Day Trading & Forex Forum

Trdr

"The Psychological Side of Expectancy By Van K Tharp Ph.D.
In the real world of investing or trading, expectancy tells you the net profit or loss that you can expect over a large number of single unit trades (One share of stock or one futures contract would be a single unit). If the total amount of money in the losing trades is greater than the total amount of money in the winning trades, then you are a net loser and have a negative expectancy. If the total amount of money in the winning trades is greater than the total amount of money in the losing trades, then you are a net winner and have a positive expectancy.
However, there is another side to expectancy – the psychological side. Indeed, the psychological side may be much more powerful than the side that involves determining the historical expectancy of one’s system. The psychological side revolves around one of the laws of the mind – whatever you expect to happen does.
The psychological role of expectancy is paramount. If you make two lists – what you value the most and what you most want to avoid – you’ll find that the combination of the two lists perfectly describes your experiences in life. For example, if the most important values in your life include family, success, fun, honesty, and friendships, you’ll probably have all of those things in your life. If money and success are not among the top five, however, you may not be bringing them into your life.
You also bring into your life the things you most want to avoid. For example, if you have a list of things to avoid that includes not being taken advantage of, avoiding rejection, avoiding change, avoiding confrontation, and avoiding anything risky, then you probably also have a lot of those qualities in your life. Why? If you dwell on what you want to avoid, you give it energy and that’s what you get. As a result, your life will be a direct combination of the things you value and the emotions you want to avoid, depending upon how much time you dwell upon each of them.
Whatever you put into your mind, whatever you expect – whether positive or negative – you tend to draw into your life. Consequently, you are much more the architect of your own life than you probably ever thought.
Your reaction to what I’ve stated might be “If that’s true, why should I do any research in the market? Why should I do historical testing to determine the expectancy of my system? If what you say is correct, then I should just think good thoughts, enter into a trade, and reap the reward of my good thoughts.” Unfortunately, it’s not that simple!
Wishing or hoping will not make you a lot of money in the market. Indeed, there’s a great deal of difference between expecting to win and hoping to win.
When I say that you get what you expect, it doesn’t mean that you can forget to do any research or preparation and just expect to be a winner. Perhaps you could do that if you were totally clear psychologically, but very few people, if any, reach that condition. We all have issues in our unconscious mind that we tend to play out in real life over and over again. My guess is that the people who have done enough psychological work to be fairly clear will be eager to do the research to be sure (have the confidence and the positive expectancy) that they will trade well.
What I would suggest is that you make sure you have a mathematical positive expectancy in your trading. But in addition to the mathematical positive expectancy add some psychological expectancy."

"About Van Tharp: World-renowned trading coach, author and psychologist Dr. Van K Tharp is widely recognized for his best-selling book ‘Trade Your Way to Financial Freedom’ and his outstanding ‘Peak Performance’ Home Study program – a highly regarded classic that is suitable for all levels of traders and investors."

"The above article is excerpted from Van Tharp's Special Report on Expectancy."

Tharp also has a forum at his site plus additional archived newsletters : http://www.iitm.com/index.html

I recall a manager talking about the high expectation of a broker they’d hired who was under performing until learning he was going to be a father and his wife would be giving up her $60K teaching job, rewarding their decision by becoming a top producer – is that an example of ‘motivation’ ?

Already asked by Chump, what’s your motivation to trade Dugan51 ?

chestney

It must be galling to sit there and see your friend pull the trigger time and time again, banking profits, whilst you are carrying your huge losses.

I'm sure it feels like the market is just waiting for you to put on a trade, so it can take some more of your money.

As soon as you put a trade on, it moves against you, right up until it hits your stop loss, or you close out to minimise the loss.

And then, now you are out of the market, it turns, and goes on to hit your profit target.

Let's be honest here, the market just hates you.

So why not just give up now? Admit you are crap at this job and go and do something far easier, that causes less pain.

But of course the markets will still be there, quietly meandering this way and that.

Hitting your set ups, giving your friend his profits.

At least you have started to think the problem may be with you, and congratulations for posting.

I'm sure your not the first with this problem, you can't be, because I was, and I'm sure you won't be the last.

The glib answer is reduce you position size, and keep reducing it, until you can start to pull the trigger.

I would also recommend reading "Trading the Zone" by Mark Douglas.

Good luck

rols

Saw this recently on the other site. Food for thought...

Question:

Has anyone tried trading against a total loser by opening reverse trades? Losers are not easy to find on BBs, more chances in the open world, that is not an issue anyway. The difficulty comes from finding The One that consistently makes wrong trades and going against him.


ANSWER: from Mark (a.k.a. NihabaAshi) Japanese Candlestick term

I know two guys in Seattle doing this very successfully.

The basic of their setup is this...

One guy (trader A) is a consistent losing trader with real money (lost about 62k trading futures in a few years) via some particular method he got from a book about position trading.

His buddy (trader B) a breakeven trader at the time...convinced him to stop trading with real money and to switch to simulator trading and to continue using the same losing method.

Trader B than enters and exits trades that are the complete opposite of Trader A positions almost at the exact same time.

Trader B is trading with real money (almost 3x the size) and Trader A is trading that same losing method on a simulator.

They use the same broker (execution platform) and trade side by side in Trader A home office.

Accordingly to them they are very profitable with this type of reverse trading style.

I'll be visiting the Seattle area this summer (camping trip) and will watch them do this in person towards the end of my vacation because I'm curious to see this type of reverse trading relationship.

Maybe this can be automated ??? ??

However, trying to do such by oneself via fading your own trade decisions...I don't think is possible.

__________________
The future ain’t what it used to be. Yogi Berra.

ZDO

Check out

http://www.easysignal.com/Audio/drken.wav

Discount (but not totally) his accent on "genetics" and emphasize the 'learning" potentials in the presentation.

hth

zdo

Grey1

I have one advise for you , pair trade postions against each other then market direction wont affect you much . This way you should feel much more safer from market spike and I am sure you be able to pull the trigger more comfortably

The reward of pair trading is not as much as directional trading as you can see on the screen below but your risk reduction is huge .

AAPL against GOOG JOYG against SNDK

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Grey1

The final result was not as much as it could have been but it only took 2 hours to trade. Small win compare to exposure but rather safe.

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Grey1

Dugan ,

I have one more advise for you .. Read about volatility > try to understand the concepts behind volatility . Volatility is the root of all wins and all the bankruptcies that I know off. So you better of to learn how to tame volatility by correct position sizing . It is not a Rocket science . It is dead simple..

Grey1

ZDO

Dugan,

As a temporary splint or crutch to get you ambulatory again - 'pair trades' are a viable option.
However, be real. 'Spreading' / 'hedging' trades will never be the solution to 'losing'. The same mental blocks to clarity exist, the same emotional (and beyond) tendencies exist, the same incongruities between you and your system(s) exist. The same mistakes will be made. The end result...
So in general, I disagree with this advice and urge you to consider other solutions.

re: volatility, etc. The correct position sizing for you now is the ABSOLUTE minimum possible. and the best way for you to manage "volatility' is to 'optimize' (on yourself and this 'volatility') to an appropriate timeframe

hth,

zdo