Suggestions for mastering speculation

Just had another thought about the point I was trying to make above.

Consider these two scenarios and imagine each trader makes money OVER ALL.

Trader A: Win:Loss ratio is 90%.

Whether or not you perceive what I am about to say as a sign of arrogance: I am not used to losing. This is what having a strategy that regularly delivers winners does for you. I have my technique down to an extent now that I can get scores of winning trades back to back (and not talking about 20 tick gains either). The problem is, because you are not used to losing and it comes as a surprise - it is hard not to get confident and decide to take that extra risk (either over leveraging or running stops) when you get a good setup you believe in. This is why as most of the big traders e.g. Livermore, Niederhoffer, the Market Wizards lot et al, say that you are at your most vulnerable when you are doing your best. Confidence leads to aggression. Aggression leads to risk taking. Risk taking leads to attachment to results. And that leads to a regression to the mean (or far, far worse) in your P&L.

Now take Trader B: With a win loss ratio of 40%

Well, this trader is aware that his profits come from those trades that run but he is also very aware from his rather dismal win/loss ratio that he has no idea what trades are going to be winners and the probability is high that the next trade will be a loser. This trader doesn't get confident - his ratio won't allow him this luxury and as a result he doesn't overleverage or run stops because his expectation is that he will lose. So this traders account grows consistently.

When I first came to work as a professional, a big trader looked at my results and my trades and said to me "the problem with what you are doing is that it works too well - you need to watch yourself". I had no idea what on earth he was talking about - how can something work too well?? It's what we all want right??!

Well, as I said, it is my opinion that traders with lower win/loss ratios will do better. Looking over my history which is getting fairly decent and statistically reliable now, the periods in which I am taking more losers, always leads to a gentle, steady increase in account over time. The periods where I am winning left, right and centre, leads to a parabolic increase followed by a parabolic drop and creates an equity chart that looks like the Wheat market

Many people advise positive visualisation and confidence in trading. This might work well for Trader B but I think that it's a disaster for Trader A. Trader A needs to try and convince himself that he is always a recovering loser. Alexander Elder says something very similar in "Trading for a Living" by drawing a comparison to recovering alcoholics. A recovering Alcoholic must never think they are normal again - this gets them in the mindset that having a drink which normal people do, is fine and gets them back on the slippery slope. They must always remember what they were. I think that is sound advice.

http://www.trade2win.com/boards/trad...g-trading.html

Its not win/lose ratios. It's emotion and ego and until eradicated, it will hinder.

The correct mindset.

super thread, you boys are determined to keep me the right side this time

appreciated mucho

thanks for the link rols :-)

not enough reppppy points to go round

have a good week

Andy