received a PM about this. Here was my response (and let's keep this kind of talk out of this specific thread from now on, because it's not really on topic):

There aren't many great information sources for algo trading, and to be honest, I would never recommend it to a newbie. The reason is that many newbies see it as a short cut, and end up on quests for holy grail after holy grail, without even meaning to. Several retail forex web sites are big into this, and I'm not convinced anything you'd find there is worth while.

 

I'd say trade as normal, and after you're profitable and have been trading for a while, see if you notice any market tendencies that could be automated.

 

It's much more work than you think to get something of quality, and my discretionary equity curve is a whole lot cleaner. The 8 figures trader I mentioned traded manually for many years first.

Edited August 7, 2008 by atto

[DbPhoenix 42]

To believe that a trading strategy "which would-be trader develops himself" is "consistently profitable" without putting it through the real time testings I outlined in my previous post, is absurd and naive.

 

I agree. The procedures I've detailed elsewhere are essential. A strategy isn't automatically profitable simply because it's home-made.

 

If one "needn't have "faith""; how can one execute the entries and exit consistently everyday and be consistently profitable?

 

Experimentation, testing, analysis, verification. And doing it all over again if the results are unsatisfactory. All of which is, of course, something different from having the "faith" to implement the plan. But that has nothing to do with the plan, assuming that there is a plan and that's it's worth implementing.

[zdo 20]

Basically, each of us brings a quantity and quality of pre-existing habits and biases to the table that will forever condition our responses and adaptability. These should be brought to awareness and neutralized very early in each person’s trading career or most don't stand a chance of discovering and or applying a functional strategy. Doing this is only a minor issue for some, important for others, and absolutely crucial for still others.

 

Db your counsel from out in the tail is appreciated by all – but most traders have to go up the middle – dealing with both ‘strategy’ and ‘sychiology’ at the same time.

zdo

 

All of this has to do with implementing the strategy, not with creating/developing it. Since most beginners skip these initial steps, I suggest that they don't "have to go up the middle" but rather elect to do so.

 

Developing a strategy is rather cut and dried. All of the angst about proving that one is not the loser that everyone thinks he is (or whatever psychological tarpit one elects to stir up) can come later.

 

If one can't define his edge, then I suggest, again, that that is where he should look before undergoing therapy. If he has all his ducks in a row and still can't make it work, then by all means bring on the shrinks.

 

That is so sensible and so reasonable – but I disagree. I’ll say it again DB. I think you’re an ‘outlyer’ (actually you are more like an ‘outhonester’ ) who believes you are in the central stddev’s and thinks that most will have your same general set of challenges – :haha: ‘typical genius’.

 

It is a mistake to delay the ‘mental’ work for the follow-up / clean up / tarpits / emotional crap encountered in execution after one has developed a strategy – until the things you have aptly described as “unable to follow a perfectly good strategy once he has it in the can” and “People engage in all sorts of self-sabotaging behaviors” occur. I’m saying that most need to do both ‘edge’ work and ‘mental’ work concurrently – FROM DAY ONE! You are making a huge mental jump by saying that one should never deal with ‘sychicological’ issues until a strategy is developed or until issues come up. Why? By discounting each person’s preexisting dispositions and patterns and accentuating focus on studying and mastering market action only, by discouraging beginners from bringing to awareness the unconscious beliefs they bring to their ‘research and development’ that will literally shape what they are able to perceive and develop, by encouraging them to forever accede to that pre-existing set of limitations – you are actually shepherding them into the herd of loosers :helloooo: instead of possibly speeding them through strategy creation a whole lot faster with some of that “unnecessary” “introspection” (did you do some and forget you did it ???). And btw, the kind of mindful awareness I’m encouraging has little time or room for “psychological mumbo jumbo”. Be aware that you are giving ‘mental’ side advice by advising beginners to ignore the ‘mental’ side. I too am giving ‘mental’ side advice by advising beginners to start in the middle and give both sides adequate energy each ‘developmental’ day… else… at best...

most "successful" traders think they are disciplined when in fact they never fully addressed their mental set backs and because of that they are limited to breaking even or making 100k a year when there is far more than that to make.

jonbig04 (who was quoting ‘Mike’ Douglas ?) ...and at worst...

[jonbig04 10]

Sorry for the mix up...Mike, Mark, Mel..what can you do? haha. I wasn't quoting Douglas directly there, just making a postulation of my own. If you ARE in fact in control and have a sound method, shouldn't (like I said in my journal a second ago) the number of contracts be arbitrary?

 

EDIT: I'm not making suggestions as though I am right, I'm just trying to get the very bottom of trading by asking questions.

[Paul71 10]

Nvesta81,

Here what Linda Bradford Rasche has to say about mechanical systems in her article on Tape Reading:

 

"I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who where able to make a steady living for themselves with a mechanical system. (I am not counting the well-capitalized CTA's who are running a money-management program with "OPM" - other people's money.) All those other traders used some type of discretion that invariably involved watching the price action at some moment - even if just to move a stop up or down.

If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative. You may have heard the saying, "The only truth is the current PRICE." Your job as a trader will become ten times easier once you accept this. This means ignoring news, opinions, and personal biases "

 

 

Good post.

 

The critical area is 'a' price(s), SR, which are the decision(s) point(s), then there are the runs inbetween (i hope i'm not talking dihorea).

 

It's the effeciency around SR with proficient order management that creates differences in profits between different traders....and that's just the consistently profitable traders.

 

There are no edges, just better observations, it's all in the mind. (Better traders are born, Firewalker:o)

 

IMHO!

[ztrader 10]

There are no edges, just better observations, it's all in the mind. (Better traders are born, Firewalker:o)

 

IMHO!

 

Yes, there are edges including "better observations"; better understanding of the market, its players [bulls and bears], and its footprints [price and levels], among others. Even those who weren't born better traders , can acquire the knowledge and training to become one either by your own self or with the help of others.

 

ENJOY!

 

ztrader