The Psychological Gap

[rossored]

The title of this thread comes from Mark Douglas' book, "Trading In The Zone, " which I have, and have read many times.

It relates to the difference between thinking you know what the market is going to do, and actually entering a trade based on what you see.

The book quotes:

"How many times have you looked at a price chart and said to yourself "Hmm, it looks like the market is going up/down here.", and what you thought was going to happen actually happened. But you did nothing except watch the market move while you anguished over all the money you could have made"

I myself have done that three times today already, and the US market has not been open two hours.

Anyone else have this problem, or maybe had it in the past and dealt with it succesfully? (I'm not saying I never put on a position, its just sometimes I think my belief in my own analysis is not strong enough to make me pull the trigger). If so, what did you do?

 

[FetteredChinos]

ah, one of my familiar problems..

i know exactly where you are coming from, buddy.

try doing what i do, and not trade from charts.

just turn them off and watch the price...

then try trading it with small stakes.

gives you a different perspective, and when you go back to looking at the charts, it all seems a bit easier...

FC

 

[rossored]

I dont know if its stake size - my size is pretty small anyway (stake size, that is! )

Its not exactly that I'm afraid of losing - in fact, I know thats not it. I just dont want to lose - and sometimes the "I dont want to be wrong here" bit stops me pulling the trigger. I honestly couldn't care less about the money - you know, it either works or it doesn't - I just hate being wrong.

 

[frugi]

Yes sounds very familiar Rosso, used to bug me all the time. Then I stopped thinking about what the market might do and just followed my setups.

Now I let the market decide whether I enter or not and to this end almost exclusively use stop-limits above or below current price to take the decision out of my hands. Of course for a stop-limit to be transmitted in the first place, my chosen pattern has to be set up, or "setting up" first, in the right (subjective) context. The only time I won't do this is when using a really simple pullback entry to a MA in a strong trend, cause either it pulls back to the MA or it doesn't, so, again, the decision is simple. Well, apart from the subjective element LOL

I almost prefer being wrong now because the exit is a simple stop. It's those pesky profits that cause gripes cause the exit is more subjective, well at least on part of the position.

 

[FetteredChinos]

I honestly couldn't care less about the money - you know

do you want my bank details? i also accept all major credit cards...

 

[FetteredChinos]

erm frugs what is that site that is your homepage?

"courage of conker boy" looks an appealing headline

though i am tempted by the "Chicken Thor" on this page...bottom left.

http://www.framleyexaminer.com/pages/framley031.html

 

[TheBramble]

If it's a case of assuming or intuiting you think you know where the price is going to go, rather than information based on specific setup & entry criteria - then not going in is the correct response.

If you're not pulling the trigger on trades which do meet your setup & entry criteria on a regular basis - then I'd step aside for a while until your head is straight.

If you're simply refusing to enter on a technically sound setup and it's a one off (i.e. just today or just one specific instrument/stock) - put it down potentially to intuition and let it go.

Either you were right not to go in or not. Doesn't matter. But either way - I'd avoid kicking yourself or gloating.

The times I've done this in the past (and still do) I don't even bother to check the outcome.

 

[frugi]

Well put, Brymble.

~Chinos,

The classifieds are my faves, along with the personals and job vacancies. A bit hit and miss but generally funny. Nowt to do with me and no idea how I found it or who is responsbile. Just found it passed the time.

 

[SvenFoster]

The title of this thread comes from Mark Douglas' book, "Trading In The Zone, " which I have, and have read many times.

It relates to the difference between thinking you know what the market is going to do, and actually entering a trade based on what you see.

The book quotes:

"How many times have you looked at a price chart and said to yourself "Hmm, it looks like the market is going up/down here.", and what you thought was going to happen actually happened. But you did nothing except watch the market move while you anguished over all the money you could have made"

I myself have done that three times today already, and the US market has not been open two hours.

Anyone else have this problem, or maybe had it in the past and dealt with it succesfully? (I'm not saying I never put on a position, its just sometimes I think my belief in my own analysis is not strong enough to make me pull the trigger). If so, what did you do?

I suffer this amongst other things. Douglas appears to state confidence as the main reason and I'm inclined to agree. I "trade"(attempt to trade) from a discressionary point of view and I'm convinced a lot of my problems stem from trying to second guess everything due to *not* having a plan with setups included.

I keep telling myself that "It's not me being right or wrong" its "a numbers game and even perfect setups can fail. The best I can hope for is trading the most probable outcome" ...wish I listened.

I think traders who are using more mechanical means for entry are less likely to suffer this.

 

[Racer]

I just hate being wrong.

Isn't that the problem for a lot of traders? Admitting you are wrong, can't see that you are wrong and won't do anything about it even if you half admit to yourself that you are?
Men don't like to admit they are wrong anyway do they

 

[hagadol]

The following Douglasisms should help:

"Become certain that certainty does not exist"

"Trade your edge, do not try to decide that you know where the market is going"

When I hesitate and or don't pull the trigger, it is usally because I am looking for that certain result, which does not exist.

I transferred both Douglas books to audio, using a text to audio program. On the MP3 player now. Have heard many gems, which my eyes overlooked.

 

[Roberto]

I almost prefer being wrong now because the exit is a simple stop. It's those pesky profits that cause gripes cause the exit is more subjective, well at least on part of the position.

Absolutely. That's something that a Raschke grail trade and 1-2-3 trade (and probably many other styles) have in common. "Know the feeling, squire; know the feeling".

 

[hagadol]

This is always a good reminder, to keep the head (and triger finger) in order:

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step1

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step2

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step3

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step4

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step5

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step6

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step7

 

[rossored]

What type of files are they, Hagadol?

 

[dbphoenix]

Anyone else have this problem, or maybe had it in the past and dealt with it succesfully? (I'm not saying I never put on a position, its just sometimes I think my belief in my own analysis is not strong enough to make me pull the trigger). If so, what did you do?

It's not so much a matter of belief as of testing. If you create, develop, test and retest your strategy exactly as Douglas (and others) suggests until you have something that's consistently profitable, then the question of what the market is going to do ceases to be relevant. If you see your setup, you take it. If you don't, you don't. But to reach this level, you have to trust your strategy. And that's difficult to do unless it's thoroughly tested.

Douglas also said "the degree to 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".

 

[Glenn]

Isn't that the problem for a lot of traders? Admitting you are wrong, can't see that you are wrong and won't do anything about it even if you half admit to yourself that you are?
Men don't like to admit they are wrong anyway do they

Wasn't it Douglas who also said that when you enter a trade, "Anything can happen" ?

Imho the best policy is to assume that you are wrong every time you enter.
You are then mentally equipped to deal with it.
If it doesn't happen, you get a nice surprise instead !

Reminds me of when it used to be customary years ago to go across the ballroom dance floor to ask a girl to dance.
If she said no thanks, you then had to traipse back across the floor with everyone watching.
You soon learnt to deal with it [on the very few occasions it happened of course ]
And as your Dad always told you "Plenty more fish in the sea son"

The same with cold-call selling. If you got a £100 deal from every 10th call you made, then each time you got a "No thanks" you said to yourself "Right that's another £10 in my pocket".

Is your cup half full or half empty ?

Glenn

 

[hagadol]

Rossored

They R just web pages, with a summary from the Disciplined Trader.

Hag

 

[hagadol]

Glenn

"Imho the best policy is to assume that you are wrong every time you enter."

Douglas suggests that this (assume you are going to lose) is a bad loop, as if you are truly trading in the zone, you do not need to worry about being wrong or right or winning or losing. All you do is take your edge, everytime it appears, knowing that over a series of trades you will be up. It is immpossible to tell the outcome of an individual trade, though if you have an edge, you should be sure that over a series of 20+ trades you should be ahead. This is all you need to know.

If you assume you are wrong everytime you enter, then you are preparing yourself and concerned about the outcome and not free to think objectivly. You should not have to set yourself up with protection from a loss.

 

[dbphoenix]

You should not have to set yourself up with protection from a loss.

Not exactly, though this may not be what you intended to say. One does has to protect himself from losses that are outside the level of risk that he chooses to take when entering the trade (all of which will have been included in the testing procedure). However, if one seeks to protect himself from loss, then he hasn't accepted the fact that losses are inescapable. The focus should instead be on what to do about them.

For example, when entering a trade, one expects price to do more or less what it did when the setup and strategy were tested. If it doesn't do that, then one has to plan for the contingencies, including a pre-emptive stop. Sufficient testing enables the trader to focus on what price is doing without being seized by terror.

 

[ducati998]

dbp,

It's not so much a matter of belief as of testing. If you create, develop, test and retest your strategy

How does "testing" differ from "belief"?
Surely, all that you are accomplishing in this case is a reinforcement, or increased confidence that your setup is effective........simply belief by another name.

What I believe testing does accomplish is confidence in recognition, by viewing 100's or 1000's
examples of a specific setup. As each one will look a little different as it sets-up, and will have importantly different "sentiment" attached to it.......different day, different news, different context, filtering out the noise attached to your setup, so that it does not detract from your ability to recognise your setup is a far more difficult task.

It is this skill, taking the trade long, when everyone but your setup is screaming short.
This is very much a "belief" thing, confidence thing,experience thing.

Douglas also said "the degree to 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".

And that is rather a contradiction.
If you have no faith in your setup that you have tested, then why place money on it?

You place money on it simply because you know (from your extensive testing) that it has approximately a 60% probability of returning you a profit.

If you believed that it had a 0% probability, then you would not take the trade, or trade in the opposite direction, as that now assumes a 100% probability.

If testing has any validity, then belief becomes a given.
If not, then go long or short, and use tight money management, and you have 50% chance of being right, the money management, if effective, will keep you ahead.........just, maybe.

Douglas suggests that this (assume you are going to lose) is a bad loop, as if you are truly trading in the zone, you do not need to worry about being wrong or right or winning or losing. All you do is take your edge, everytime it appears, knowing that over a series of trades you will be up. It is immpossible to tell the outcome of an individual trade, though if you have an edge, you should be sure that over a series of 20+ trades you should be ahead. This is all you need to know.

Here is his rebuttal of his previous quote.
The belief resides in "the edge" and "a series of trades you will be up"

cheers d998