Observations of a Noobie Trader for Other Noobie Traders

[MightyMouse 12]

I think you are making two erroneous assumptions MM:

 

1) That the trader opposite has deeper pockets than you, and can run a position to bluff you out of yours.

 

2) That "the guy who wants the money the most will win."

 

You are assuming (point 1) that my plan is easily defeated by someone who doesn't care about my plan. The point of my plan is that is has a positive expectation, and it does NOT always win. At SOME point the opposite number WILL get my money - but not ALWAYS. Don't assume that some hungry peasant is going to beat a good strategy EVERY time - they simply don't, and they won't. There would be no market if all the hungry-Jacks simply won every trade - they don't.

 

If there is such a player with deep enough pockets to run a position, then a trader who is trading "well" will protect a position by closing it at their predetermined stops, and reenter when the trigger signal is given. That is what I would call 'trading well' - and I can not see how that could be construed as "not wanting the money more than the opposite number"

 

The opposite number will only get your money if you fail to trade your plan - ie if you failed to stop when your rules say "3 ticks and get out". It then doesn't matter if he runs the trade 30 ticks - if you are not in the trade at that time, because of your skillful trading, he can be as hungry as billy-o and it won't allow him to touch one cent of your money.

 

My brain tells me that a trader who has a WINNING strategy will overcome a trader who just wants your money, regardless of how 'hungry' (read: greedy) he is.

He might win the a battle or two, but he can NOT win the war.

 

Strategy will overcome brute force.

 

I expect you will hold your line on this ... but so will I.

 

What is the point of developing a winning strategy, if all you need is the Bank of England behind you, and greed?

 

I am not suggesting that if someone else is against you that wants to make money you will lose. That is silly. You can certainly win too and you may be the one with deeper pockets. You may be the guy gunning for the stops for all that I know.

 

My point was that trading is all about money.

 

Furthermore, a trader who follows his rules to the tee runs a great risk of losing if his plan is flawed from the start. There are lots and lots of traders with flawed plans. Follow the rules and you are guaranteed to lose. I have discussed this elsewhere. Second to not having enough money, a flawed plan is the greatest reason that aspiring traders fail.

[Ingot54 13]

I am not suggesting that if someone else is against you that wants to make money you will lose. That is silly. You can certainly win too and you may be the one with deeper pockets. You may be the guy gunning for the stops for all that I know.

 

My point was that trading is all about money.

 

Furthermore, a trader who follows his rules to the tee runs a great risk of losing if his plan is flawed from the start. There are lots and lots of traders with flawed plans. Follow the rules and you are guaranteed to lose. I have discussed this elsewhere. Second to not having enough money, a flawed plan is the greatest reason that aspiring traders fail.

 

Ah yes - I do agree with you on that MM - if there is ONE secret to trading, it is that the plan must have an edge ... in other words, it must be flawless.

 

"Flawless" does not mean it must be the best. It just has to have a winning edge. It can be simple or complicated - doesn't matter - it just has to have a positive expectation, and then be executed well.

 

Which brings us around full circle - it does not matter if trading IS about making money - without a flawless plan, you won't make money. So the ogical step is to remove the idea of making money, and focus on what MAKES money ... and that is excellence in trading.

 

Trade well and the money will follow.

 

The chicken obviously comes first in this story (the chicken or the egg) - the plan has to be right and the money will follow. Money will not follow a flawed method.

 

Regarding those who want to take your money - I do not think it is fellow traders as much as it is the market maker who is the adversary ... if indeed there is one.

 

The markets we trade are very liquid - and that is one of the factors traders have going for them. It would take very deep pockets indeed to toss the Forex markets around ... or a very big mouth, in the case of the central bankers at news time!

 

In my battle against the pseudo-psychology that pretends to have the solution to trading woes, this would be an excellent point - the problem lies in a flawed plan, and in flawed trading methodology and strategy.

[Dcash 10]

Dcash,

 

In trading money is the only thing.

 

Money is the way you keep score in trading.

 

It is true that a lot of people get more out of trading than just money, which is probably a justification of not making money in the same way that blackjack players "enjoy" playing blackjack while the casino picks their pocket.

 

As a trader you have to learn how to take money from other traders before they take it from you. You are trading with other traders and collectively we all want you to leave your money behind when you exit a trade.

 

 

MM

 

 

I agree with most of the above (not that my agreeing means anything more like I understand most of it) but I do not get the taking money from other traders, I do not think that way, do i need to in order to trade well?

[MightyMouse 12]

I agree with most of the above (not that my agreeing means anything more like I understand most of it) but I do not get the taking money from other traders, I do not think that way, do i need to in order to trade well?

 

You do not have to think that way. But, if you don't take money from other traders where do you think it comes from?

[Dcash 10]

You do not have to think that way. But, if you don't take money from other traders where do you think it comes from?

 

I'm know that the money (in futures markets) is coming from other speculators and from institurions looking for insurance on outside buisness intrests (like an oil refinery that needs to know what their cost will be for crude in 2 months etc). I know all of this but in my mind i'm competing with the market ie price movement and while one needs to undestand herd mentatility to help predict the price movement I do not think in terms of taking money from other traders.

[emg 12]

You should start on figuring out the risk/reward based on your limited risk capital before creating your own system.

[Dcash 10]

You should start on figuring out the risk/reward based on your limited risk capital before creating your own system.

 

 

feel free to correct any error in the following (please)

 

risk/reward is figured out durring backtesting and as to creating my own system I'm trying not to spend my limited risk capital on buying a system (which have mixed results) but instead researching systems that are explaned on the web and testing the heck out of them.

[MightyMouse 12]

I'm know that the money (in futures markets) is coming from other speculators and from institurions looking for insurance on outside buisness intrests (like an oil refinery that needs to know what their cost will be for crude in 2 months etc). I know all of this but in my mind i'm competing with the market ie price movement and while one needs to undestand herd mentatility to help predict the price movement I do not think in terms of taking money from other traders.

 

You can think of it any way you like. Nothing will change the fact that when you enter a live trade, you are trading against other traders. You win if someone or some others lose. Someone else wins when you lose. You can suspect that when you enter a trade the rest of the traders, who are opposite your position, would prefer that you lose money to them. No one makes money if money isn't there to be taken.

 

I do not think it is critical to accept this to make money trading. Some people think of it as surfing or as a video game or whatever makes them feel better.

[Dcash 10]

You can think of it any way you like. Nothing will change the fact that when you enter a live trade, you are trading against other traders. You win if someone or some others lose. Someone else wins when you lose. You can suspect that when you enter a trade the rest of the traders, who are opposite your position, would prefer that you lose money to them. No one makes money if money isn't there to be taken.

 

I do not think it is critical to accept this to make money trading. Some people think of it as surfing or as a video game or whatever makes them feel better.

 

I can see that but is it also true that some of the money is coming from institutions that need the futures contract?

and infact the trader is providing liquidty to the market?

is that not in fact the base purpose of the futures market? and the fact that a lot of traders/speculaters are there is secondary to the purpose/primary volume driver of the market?

[MightyMouse 12]

I can see that but is it also true that some of the money is coming from institutions that need the futures contract?

and infact the trader is providing liquidty to the market?

is that not in fact the base purpose of the futures market? and the fact that a lot of traders/speculaters are there is secondary to the purpose/primary volume driver of the market?

 

Of course institutions use the futures market for other reasons than speculation. That doesn't mean that they enter randomly. It doesn't mean that they are right when they buy or sell or wrong when they buy or sell. All it really means is there is more size in the market. A lot of traders think that institutions are better informed. I don't think so, but that is just me.

 

Does it make you feel badly that the money might be coming from a small trader?

[Dcash 10]

Of course institutions use the futures market for other reasons than speculation. That doesn't mean that they enter randomly. It doesn't mean that they are right when they buy or sell or wrong when they buy or sell. All it really means is there is more size in the market. A lot of traders think that institutions are better informed. I don't think so, but that is just me.

 

Does it make you feel badly that the money might be coming from a small trader?

 

no not really but I do not think of trading as a competition between me and other traders, more like buying and selling cars at an auction, "buy low sell high" not "I can beat this guy out of his money". it is just that I do not think in those terms, not that I see anything wrong with that mind set, it is just that I do not have that mind set and hope I do not have to have it to be a sucessfull trader.

 

I view futures trading as providing a service and trying to do it as well as possable, the better I do it the more money I make.

 

if I sell a contract it is because someone thinks they will go up or is needing to cover an obligation (the reasons are not my concern) and at the same time I think that the price is going down or I need to take profits etc the same for the reverse position.

Edited March 8, 2011 by Dcash

[TheNegotiator 13]

I personally couldn't square myself with the whole trying to beat others rather than letting the market judge your technique and decision making mindset. I firstly don't like the idea of personally putting someone out of business and quite simply I would never be in that position anyway. Secondly I find it easier to view the market as an average view of many different traders. If I thought one specific trader was beating me, I don't think I'd like it. Maybe I misinterpreted what you were getting atthough MM.

[MightyMouse 12]

I personally couldn't square myself with the whole trying to beat others rather than letting the market judge your technique and decision making mindset. I firstly don't like the idea of personally putting someone out of business and quite simply I would never be in that position anyway. Secondly I find it easier to view the market as an average view of many different traders. If I thought one specific trader was beating me, I don't think I'd like it. Maybe I misinterpreted what you were getting atthough MM.

 

Sounds like you got it right.

 

What we like and don't like doesn't change the facts. Not likely that you are putting someone out of business, but you are taking money from someone when we win. It doesn't come from thin air. Its a matter of perspective.

 

Likewise, we can enjoy a good steak or hamburger without thinking about the fact that an animal was taken and murdered so that we can enjoy ourselves at dinner. Certainly, we wouldn't be the one to kill the animal, but we did pay someone to do it so that we would not have to get our hands dirty or figure out what to do with the rest of the meat until our next meal. So, we can look at it and say that it is meat, or we can look at the meat and understand where it came from.

 

MM

[TheNegotiator 13]

I feel this could be leading to an enlightening way of viewing our interaction with the markets. For example, I don't really like the way we deal with eating meat. I'm not a vege(not that there is anything wrong with that- just i'm not), but I think the way it come to us and such an easy come easy go attitude towards other life is perhaps not quite right. Maybe the way then to view the market when you win is to be thankful and let it register that you took someone else's money and when you lose to praise your opponents? Just a musing.

[Dcash 10]

Sounds like you got it right.

 

What we like and don't like doesn't change the facts. Not likely that you are putting someone out of business, but you are taking money from someone when we win. It doesn't come from thin air. Its a matter of perspective.

 

Likewise, we can enjoy a good steak or hamburger without thinking about the fact that an animal was taken and murdered so that we can enjoy ourselves at dinner. Certainly, we wouldn't be the one to kill the animal, but we did pay someone to do it so that we would not have to get our hands dirty or figure out what to do with the rest of the meat until our next meal. So, we can look at it and say that it is meat, or we can look at the meat and understand where it came from.

 

MM

 

I do not have an issue with taking money from someone else (play poker and other things) it is just that it does not motivate me and I have no interest in thinking that way. I have no problem with killing my meat also and have processed a lot of game animals in my day, but just like trading it is not killing for the sake of killing but more along the lines of this is the system and it requires X to survive so you do X as well as possible but in the end there is no animosity toward the other trader or the animal.

 

Sorry not really a good analogy and may upset some to boot. I guess my point is that I try to not look at trading as a zero sum game i.e. the future market allows lots of people to make money, yes some lose money at it but I do not feel that it is a pyramid scam that all the people making money are just taking it from the losers.

 

I see it as X needs to buy 1000 lot of Y in 2 months and needs to know how much it will cost them so that they can make product Z to sell to A in 3 months and know where to set their price to make a profit. They are looking for insurance that they can get 1000 lot of Y and are willing to pay someone else to assume the risk for providing the 1000 lot of Y at a fixed price. In this case there are no inherent losers just business opportunities and winning or losing is totally dependant on how well each does their job.

[Tradewinds 12]

Observation:

 

• When the problem is clearly, and consciously defined, THEN you start looking for the solution.
  

 

I've seen the same price behaviors a thousand times, but until I find the correct and descriptive words to define the situation, then I'm not really looking for the answer, and I won't find an answer. It's kind of bizarre when I think of how this process works. After intuitively, and subconsciously seeing a certain price pattern a thousand times, I can still not really have a conscious understanding of it at the "front of my mind". When the "light bulb gets switched on", and my conscious mind attains some higher level of understanding, I realize, that I "knew" of the situation all along, but it's almost like operating in a "dream state". It's like you can see something in the fog, you know it's there, but there is something clouding your perception.

 

If 90% of all people who attempt to trade never make any money, then I would guess that they never make it "out of the fog".

 

But I want to make a point here. I think it's important to define what you are experiencing. I don't do a journal, but that's why a journal would be so helpful. I do make a lot of notes and write things down as I get an "aha!" moment. I think that either a journal, or writing things down is a critical process.

 

Just tonight I figured out something new about trading. I wrote it down. Then, only a few minutes later, I re-read what I had written. I realized that part of what I had written, didn't make any sense to me. It made sense when I wrote it, but I had not described it very well. So I re-wrote it again. Then I re-wrote it again. Through that process, I am solidifying a very good definition of the market behavior, and wiring my brain to recognize the price behavior when it happens again.

 

And I may go back and read my note again, and refine it more. That process of trying to accurately define in words what you are thinking, experiencing and trying to resolve, is critical to getting out of the fog.

[Dcash 10]

Observation:

 

• When the problem is clearly, and consciously defined, THEN you start looking for the solution.
  

 

I've seen the same price behaviors a thousand times, but until I find the correct and descriptive words to define the situation, then I'm not really looking for the answer, and I won't find an answer. It's kind of bizarre when I think of how this process works. After intuitively, and subconsciously seeing a certain price pattern a thousand times, I can still not really have a conscious understanding of it at the "front of my mind". When the "light bulb gets switched on", and my conscious mind attains some higher level of understanding, I realize, that I "knew" of the situation all along, but it's almost like operating in a "dream state". It's like you can see something in the fog, you know it's there, but there is something clouding your perception.

 

If 90% of all people who attempt to trade never make any money, then I would guess that they never make it "out of the fog".

 

But I want to make a point here. I think it's important to define what you are experiencing. I don't do a journal, but that's why a journal would be so helpful. I do make a lot of notes and write things down as I get an "aha!" moment. I think that either a journal, or writing things down is a critical process.

 

Just tonight I figured out something new about trading. I wrote it down. Then, only a few minutes later, I re-read what I had written. I realized that part of what I had written, didn't make any sense to me. It made sense when I wrote it, but I had not described it very well. So I re-wrote it again. Then I re-wrote it again. Through that process, I am solidifying a very good definition of the market behavior, and wiring my brain to recognize the price behavior when it happens again.

 

And I may go back and read my note again, and refine it more. That process of trying to accurately define in words what you are thinking, experiencing and trying to resolve, is critical to getting out of the fog.

 

 

I agree and I have a like process but for me I observe then write code, test code and observe the results, then rewite the code observe etc. I find that I can describe things untill the cows come home but you must have a much clearer understanding of the action before you can code it.

[TheNegotiator 13]

I think it is important to recognise why the 'fog' is there in the first place. Is it because a trader isn't focused enough? Is it because their understanding of the market is unclear and so they don't actually know what they are looking for? Or is it because of the fundamental emotions that all traders experience in fear and greed?

 

These are some constituent parts that make up a trader's 'fog'. I wonder how many more there are? I also wonder, that as professional traders who look at fundamentals, technicals, strategies, money management, psychology etc., how many actually have a quantitative method for describing their own level and mental(/physical) state at any given time? Surely if they did, they would be better positioned to understand the 'fog' when it comes along.