Define risk
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commanderco
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SOCRATES said:
Muchas gracias Señor
All comments learnt the hard way.
Because people inherently do not like to confront naked risk, they are at first drawn towards black box
trading and mechanical trading as the risk decision is taken from their hands, even though they may have designed the mechanical system themselves.
The move away from mechanical trading to discretionary is the final step in my opinion of finally acknowledging the markets are organic and cannot be stopped in time like a hand of blackjack and
that you now fully accept the responsibility of being a trader.
I am a discretionary trader but i wouldnt fully agree with your statement . I know of some quants that use pure mechanical systems which work consistently. The reason they work is people are predictable.
trading and mechanical trading as the risk decision is taken from their hands, even though they may have designed the mechanical system themselves.
The move away from mechanical trading to discretionary is the final step in my opinion of finally acknowledging the markets are organic and cannot be stopped in time like a hand of blackjack and
that you now fully accept the responsibility of being a trader.
I am a discretionary trader but i wouldnt fully agree with your statement . I know of some quants that use pure mechanical systems which work consistently. The reason they work is people are predictable.
commanderco
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tomcat said:
You have my interest, Tomcat, please tell me more about these mech systems that work consistently.
SOC,
And thus is purely speculative, and open to all the inherent weaknesses of the speculator. Thus your risk which is market risk, must become a function of money management.
Money management, is a tool employed by gamblers, was developed by gamblers, and was adapted by traders to manage market risk. This state of affairs strongly mitigates to my mind a clear division between gambling and trading, the two are opposite sides of the coin.
The market makers however are the house. They have the structure of the system to load the odds in the houses" favour, hence they consistently make money.
Now, if you are a skilled enough trader, you can make money, possibly a lot of money, but the real skill is ........keeping the money.
Even ole Jessie, a speculator of awesome skill couldn't hang onto the cash, and thus we come back to that frightning statistic, that frightens no-one, because it is quoted so often that it has lost the power to cause even a pause for contemplation.................
95% + of short-term traders fail.
Why?
Because via commisions, stoplosses, platform costs, lost earnings, slippage, the dice are so heavily loaded against you, that the house has an even greater advantage than it already enjoys.
cheers d998
And thus is purely speculative, and open to all the inherent weaknesses of the speculator. Thus your risk which is market risk, must become a function of money management.
Money management, is a tool employed by gamblers, was developed by gamblers, and was adapted by traders to manage market risk. This state of affairs strongly mitigates to my mind a clear division between gambling and trading, the two are opposite sides of the coin.
The market makers however are the house. They have the structure of the system to load the odds in the houses" favour, hence they consistently make money.
Now, if you are a skilled enough trader, you can make money, possibly a lot of money, but the real skill is ........keeping the money.
Even ole Jessie, a speculator of awesome skill couldn't hang onto the cash, and thus we come back to that frightning statistic, that frightens no-one, because it is quoted so often that it has lost the power to cause even a pause for contemplation.................
95% + of short-term traders fail.
Why?
Because via commisions, stoplosses, platform costs, lost earnings, slippage, the dice are so heavily loaded against you, that the house has an even greater advantage than it already enjoys.
cheers d998
Mmm, i don't entirely agree with you you, ducati. The real essence of trading is to make money, to get psychologically bogged down with purely trying to hang on to your capital can detract you from the 'essence'. I also think that being able to 'read' the market well enough, will give a person confidence about thier endeavours and goes hand in hand with making money. Unreasoned pessimism, leads to bad money management in the end, the opposite is also true. Trading is a fine balance, there doesn't seem to be much 'black and white' about the markets and trading. Anyway, it's only money?
Rude,
Agreed. So lets look at how you make money trading.
1..Capital employed, and the return thereon, forms the starting point of our trading business.
Revenue.....our gross profits before costs
Costs.....Commisions, Brokerage, Stoplosses of failed trades, Trading platform costs, any subscriptions to newswires, etc. and wages (living expenses)
Debt, or Margin.....Interest payments on said account.
Depreciation.... On equipment utilised
Tax......On our gross profit, (or working capital,) or tax refund if net losses.
Net Profit..........What remains, to reinvest in the business.
And this will shrink the Capital Employed, thus your rate of return potential will drop quite quickly. The first, foremost, and by far the most important rule of trading, investing, is DON"T LOSE MONEY.
Sounds simple, but until this is a "fact" you will NEVER succeed as a trader. You are focused on the ......lets make money, and thus you are destined in some timeframe to lose badly, or be wiped out entirely.
If you can do this consistently, and not lose money, then you will succeed, however, to date, no-one has managed this neat little trick consistently year in year out. You may be the first, but I doubt it.
What does confidence have to do with speculation?
On what basis are you confident, that you feel your tape reading skills are giving you a definable edge, this for many reasons is just delusion.
Answer the following questions honestly to yourself, and this will determine exactly how confident you are in your "reading skills"
1.....On one trade, would you trade your entire capital?
2.....Without a stoploss?
Unreasoned, viz. lacking in logic, rational thought, analysis of fact, .......none apply to charting, T/A, Gann, etc.
Pessimism, indicates a state of mind, an opinion, .........not part of a reasoned analysis, analyze, and base your decision upon your analysis, thus mitigating emotion from your analysis.
Money management, an adaption from gambling, applied to speculation, as you are trading sentiment, nothing tangible.
Its only money, well thats your opinion, and of course you have every right to your opinion, but as you get older, that may be revised.
cheers d998
Agreed. So lets look at how you make money trading.
1..Capital employed, and the return thereon, forms the starting point of our trading business.
Revenue.....our gross profits before costs
Costs.....Commisions, Brokerage, Stoplosses of failed trades, Trading platform costs, any subscriptions to newswires, etc. and wages (living expenses)
Debt, or Margin.....Interest payments on said account.
Depreciation.... On equipment utilised
Tax......On our gross profit, (or working capital,) or tax refund if net losses.
Net Profit..........What remains, to reinvest in the business.
And this will shrink the Capital Employed, thus your rate of return potential will drop quite quickly. The first, foremost, and by far the most important rule of trading, investing, is DON"T LOSE MONEY.
Sounds simple, but until this is a "fact" you will NEVER succeed as a trader. You are focused on the ......lets make money, and thus you are destined in some timeframe to lose badly, or be wiped out entirely.
If you can do this consistently, and not lose money, then you will succeed, however, to date, no-one has managed this neat little trick consistently year in year out. You may be the first, but I doubt it.
What does confidence have to do with speculation?
On what basis are you confident, that you feel your tape reading skills are giving you a definable edge, this for many reasons is just delusion.
Answer the following questions honestly to yourself, and this will determine exactly how confident you are in your "reading skills"
1.....On one trade, would you trade your entire capital?
2.....Without a stoploss?
Unreasoned, viz. lacking in logic, rational thought, analysis of fact, .......none apply to charting, T/A, Gann, etc.
Pessimism, indicates a state of mind, an opinion, .........not part of a reasoned analysis, analyze, and base your decision upon your analysis, thus mitigating emotion from your analysis.
Money management, an adaption from gambling, applied to speculation, as you are trading sentiment, nothing tangible.
Its only money, well thats your opinion, and of course you have every right to your opinion, but as you get older, that may be revised.
cheers d998
commanderco
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And this is where the game gets interesting!
Let us dwell upon the "entry" for a moment.
On the one hand you can enter on break-out, either a point or two outside H/L, R1/S1, or your
favourite point.
This gives you the physiological advantage of entering in the immediate direction of the trade ...
"a warm fuzzy" that can draw you away from your intention of making money ... which requires an
entry, a profitable exit and a win / loss ratio which will cover your slippage and expenses
and a decent surplus to make it all worth the while.
However, it can leave you with a rather large protective stop which will make a mockery of your
clearly stated intention, if triggered. You can of course only take trades of acceptable risk, which will
preclude you from the "money makers"and face you with temptation.
On the other hand, if your skills are good and your mind is clear, you can scalp the the entry.
For example, if you wish to go long, then the previous bar must be short or near short;
placing your entry close to your protective stop and giving you the advantage of positive slippage.
As the Haiwaiians say,.... All you need is big Konahuanuis
Let us dwell upon the "entry" for a moment.
On the one hand you can enter on break-out, either a point or two outside H/L, R1/S1, or your
favourite point.
This gives you the physiological advantage of entering in the immediate direction of the trade ...
"a warm fuzzy" that can draw you away from your intention of making money ... which requires an
entry, a profitable exit and a win / loss ratio which will cover your slippage and expenses
and a decent surplus to make it all worth the while.
However, it can leave you with a rather large protective stop which will make a mockery of your
clearly stated intention, if triggered. You can of course only take trades of acceptable risk, which will
preclude you from the "money makers"and face you with temptation.
On the other hand, if your skills are good and your mind is clear, you can scalp the the entry.
For example, if you wish to go long, then the previous bar must be short or near short;
placing your entry close to your protective stop and giving you the advantage of positive slippage.
As the Haiwaiians say,.... All you need is big Konahuanuis
Hi
The more you practice stepping into other peoples' shoes, the more you'll experience the results and benefits People always find it easier to be a result of the past rather than a cause of the future. In Life We Can Have Results or Reasons. If you are not getting the results you want, your reasons are the lies that you keep telling yourself.
Many of life’s failures are people who did not realize how close they were to success when learning to day trade. But they gave up.A man can fail many times,day trading but he isn't a failure until he begins to blame somebody else.
The old saying 95% lose day trading.I rather say 95% of the failures come from people who have the habit of making excuses.
CJ
The more you practice stepping into other peoples' shoes, the more you'll experience the results and benefits People always find it easier to be a result of the past rather than a cause of the future. In Life We Can Have Results or Reasons. If you are not getting the results you want, your reasons are the lies that you keep telling yourself.
Many of life’s failures are people who did not realize how close they were to success when learning to day trade. But they gave up.A man can fail many times,day trading but he isn't a failure until he begins to blame somebody else.
The old saying 95% lose day trading.I rather say 95% of the failures come from people who have the habit of making excuses.
CJ
SOCRATES
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cj12, you have pinned it !
In fact, I do not cease to be astounded at how many people obviously work very hard at this, but, somehow it is as if there was a pane of glass separating them from the success they seek.
It is as if many get very close to crossing through the glass, but somehow, for a reason that baffles me, once they get very close, they turn away and put their attention on the wrong things and get distracted, forgetting altogether the target they set themselves.
I find it horrifying in one way and fascinating in another.
This habit of making excuses is an escape hatch resorted to when the going gets tough, and through not accepting.
No one says this is an easy game, to the contrary, but you are right in what you say about people giving up when they are nearly there, this is also a horrifying and fascinating anomaly, or is that I am wired differently to everybody else here ?
This is why I persist in my attempts to point people in the right direction.
In fact, I do not cease to be astounded at how many people obviously work very hard at this, but, somehow it is as if there was a pane of glass separating them from the success they seek.
It is as if many get very close to crossing through the glass, but somehow, for a reason that baffles me, once they get very close, they turn away and put their attention on the wrong things and get distracted, forgetting altogether the target they set themselves.
I find it horrifying in one way and fascinating in another.
This habit of making excuses is an escape hatch resorted to when the going gets tough, and through not accepting.
No one says this is an easy game, to the contrary, but you are right in what you say about people giving up when they are nearly there, this is also a horrifying and fascinating anomaly, or is that I am wired differently to everybody else here ?
This is why I persist in my attempts to point people in the right direction.
c6ackp
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cj12's comments reminded me of a famous quote attributed to Thomas Edison, who was an awesome inventor with over 1000 patents...
Many of life's failures are people who did not realize how close they were to success when they gave up. Thomas A. Edison
It all sounds a bit like learning to trade, doesn't it?...
Everything comes to him who hustles while he waits.
Thomas A. Edison
Hell, there are no rules here-- we're trying to accomplish something.
Thomas A. Edison
Just because something doesn't do what you planned it to do doesn't mean it's useless.
Thomas A. Edison
Opportunity is missed by most people because it is dressed in overalls and looks like work.
Thomas A. Edison
Results! Why, man, I have gotten a lot of results. I know several thousand things that won't work.
Thomas A. Edison
There is no expedient to which a man will not go to avoid the labor of thinking.
Thomas A. Edison
We don't know a millionth of one percent about anything.
Thomas A. Edison
Genius is one per cent inspiration, ninety-nine per cent perspiration.
Thomas A. Edison, Harper's Monthly, 1932
Many of life's failures are people who did not realize how close they were to success when they gave up. Thomas A. Edison
It all sounds a bit like learning to trade, doesn't it?...
Everything comes to him who hustles while he waits.
Thomas A. Edison
Hell, there are no rules here-- we're trying to accomplish something.
Thomas A. Edison
Just because something doesn't do what you planned it to do doesn't mean it's useless.
Thomas A. Edison
Opportunity is missed by most people because it is dressed in overalls and looks like work.
Thomas A. Edison
Results! Why, man, I have gotten a lot of results. I know several thousand things that won't work.
Thomas A. Edison
There is no expedient to which a man will not go to avoid the labor of thinking.
Thomas A. Edison
We don't know a millionth of one percent about anything.
Thomas A. Edison
Genius is one per cent inspiration, ninety-nine per cent perspiration.
Thomas A. Edison, Harper's Monthly, 1932
Ducati, you mention 'self delusion', 'self delusion' as a self controlable part of the human psyche, defines 'winners' and 'losers'. It's up to the individual to be able to control how deluded they become about the markets. Delusion/risk, risk/delusion, in a way they create each other. Just my 2 cents?
SOCRATES
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The reduction of risk to a very large extent hinges on trading ability. Trading ability relies on dealing skills and knowledge. Knowledge is not enough, there are other components that compliment it and the trader's familiarity with the instrument and its potential and or idiosyncrasies.tomcat said:
Probability of reward therefore is proportional to judgement. Judgement is the consequence of experience. Experience is the consequence of accumulated knowledge, combined with trading and dealing ability PLUS the correct mindset.
The evaluation of risk to a very large extent is a separate excercise and hinges on having acquired all of the above, and in addition having developed and cultivating the correct mindset.
All of these faculties have to be made to work together seamlessly in order to be able to distinguish what looks menacing and is not and what does not look menacing but in reality is deadly.
All of this takes time, a very long time indeed to bring to a state of final perfection, if you have the correct character and if not, never.
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