my journal

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Old Jan 2, 2010, 8:39pm   #2011
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Re: my journal

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Old Jan 2, 2010, 9:32pm   #2012
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Originally Posted by travis View Post
Trading, like Risk, is a game of appraising your odds and betting accordingly. You don't attack a country if you're rolling one die against 2, or even 3 (in the Italian version). You wait until you can roll 3 against 1. Or just pass.

Same with trading the EUR: you wait for a flat number, for a pivot, for 22 CET before placing a trade. If the odds are not in your favor, you just pass your turn.
Actually there is an important difference. In trading there is no rush at all. In risk, the other player might be conquering a continent in the meanwhle, growing stronger, so this forces you to act and to take risks. In trading, there's no rush at all and plenty of high-probability opportunities to seize, and, especially if you monitor many markets, and if you have leverage, there is no rush at all, not a need to look hard for opportunities.

So you can take advantage of this and not bet on what looks more probable, but only bet on what looks very probable. You wait until you see what you think are extremely probable outcomes, you place your trade with the attached 0.2% bracket order (those are the moves I look for), and close your eyes. There's no way you can fail.

I'll keep you updated on my balance. To see if I was right, or what will keep me from making money, after thinking it's all so simple. Yeah, because many's the time I've been mistaken...

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Old Jan 2, 2010, 9:50pm   #2013
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Re: my journal

Yamato started this thread That's it. Now I've become addicted to the Sopranos and I'm gonna have to watch all the about 100 episodes... everything I do lately is just compulsive and nothing is a real choice. I do something, then I get addicted to it, and I have to do it. It's compulsive: everything is a duty. No pleasure, no freedom. Just a lot of things to get done, even the ice cream in the refrigerator and the cookies: they have to be finished. I don't eat them because I like them. The refrigerator has to be empty.

You woke up this morning
Got yourself a gun
Mama always said you'd be
The Chosen One.

She said: you're one in a million
You've got to burn to shine,
But you were born under a bad sign,
With a blue moon in your eyes.

You woke up this morning
All the love has gone,
Your Papa never told you
About right and wrong.

But you're looking good, baby,
I believe you're feeling fine (shame about it),
Born under a bad sign
With a blue moon in your eyes...
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Old Jan 2, 2010, 10:11pm   #2014
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Re: my journal

Yamato started this thread Why does Lorraine Bracco have to sound so retarded as the psychiatrist in the Sopranos? Is she retarded as a person, or is she playing retarded because she thinks psychiatrists have to sound retarded? I can't understand.

The Sopranos is so good that it's almost too real and bad, because it's real even in portraying life's boring moments: Tony at the psychiatrist's, Tony's mother, Tony's disgusting wife... it's totally real. These people exist in our daily lives, they're boring and I'm disliking the Sopranos whenever it's making see what I don't like about my daily life. I just like to the shootings and similar. Wife, psychiatrist, and mother have to go. I wish they were all wacked. At the start of the third season, the boring ones are all still alive, and we've lost Pussy and Richie Aprile, which were good actors and didn't have boring parts. I wanna wack the psychiatrist in particular. She got raped, but she survived.
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Old Jan 2, 2010, 10:42pm   #2015
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Quote: on the controlling part...

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Old Jan 2, 2010, 11:11pm   #2016
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Old Jan 3, 2010, 12:36am   #2017
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Yamato started this thread All trading can be broken down into these two things:

1) Being right often enough
2) Not losing too much when you're wrong

I focused entirely on #1 for the past 12 years, and, whether in automated or discretionary trading, I've taken care of that part. I have an edge, I have many edges. I know how to spot highly probable trades. I even would go as far as saying that, on your first day looking at stock chart, everyone knows what's most likely to happen next. So, most of us can tell where the probability is, intuitively, from the first day.

The problem is that most of us never get done with doing #2 properly or don't even get started. Trading seems so easy, like a regular videogame, and yet it is a wonder why so few people can manage to do it. The main reason is that with money you don't get to practice like you can practice with videogames. One thing is to learn to juggle with balls, and another thing is to learn with knives. Most people (including me until now) do not give paper trading a chance and therefore learning to trade for them is like learning to juggle with knives. Each time you make a mistake you're going to get cut, and so you either get mad and that keeps you from learning, or you simply quit after getting hurt once too many.

Paper trading and back-testing are great tools in understanding when odds are in your favor. Backtesting for automated trading, and paper trading for discretionary trading.

Once you use these tools for practicing your trading, you can finally understand #1, that is when odds are in your favor. Once that happens, you become confident of your edge. You know that you are "good". Good enough to win. Then you only need to ensure that you don't lose everything when you are wrong, which is #2, and which implicates using a stoploss.

Using a stoploss is hard when you do not know you have an edge, because you can't let a trade go, you can't let that loss happen, because you are not confident that there will be other trades that will be winners. You're not confident in your ability to pick a majority of winners. That's why you first of all need to acquire an edge, but also to be aware that you have an edge. However, the two things maybe have to happen simultaneously because you won't know you have an edge until you're overall profitable, and you are not overall profitable until you use a stoploss.

Maybe that is why it is so hard to become profitable: because we keep on confusing #1 with #2 and keep on changing the dosage of the ingredients. Many of us are already good at picking what's most probable, but are not good at understanding that, since they have that ability, they can let losses happen, and don't have to hang on to their trades forever (in my case, this includes not doubling up on losers, because of how obsessive I get about not taking that one loss). This is why using a stoploss seems a simple concept but it is the hardest thing to accept, until you're positive that, with that given stoploss and bracket order, you have the ability to pick a majority of winners.

What I think is that if we did not have to enforce the stoploss by ourselves but were forced to use it, things would be much easier. The problem is that with trading we are totally free to do whatever we want.

I believe that if I gave that 0.2% bracket order (I spoke about it in earlier posts) to any teenager, who didn't know anything about trading, and told them "this is your weapon, now shoot your predictions on this chart", they would become profitable within a few hours. But money is on the line, it doesn't look like a game, and if you don't paper trade you don't get enough practice. As a consequence... you don't learn to trade in a few hours but in a few decades.

Think of this, of how a teenager would be taught and how he could see a chart on his first few days.

I'd give him the 9 futures I trade, and I'd give him two timeframes to use for all charts (he'd have to view all symbols in both timeframes):
1) 4 hours of 1 minute candles
2) 1 month of 1 hour candles

That's all. Then I'd tell him: here's your bracket order, now make your predictions, only when you feel you have a chance of course, in predicting that it will go 0.2% up rather than down or viceversa.

He'd notice that some things happen at a certain time of the day, he'd learn about the news released at 14.30 CET... it would be pretty easy. After a few days, he'd be able to make his predictions with an accuracy good enough to make money.

But none of this happens, or maybe it happens and I don't know about it. Well, anyway, by definition there's more than 50% of losing trades in the market, because of commissions. We can't expect to teach everyone to make money consistently.

I want to see at least if I can explain it to myself, because if that miracle happens, then anyone can learn from me. I am the most stubborn student there is, and I am being my own professor, since I cannot stand any professors.

When that will happen, I will get a few of my younger cousins, provide them with paper trading accounts, and take care of #2 for them ("not losing too much when you're wrong"): I will force the 0.2% bracket order upon them. They will have to learn to be profitable within that bracket order. That way, I will save them 12 years of efforts and self-deception. Yes, because once #2 is taken care of, you will develop your edge, your ability to pick the next probable 0.2% move, in just a few days.

This is awesome.

I hope I'll live to do this. Then I'll see which cousin does better, and try to learn something from them. But first of all, before I do that, I'll be my own cousin. I'll be the beginner being taught that approach. Why didn't I think of this before? I'll tell you why: It took me 8 years just to open an account with IB. When I did it, the commissions in Italy for the same instruments were about ten times as high. Trading with the right tools and broker makes a huge difference. If you don't know this, you aren't even able to do anything. By telling them trade with this broker and with this bracket order you're practically saving them a whole lot of time. This is all knowledge I had to acquire somehow. That's why there's unprofitable and unprofitable. I am unprofitable with a lot of knowledge now, and I was unprofitable with less knowledge 12 years ago. One could say: if you are still so bad now, what kind of crappy trader were you 12 years ago? I'd say I still had a good attitude, because I started off immediately by looking at charts, without even knowing it was called technical analysis (I learned years later). Think about all those people who waste their time with cnbc and fundamental analysis. Those guys will never get it right in their lifetime, because they let other people guide their thinking and because are in looking in the wrong direction. I have a friend like that: he just does fundamental analysis. He has some good money management, though, so he didn't blow out his account 30 times like I did. But he'll never understand how the markets work. He basically has 3 companies and only goes LONG on them based on information about the companies, such as Apple.

One more thing. A quote from Douglas book (page 81 of 143), regarding the fact that if you know you have an edge, you won't hang on to losing trades:

...Because they don't have to know what's going to happen next, they don't place any special significance,
emotional or otherwise, on each individual hand, spin of the wheel, or roll of the dice. In other words,
they're not encumbered by unrealistic expectations about what is going to happen, nor are their egos
involved in a way that makes them have to be right. As a result, it's easier to stay focused on keeping
the odds in their favor and executing flawlessly, which in turn makes them less susceptible to making
costly mistakes.

They stay relaxed because they are committed and willing to let the probabilities (their edges) play
themselves out, all the while knowing that if their edges are good enough and the sample sizes are big
enough, they will come out net winners. The best traders use the same thinking strategy as the casino
and professional gambler. Not only does it work to their benefit, but the underlying dynamics
supporting the need for such a strategy are exactly the same in trading as they are in gambling.

Last edited by Yamato; Jan 3, 2010 at 2:22am.
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Old Jan 3, 2010, 1:47am   #2018
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Re: my journal

#2 is why I have that quote in my signature. Machiavelli knew #2.
The wise man does at once what the fool does finally.
- Niccolo Machiavelli

...reclining in a comfortable chair with the dreamy, far-away look a volcano might wear just after it had desolated entire villages.
- Saki
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Old Jan 3, 2010, 1:51am   #2019
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Re: my journal

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True Romance
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Old Jan 3, 2010, 4:36am   #2020
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Re: my journal

Yamato started this thread From Trading in the Zone, page 83 of 143:

...The bottom line is that there is some degree of sophistication to thinking in probabilities, which can
take some people a considerable amount of effort to integrate into their mental systems as a functional
thinking strategy. Most traders don't fully understand this; as a result, they mistakenly assume they are
thinking in probabilities, because they have some degree of understanding of the concepts. I've worked
with hundreds of traders who mistakenly assumed they thought in probabilities, but didn't.
A prerequisite for thinking in probabilities is that you accept the risk, because if you
don't, you will not want to face the possibilities that you haven't accepted, if and when they do present
themselves. When you've trained your mind to think in probabilities, it means you have fully accepted
all the possibilities (with no internal resistance or conflict) and you always do something to take the
unknown forces into account. Thinking this way is virtually impossible unless you've done the mental
work necessary to "let go" of the need to know what is going to happen next or the need to be right on
each trade. In fact, the degree by which you think you know, assume you know, or in any way need to
know what is going to happen next, is equal to the degree to which you will fail as a trader
Wow, this last sentence rings a bell: except for the 10 trades made with the "sniper system", I've never thought in terms of probability, and this journal shows it so well. Each time I placed a trade I was describing its evolution and the moving of price as if I were directing an orchestra. I almost felt that I was making price move with my mind, or predicting its direction through my understanding of the market. And, accordingly, I was very disappointed when price wouldn't go where I expected it go.

Other than that, for the rest of the quote, I've said almost the same things about 20 posts ago. It seems that he either he's getting his points across to me, or rather I was understanding these things on my own and that's why I like reading him so much. Maybe both.

Traders who have learned to think in probabilities are confident of their overall success,
because they commit themselves to taking every trade that conforms to their definition of an edge.
They don't attempt to pick and choose the edges they think, assume, or believe are going to work and
act on those; nor do they avoid the edges that for whatever reason they think, assume, or believe aren't
going to work. If they did either of those things, they would be contradicting their belief that the "now"
moment situation is always unique, creating a random distribution between wins and losses on any
given string of edges. They have learned, usually quite painfully, that they don't know in advance
which edges are going to work and which ones aren't. They have stopped trying to predict outcomes.
They have found that by taking every edge, they correspondingly increase their sample size of trades,
which in turn gives whatever edge they use ample opportunity to play itself out in their favor, just like
the casinos.
This book is the perfect cure for me and for all those traders who can't apply the stoploss because cannot stand to be wrong. It teaches you to think in terms of probability and therefore to expect and to accept your losses. You've got to accept your losses lightheartedly, because - if you have an edge and you should not trade without one - you know there will be wins. One of the reasons it was so hard for me to accept my losses is that I was not so confident there would be wins ahead of me. But this behaviour itself is what caused me to be unprofitable, like in a vicious circle. What actually got me closer to the right discretionary track is that automated trading implied backtesting and that all directed me towards thinking in terms of probability: in fact it was doing exactly what I should have been doing as a discretionary trader but never managed to do. My automated trading was ahead of me by years. And that's why I interfered with it and closed its trades early and so on: I didn't understand completely what it was doing.

Wow, better and better:
On the other hand, why do you think unsuccessful traders are obsessed with market analysis?
They crave the sense of certainty that analysis appears to give them. Although few would admit it, the
truth is that the typical trader wants to be right on every single trade. He is desperately trying to create
certainty where it just doesn't exist. The irony is that if he completely accepted the fact that certainty
doesn't exist, he would create the certainty he craves: He would be absolutely certain that certainty
doesn't exist. When you achieve complete acceptance of the uncertainty of each edge and the
uniqueness of each moment, your frustration with trading will end
. Furthermore, you will no longer be
susceptible to making all the typical trading errors that detract from your potential to be consistent and
destroy your sense of self-confidence.
This book either anticipates or follows very closely each thought and discovery I've been making recently. The last quote above is the closest thing I've found in a book to describe how I trade!!!

The more I read the more Douglas sounds like one of the traders who became profitable after long efforts and have decided to share their knowledge. I've never liked the concept or term of "mentor" but for once I can say that he's like the perfect "mentor". You buy his book and you have a personal mentor all to yourself. Maybe all you need to ever read is this one book.

In light of the fact that anything can happen, wouldn't it make perfect sense
to decide before executing a trade what the market has to look, sound, or feel like to tell you your edge
isn't working? So why doesn't the typical trader decide to do it or do it every single time?
I have already given you the answer in the last chapter, but there's more to it and there's also some
tricky logic involved, but the answer is simple. The typical trader won't predefine the risk of getting
into a trade because he doesn't believe it's necessary. The only way he could believe "it isn't necessary"
is if he believes he knows what's going to happen next. The reason he believes he knows what's going
to happen next is because he won't get into a trade until he is convinced that he's right. At the point
where he's convinced the trade will be a winner, it's no longer necessary to define the risk (because if
he's right, there is no risk). Typical traders go through the exercise of convincing themselves that
they're right before they get into a trade, because the alternative (being wrong) is simply unacceptable.
This is exactly what i've been thinking and feeling when I said that thinking of a stoploss when i enter a trade brings me bad luck. I don't want to enter a trade thinking of what could happen and where I'd exit if I lose, because it feels like I'm setting up myself for failure. It feels like you're better off thinking that if you miss you're dead, rather than thinking that it's ok to miss because you have a stoploss. But guess what: if you don't think of a stoploss, you really are dead once you miss, since you'll blow out your account.

This reasoning is quite common when you hear "failure is not an option" and similar sentences. Right, failure is not an option... you keep hearing this... and you become a diehard moron, who probably keeps on trying hard at things he's wasting time with, like a college major that is not good for him... and so on. Instead, with trading, failure is an option. Losing a small battle is better than losing the war because of one battle, so you should - once again - expect and accept failure (before your loss turns into a huge one). You should be a quitter, and give up easily on your trade. But the best is the bracket order and so on, because you must have a clear line where you'll give up, or you'll hesitate when the moment comes.

I didn't plot a correct outline of the mechanism, but let's just say that failure may not be an option in a marriage, or similar, or even in learning to trade profitably (that's how I see it). But failure should be an option on every single trade you make.

Last edited by Yamato; Jan 3, 2010 at 6:05am.
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Old Jan 3, 2010, 5:44am   #2021
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Re: my journal

Yamato started this thread Ok, this is the funniest Sopranos episode I've seen so far (I've seen about 30 of them, all about 50 minutes long). Very very well made. Tragic comedy or whatever it's called:
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Old Jan 3, 2010, 6:25am   #2022
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Re: my journal

Yamato started this thread page 85-86:

As a result, being wrong on any given trade has the potential to be associated with any (or every) other
experience in a trader's life where he's been wrong. The implication is that any trade can easily tap him
into the accumulated pain of every time he has been wrong in his life. Given the huge backlog of
unresolved, negative energy surrounding what it means to be wrong that exists in most people, it's easy
to see why each and every trade can literally take on the significance of a life or death situation. So, for
the typical trader, determining what the market would have to look, sound, or feel like to tell him that a
trade isn't working would create an irreconcilable dilemma. On one hand, he desperately wants to win
and the only way he can do that is to participate, but the only way he will participate is if he's sure the
trade will win. On the other hand, if he defines his risk, he is willfully gathering evidence that would
negate something he has already convinced himself of.
He will be contradicting the decision-making process he went through to convince himself that the
trade will work. If he exposed himself to conflicting information, it would surely create some degree of
doubt about the viability of the trade. If he allows himself to experience doubt, it's very unlikely he will
participate. If he doesn't put the trade on and it turns out to be a winner, he will be in extreme agony.
For some people, nothing hurts more than an opportunity recognized but missed because of self-doubt.
For the typical trader, the only way out of this psychological dilemma is to ignore the risk and remain
convinced that the trade is right.
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Old Jan 3, 2010, 6:28am   #2023
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Re: my journal

Yamato started this thread page 86:

If any of this sounds familiar, consider this: When you're convincing
yourself that you're right, what you're saying to yourself is, "I know who's in this market and who's
about to come into this market. I know what they believe about what is high or what is low.
Furthermore, I know each individual's capacity to act on those beliefs (the degree of clarity or relative
lack of inner conflict), and with this knowledge, I am able to determine how the actions of each of
these individuals will affect price movement in its collective form a second, a minute, an hour, a day, or
a week from now."
Looking at the process of convincing yourself that you're right from this perspective, it seems a bit
absurd, doesn't it? For the traders who have learned to think in probabilities, there is no dilemma.
Predefining the risk doesn't pose a problem for these traders because they don't trade from a right or
wrong perspective. They have learned that trading doesn't have anything to do with being right or
wrong on any individual trade. As a result, they don't perceive the risks of trading in the same way the
typical trader does. Any of the best traders (the probability thinkers) could have just as much negative
energy surrounding what it means to be wrong as the typical trader.
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Old Jan 3, 2010, 6:37am   #2024
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Re: my journal

I think you have written some wonderful last few posts. A lot of poeple hate maths but one of the most wonderful concepts of maths is Probabilities. What people do not get in first time is that even if you have a system with 90% win probability and no stop loss concept .. you can blow up your account when the 10% loss happens, all in the same time.. ie if you lose 10 times in a row before winning 90 times in a row for a 100 trade cycle. Stop loss is a very useful tool, if you set your losses like you have mentioned to only a particular limit each time which should essentially be smaller than the size of wins every time it works, you will make money in long run and keep making money. Backtesting is another thing not understood properly, if you have a system whcih works only even 30% of the time in the entire day, but all this 30% is concentrated at say lunchtime when markets are low volatility. understanding this immediately has provided you with something powerful. concentrate all your trades in those 2 hour lunch time and you have a system that suddenly is 90% profitable for those 2 hours you trade.
One also needs to understand what are the black swan events that can kill you. every system has its own. Another thing you need to understand is as you have mentioned the markets. what works for FX will not work for equity usually but may be untrue depending on your system.

And I am with you on broker.. a brutus back stabbing cheating bucketshop will always be more diff to beat than a good trader. i met a Olympic level shooter once, when he was a kid and was starting out, his father asked him if he was serious about it and he say yes to it. So his father went out and bought him a olympic level air gun which was a 1000 pounds much much more than a regular 30 pound gun. What his father said was epic " when you start learning you are going to make a lot of mistakes, I want all those mistakes to be your personal flaw so that you know it can be perfected." An olympic level shooter will find a 30 pound gun easy to handle since he knows all the flaws are in the gun and not himself. As long as the mistakes are only on one side, you will learn and find ways to fix it. I am on a journey of my own as well..
My rules are simple.. I hope to be dead when I am 60. I am currently 27. And from now till then, I plan to run.
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Old Jan 3, 2010, 6:51am   #2025
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Re: my journal

Yamato started this thread Yes, I am glad we agree on everything, even the smallest details.

Regarding the broker/gun comparison. A bad broker (with expensive commissions) or a bucket shop that rips you off is like a gun that takes accuracy away from you. Also, I agree with the concept that you should keep your tools as perfect and simple as possible so to identify better the cause of your unprofitability. That's why I stopped trading options, because there's many more variables than with futures (time decay, liquidity, etc.), and it kept me from figuring out what was wrong with my trading. I am really not surprised when I hear that 90% of traders lose, because I've been through it. The only surprise is why I didn't give up yet, after 12 years of losing.

Another thing is that I feel very very close to Mark Douglas, which is the inspiration for all these posts you liked, whether I quoted him or whether my thoughts were caused by reading him. I didn't like him when I saw how everyone mentioned him but now I know he's not a scamster. I guess that my rule that what the majority likes sucks does not apply to trading: probably because the majority of profitable traders are all quite intelligent. He's talking and thinking like me, only - hopefully - from the other side, on the profitable side (I am quite confident that he's a profitable trader, but cannot be positive).

Right now, on the other hand, I am still very much on the unprofitable side. The past speaks clearly: lost every single year, starting from 1997. Yes, in 2008 and 2009 I made 30k each time starting with less than 10k, but then I lost almost all of it again, which is like saying that I broke even, but in reality it clearly says that my automated systems made money and that I am still unprofitable as a discretionary trader. Yes, as an automated trader, I am profitable since 2008. But overall I'm still an unprofitable trader, because for a reason or the other, I never kept any of the money I made. I have been an unprofitable trader until now. I hope this diary will witness the much awaited change.

Last edited by Yamato; Jan 3, 2010 at 7:04am.
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