How To Lose

[tomorton]

That particular strategy paid off nicely last decade or so

Selling tops only looks good with hindsight on a historic chart. In real time, it's just not possible to accurately pick the one and only entry point to go short in an uptrend while the trend is continuing and price is right up against the hard right edge.

Of course, if you're very good with risk management, you can continually enter short and be prepared to take a string of small losses until, eventually, the trend reverses and the one massive winner earns back the accumulated losses.

 

[Ross Spur]

we appear to be entering the sm@rt@rse zone...

... Never closing a trade the only 100% guaranteed way of not losing, but so is reversing the strat and never opening a trade.

 

[Mata Nui]

It is a good question. To be honest when i trade manually my biggest problem is knowing when to get out and i would guess that is going to be the main reason most people lose. Its all in the mind.

On the other hand though being a programmer by trade i do like to play with EAs (never traded one on a live account though) and i have come up with a fair few losers. I have tried reversing the signals and they are still losers though logically i cant figure out why. If you have for example an EA with a 20 point SL and a 40 point TP that has a nice smooth -ve equity curve then this means that most of the time price hits the 20 point other side before it would hit the 40 point trade direction. And it does it enough times more often to mean you lose money. Logically therefore if you reversed signals and went with the 20 point TP and 40 point SL you should win shouldnt you? Doesnt seem to work though. Also is the same if the R:R is the other way which is even stranger. Perhps its just me not thinking about what i am doing. I admit i havent spent that much time thinking about it.

About the cost of trading comment i dont think that makes much difference. From my limited experiments with reversing EAs i only test on narrow spreads (1 point EURUSD) for example and if you use anything over 20 point SL/TP etc the cost is tiny. Admittedly if you were trading live you would need to account for slippage etc so it would become an issue but backtests still show reversing not working.

 

[Enzzo]

How to lose.....

I've found along the time that many, many trades lose quite consistently by doing break out trading....

There are many different ways to approach break out trading, but the simple one "set an stop buy/sell a few pips away from the break out point, with the SL above below the last swing" looks to me very, very consistent....... losing strategy

 

[samirs]

Lack of discipline would sum most of the reasons
- over trading
- over leveraging / under capitalised
- no stop loss / moving stop loss
- boredom trade
- trading on others tips - free or not
- trading without plan
- acting on fear of missing a "great" opportunity
- turning profit in to loss due to greed / overconfidence
- chasing losses
- not treating each trade on its own merit
- not truly recognizing that markets are truly uncertain

all are easy to talk / preach / understand but very difficult to follow till trading is not treated as a serious profession / business.

 

[the hare]

reading most of this stuff is painful. t2w has hit new lows.

 

[DionysusToast]

reading most of this stuff is painful. t2w has hit new lows.

Why not contribute then?

Anyone can whine, shurely you can raise the bar.... :smart:

 

[scose-no-doubt]

Not checked properly but if I had to guess I reckon buying new highs through asia and selling at 12pm GMT would nom you.

 

[ChocolateDigestive]

reading most of this stuff is painful. t2w has hit new lows.

fook me i thought I was the only one thinking that. geez a thread on how to lose, its trade2win not trade2lose.

 

[tomorton]

reading most of this stuff is painful. t2w has hit new lows.

The general principle of amending trading on poor results is sound, so reversing a decision outcome based on available data is just an extension of that, turning weaknesses into strengths. I recall reading exactly this approach in Hill, Pruitt & Hill a few years back, when they were reviewing TA systems, can't remember the book's title right now.

 

[bbmac]

I think it was Einstien (and if it wasn't it sounds as though it was - a lot of clever quotes get attributed to him,) who said that the definition of insanity is doing the same thing over and over again and expecting a different result. In a way this is what sums up why people lose at trading. In a sense they simply don't even know what it is they need to know aqnd most just keep repeating the same mistakes before they ever find out what it is they need to know let alone get round to actually knowing/learning it. Ie the reason mistakes are repeated is that they have no idea what it is that they need to learn to prevent them from making them over and over. Most people likely give up and/or lose their trading capital long before they get to the stage of 'enlightenment.'

G/L

 

[alphadude]

...
About the cost of trading comment i dont think that makes much difference. From my limited experiments with reversing EAs i only test on narrow spreads (1 point EURUSD) for example and if you use anything over 20 point SL/TP etc the cost is tiny. Admittedly if you were trading live you would need to account for slippage etc so it would become an issue but backtests still show reversing not working.

I disagree about the transaction cost being tiny.

If you plot the trading cost (spread + commission) in terms of percentage of account; together with the equity curve; you will clearly see that the trading cost is the culprit.

attached an example of a random EURUSD strategy on hourly timeframe for whole year of 2011
- Buy @ 33% probability
- Sell @ 33% probability
- Flat @ 33% probability
- Stop loss at 50 pips
- Take profit at 50 pips
- Execution @ market (meaning we cross the spread)
- Spread used: 0.5 pips for EURUSD (this is the spread I use when trading with Interactive Brokers)
- Commission used: 0.2 pips per USD 100K (this is equivalent to 0.2 pips if the base currency is USD; otherwise you have to exchange the rates)

Chart Legend:
- Chart is in percentage of equity
- Green line: cumulative equity (in percentage of account)
- thin dashed red line: cumulative commission (in percentage of account)
- thin solid red line: cumulative spread (in percentage of account)
- thick solid red line: cumulative total cost (commission + spread) (in percentage of account)

Two charts attached:
chart 1: the random strategy
chart 2: inverse of the random strategy

You can clearly see from chart 1 that the loss in equity curve is majorly attributed to transaction cost

The inverse of the strategy; is much worse; and a consistent negative curve

 

[scose-no-doubt]

http://www.amazon.co.uk/Non-Random-...PHVC/ref=sr_1_2?ie=UTF8&qid=1335261404&sr=8-2

My present to myself... what an exciting life I live.

 

[Ross Spur]

reading most of this stuff is painful. t2w has hit new lows.

Is it a false breakout, though? Tough call, but I'm long T2W.

 

[The Leopard]

Is it a false breakout, though? Tough call, but I'm long T2W.

LOL

I repped The Hare's post, and commented that he shouldn't go long. T2W is never too low to sell.

 

[alphadude]

I have run same random strategy; but this time removed all transaction cost (no commission and no spread)

the inverse strategy is exactly the mirror image of the random strategy

chart 1: random strategy
chart 2: inverse random strategy

Please note:
- Spread cost is usually much higher than commission cost. This is neglected by retail traders
- in my previous post; I used Interactive Brokers cost assumption. If you are using retail FX brokers (using MT4); may God be with you. The spread of these brokers compared to IB; is in multiples.

 

[Hoggums]

Buy This:

Flag-Trader System, Guy Cohen

 

[DionysusToast]

fook me i thought I was the only one thinking that. geez a thread on how to lose, its trade2win not trade2lose.

lol...

Well - we used to have philosophical debates on topics like this - but I think those days are gone.

Still - I think it's interesting to discuss aspects of losing that can/cannot be reversed because a lot of people seem to think winners are the inverse of losers and that is not always the case.

 

[scose-no-doubt]

"While thousands of stressed-out traders around the world tear their hair out trying to predict the market direction just to stay afloat, I can create consistent gains of 74%, 126%, 349% .... I can make that ... my students are making that ... and so can you"

 

[The Leopard]

Why do people loose?

I suppose one of the major reasons must be unrealistic expectations. It means that people are unprepared for the reality of what trading entails.

Another might be that it is very hard to do something simple repeatedly and consistently, especially when the reward comes in a lumpy and inconsistent fashion. Loosing when one does the right thing is hard to stomach.

I suppose a major improvement that most new traders could make is to reduce their focus on many of the things that new traders tend to obsess over, such as strike rate and returns. When I see people talk about high strike rates and being a "consistently profitable trader" it makes me cringe.

One of the best posts I have ever seen on T2W was made by The Hare when he spoke about having a string of 14 looses in a row without being aware of it. Predictably enough, it just attracted scorn and ridicule.

Most people have no idea of what they need to endure, in too many ways to list, in order to become successful. So they will remain loosers.

The claims of vendors (not the OP, I should say in fairness) really do not help. Some of them make 300% for each hindsight trade they make. Others harvest hundreds of pips a week with ease.

I have made this point before, but I think it is worth repeating for those that are attracted to the claims above:

If you can net on average 1 point a day trading ES (say 250 points a year) that is an annual return of $12,500 per contract traded. ES will easily support trading in clips of 100, 200, 300 - whatever you want in practical terms.

That's between 1.25 and 3.75 million dollars a year. From 250 points. Or 1 point a day.

If people want success, they could try focussing on something that is simple and repeatable with modest targets in a liquid market. Then work on increasing size.