Consolidated Response
Gone. But, I'll leave it in hopes that it helps those who were not silly.
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FetteredChinos:
“vector, in my opinion, a successful trade is one where you followed your trading plan to the letter. whether it made money or not is irrelevant.”
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Hmmm. So, even if I zero out my entire account balance and lose the shirt off my back – the trade was still a success, just as long as I followed my plan to the letter?
GammaJammer:
“I'd define it as one where you had a trade idea that fitted your trading plan, executed it in efficient manner, and achieved the desired outcome (i.e. there was money to be made on the trade and you took out as much money as was reasonably possible).”
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Ok - sounds like a very reasonable thing to me – especially the part about
maximizing. This sounds like it is all based on a trading “idea” that was generated in the first place. Does this mean then that “Decision Support” for a trade is based on “ideas”?
“1) Basic trade idea was not sound. (e.g. trade based on some assumption about the fundamental picture that is obviously flawed.)”
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Ouch! I used to do a lot of that before I understood the concept of DSS (Decision Support Systems). A lot of money is wasted in the market, I hallucinate, because of the human trait that we display called the “assumptive urge”. We make “assumptions” based on observations, not fully realizing in that moment that we are in fact “human”, and the impact that our humanness will have on both the object of our observation and in logical sequence any “decision” that we make subsequent to our analysis.
In other words, because we are human, we will make variant observations even when the object under observation
has not changed. This can only lead to variant “decisions” – which then lead to variant outcomes. Thus, the need for a DSS becomes even more critical in trading as it filters out any possible human variants from the decision making process.
“2) Poor execution. (e.g. procrastination when trade opportunity is identfied results in inferior entry point)”
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Solved by DSS.
“3) Money management rules not properly adhered to. (e.g. trailing stops not set properly, profit taken on whole position too early etc)”
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Well, is there not a distinction between Money Management and Trade Management? Money Management is 100% under the traders control because it only applies to pre-trade “decisions”. Whereas, Trade Management is not 100% under the traders control, because it applies to post-entry “decisions”.
So, the trailing stop, and exiting too early issues, would therefore fall under Post-Entry Trade Management. Anything that cannot be 100% controlled by the trader cannot also be a Money Management issue. Selecting the Initial Cost-Basis as a percentage of total account balance pre-trade is a Money Management task.
Building a Profit Model that contains: No. of trades over a specified period of time into the future, Cost Basis per trade, Gross P/L per trade, Net P/L per trade, running Trade Balance, Pip Value per trade, K-Value (lot sizing) per trade, and a running Balance Total – are all Money Management issues. Those things are all based on Starting Account Balance, a Fixed % Cost Basis, and an Average % Net Gain factor (pips expected per trade). These are all Money Management type issues because they all go to the heart of what the trader expects to gain in revenues over a specified period of time.
By the time one enters the trade – the Money Management tasks are completed. This is why there is so much confusion about the distinctions between Money and Trade Management. Trade Management cannot exist unless there is a system to manage.
“Not a great deal different to FC but I suspect I have a more discretionary approach to my trading and as such can't always be so certain when, or under what circumstances I am going to trade.”
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Yes – I understand. I think your level of “certainty” prior to
any trade that you make can be drastically changed when you start to deploy a true DSS to your trading routine. A good DSS should come complete with a
Probability factor that should give you the “certainty” you are looking for, one way or the other.
“In addition my aim is to leave at least part of the position open with a trailing stop, so I can't always talk about accuracy in terms of exactly how much I take out of the market on a given trade.”
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Yes – sounds like a great idea – locking in some “profit” (I call it revenue – same thing) while leaving a trailer behind just in case the close price move beyond your original expectations. I see that as a good practice, especially when one is not sure about where the structural limits exist for any given trade. However, if you could know those structural price limitations
before you entered the trade, you might be inclined to allow the entire cost-basis to move into the limit area before exiting and therefore maximizing your per trade potential.
“I think consistency is far more important than accuracy personally.”
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I’d rather be accurate than consistent any day of the week -
If I am accurate and my targets are by design plentiful in nature, then by definition “consistency” will logically follow. But, if I am not accurate to designed targets that are plentiful in nature, I can be consistently headed in the wrong direction. Accuracy must therefore, encompass consistency.
In other words, consistency is within the domain of Accuracy. I can be consistent and not accurate at the same time. However, it is much harder to be accurate and not consistent simultaneously – in fact, it is mathematically impossible.
Great post!
Rosemarry999:
“I don't know vector, why don't you us what YOU think delivers REAL accuracy.....(and que music....)”
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How am I doing thus far? Learn anything yet?
DonaldDuke:
"Forget trading for accuracy .. trade for expectancy"
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Read it – don’t agree with all of it – for the above reasons given to GammaJammer.
If I lack accuracy, then my Predictive Model will reflect that. If my model is built
only on the resolution of historical and empirical data points that track to high levels of accuracy – then that will be reflected in the outcome of the model.
My expectancy (and you make a very good point) is based in what, therefore?
The expectancy has to have a
premise in order to be consistent with fact (historical fact). So, long before I can get to expectancy, I have to first develop a premise which is based on some kind of model AND that model (if it is to be a good model) should have at its core, the highest level of accuracy available to it.
So, in a sense you are right (I think) in that when you trade – you do indeed trade for expectancy – however, that expectancy was already based on some inherent resolution of accuracy in the model you used to make the trading decision in the first place.
So, I don’t think that the trader wishes to forget accuracy – I think the trader wishes to “ride the wave” of accuracy already embedded into their trading model.
Great responses by all!
