lets define the correct yardstick

[contrakt]

Risk and learing how to lose

The amateurs miss the point. This is not about the best stochastic settings or how to massage the bid and the ask. This is about facing up to the very real risks inherent in the financial markets, including the very real risk of financial ruin. Amateurs don't see the risk; therefore, they don't bother to grapple with it. Instead, they would rather blow up and disappear. If one wants to last, he must come to terms with the nature of risk, his own tolerance for risk, an understanding of how to manage risk. Without that, he's doomed.

A great many traders don't know how to lose. They've never come to terms with the fact of it, much less the inevitability of it. Therefore, they have trouble handling it, or can't handle it at all. And that creates a multitude of problems, from entering too late to exiting too early to betting too much to betting too little, all with at least a low-grade fearfulness permeating everything.

Learning how to lose doesn't make you a loser. It's a critically important step toward becoming a winner.

DB Quote

 

[contrakt]

Effective riskmanagment

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.

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.

Quote Socrates

 

[contrakt]

Assesment of risk

Trading skills cant overcome risk.

Accurate recognition and defining of risk is step one.
Step two involves the assessment of how this risk can be managed, if at all.
Step three, formalise a plan for your personal management of the risk.
Step four, take the risk (enter) or, reject the risk, (stand aside)

I would agree that knowledge is vital, without this, you can not recognise,define, or manage your risk.
Risk is quantifiable, not in exact terms, as this implies an ability to fortell the future, but in terms concrete enough to define what an intelligent and rational decision should consist of.
With a quantification of the risk, you will develop a strategy to offset, mitigate, or avoid the assumption of that risk.

cheers d998

 

[contrakt]

Business expenses and Bussines risk

Business Expenses
-commissions
-gross rent of a trading location
-hardware write off
-tax on trade earnings
-internet and telephone bills
-data-feed subscriptions
-software subscriptions
-literature

Business-Risks
-market risk=mitigated by stops
-operational risk=loss due to wrong actions, equipment faillure
-strategy risk=lack of consistent profitability
-credit risk=coverd by sipc

 

[contrakt]

Early bird from d998

I always get the price I planned, ........the early bird, someone must always be first, and this will be proportionate to the skill, execution speed of individual traders, floor traders will be first in most instances, followed by the best of the rest,

 

[contrakt]

Risk Groundrules

1.Never mix business with pleasure.
By this I mean, although you may love daytrading, or technical trading, if it is not paying you within the strategy you are employing, time to critically analyse what and why things are failing.

2.What are your limits?

3.You can NEVER AFFORD TO LOSE MONEY.
This you must come to terms with. The mindset must be NEVER, NEVER LOSE MONEY, and to do so must be creative enough to find ways that will absolutely minimise, the need to take a loss.

4.Competitiveness is commendable within sport, business, and many activities in which we participate. It is strangely inappropriate in the financial markets, where the exact opposite actually delivers superior results. The markets are indeed competitive, possibly one of the most competitive places on earth outside of war. However, to profit from them, ironically, involves manipulating the competitiveness, not directly joining it.

Cheers d998

 

[contrakt]

Merit, Conduct and Ability

Direction of evolution
A=Market probability wake up call
B=mitigate all unacceptable risk
C=trade comfortable in the direction of sufficient flow

 

[contrakt]

pre_real_post 24feb06

economic nws:8:30

S3=3840
S2=3807
S1=3760
R1=3710
R2=3685
R3=

3 days in range (3685,3670)
In range selling has dominant Volume
1 test of S in these 3 days
3 test of R in these 3 days
In this range 3710 and (3740,3750) are important value areas that are visited frequently.

 

[contrakt]

there are a lot of similarities between poker and trading. The ratio of winners to losers is about the same. Unlike trading, it is possible to see the winners and losers in action and work out what they are doing differently.

My observations are that In general, the winners are more selective with their starting hands and are more aggressive than the losers. They also find it easier to fold a hand when they are behind and don't mind throwing away the best hand every now and then. They are prepared to make a stand if a player is trying to push them around. They are good at extracting as much money as possible when they have the best hand and will not lose too much if they have the worst hand. They observe everything that is going on at the table they are playing at and have good concentration. They have a large enough bank roll to see them through the losing streaks that all players experience. They don't play at a level that is too high for their bankroll.

The losing players are less selective with their starting hands, not as aggressive when betting and find it harder to fold their cards when they could be losing. They often do not make as much money as they could when they hold the best hand and lose to much when they hold the worst hand. Sometimes they will not make a stand against an aggressive player when they need to. They do not observe everything that is going on at the table they are playing at and are easily distracted. Some losing players would be winners if they had a large enough bank roll to see them through the losing streaks that all players experience. They might be playing at a level that is too high for their bankroll. They might just not have enough skill to compete with better players.

This is just a general observation and there are some winners who play too many starting hands or are not as aggressive but have enough skill to make a profit.

If this is applied to trading, I think that some losers might be entering a trade when their odds of winning are not as good as they could be. Being more selective might improve things. They might be holding on to too many bad trades in the hope they will come good, rather than letting them go and looking for a better opertunity. There are times when they are not taking trades through fear, when they should be. They might not be able to take as many small loses as they should do. They might not be able to extract as much from winning trades as they should be. They might not have enough money to see through a losing streak. They might not be observing everything that they should be while in a trade and they might be too easily distracted. They might just not have the skills required to make a profit.

Bigbusiness

 

[contrakt]

Initial stops, max. loss 23 and 24 feb

attached chart gives a graphical presentation of where the rational places would be to place my initial stops.
Yellow is location of a short entry and green is the location of a long entry.

The thin white lines connect the entry with 1 or more candidate(s) locations to place initial stops. The locations will be selected in real time on an on the spot tradeoff between "optimal protection and sharp risk-premium".

Things to consider:

1 recognition and defining of risk:
Sources of unacceptable losses:
-Bad adverse moves against unprotected positions will devastate capital and confidence.
-Over-trading in frequency(revenge, chop) and oversize size is an other source of bigg losses.

2 assessment of how this risk can be managed
Protection against adverse moves: Initial stops
Protection against over-trading:maximum loss per day, maximum consecutive losing trades, fixed size.

3 formalise a plan for your personal risk management
Initial stops=a maximum of 8cents under/above the running bid/ask. Initial stops must be in place within 20 seconds after entry.
If intra-day incurred loss>=.25% overnight equity, than stop trading for today.
(Modest) fixed trade-size of number of shares in index smh etf at each entry.

Step 4 take the risk (enter) or stand aside
Use inactivity as number one weapon against high risk trades.

 

[contrakt]

When I am, as it were, completely myself, entirely alone, and of good cheer -- say, traveling in a carriage or walking after a good meal or during the night when I cannot sleep -- it is on such occasions that my ideas flow best and most abundantly."

~ Wolfgang Amadeus Mozart

 

[contrakt]

mon 27feb06

Prep:
R3=3800
R2=3760
R1=3735
S1=3700
S2=3680
S3=

Economic news
http://mam.econoday.com/calendar/US/EN/New_York/year/2006/month/02/day/27/daily/index.html

 

[contrakt]

"Your trials do not come to punish you but to awaken you"
Paramahansa Yogananda

 

[contrakt]

how to lose

A great many traders don't know how to lose. They've never come to terms with the fact of it, much less the inevitability of it. Therefore, they have trouble handling it, or can't handle it at all. And that creates a multitude of problems, from entering too late to exiting too early to betting too much to betting too little, all with at least a low-grade fearfulness permeating everything.

Learning how to lose doesn't make you a loser. It's a critically important step toward becoming a winner.

--DB

 

[contrakt]

Michael Covell

And it's not the genius of a trend following system that makes them wealthy. It's their self-discipline, willingness to be responsible for what they do, and their hard work.

 

[SOCRATES]

Contrakt, it does not matter if your statement above relates to what Michael Covell says or whether you are quoting him or even if it is your idea.

The fact of the matter is that it is absolutely correct.

Now, this is not what the great majority are able to do at all.

For example, in another thread on this forum the question is asked as to what makes people fail.

What makes them fail is directly related to your post number 127 above.

I began to unfold an explanation, only to be interrupted and have the thread of constructive discussion derailed by idiots.

So I stopped. And now I clam up. The thread grinds to an abrupt halt, and remains halted.

Now nobody gains any knowledge.

Once again they shoot themselves in the foot.

It is very very funny.

 

[contrakt]

[The fact of the matter is that it is absolutely correct.

And after all that work you begin to gain:
-relevant experience
- expertise
-and last but not least


CONFIDENCE

 

[SOCRATES]

Quite so, and with confidence comes many more right decisions than wrong ones.

 

[contrakt]

Post 020206

Smh
yellow is long
red is short
green is initial stop

 

[contrakt]

030306 preparation

r3=38.88
r2=38.65
r1=38.55
s1=38.20
s2=38.05
s3=37.70

Economic agenda
9:45 ET
10:00 ET