Winning trader's mind

[bbmac]

Hi

Not that most here would know much about what I ask, but nevertheless I enquire.

What is the frame of mind of a winning trader, what is he thinking when he puts on a trade?Is he prepared for a failed set up and failed t/a? Is he prepared ready to deal with losses? Has he got a game plan on exits , losses and profit targets? What is going on in his mind?

Is there a good book to read ?

Reading again the Op's original post, and breaking down the questions contained therein:

a. What is the frame of mind of a winning trader?

Simply put it is to follow his trading plan, to act decisively at set-ups that are designated as his trading edge and therefore form part of his trading plan and to seek to do this with impunity.

b. What is he thinking when he puts on a trade?Is he prepared for a failed set up and failed t/a?

When he puts on a trade, he should have doine so beacuse his trading edge has developed and his trading plan should kick in as regards stop and targets as well as managing the trade. He should be thinking that it is futile getting hung up on one trade as it is just a statistic in a sample of trades that occuir when his trading edge develops. He cannot know in advance which will result in a gain or loss but he is confident that over the sample a net gain will result if he follows his plan, and as such he is prepeared for a failed set-up beacuse he knows that not every one results in an individual gain. Should the trade fail he should seek to ensure that he made no mistakes in identifying his trading edge, ie that it was actually present and that the trade wasn't just a greed/fear/hope/revenge/frustration/boredom trade...if it was and he therfore followed his trading plan, he can move on to look for the next time the trading edge develops, and if it was not, then he must loearn the lesson.

c. Is he prepared ready to deal with losses?
If he follows his trading plan losses are a cost of doing business, a losing trade gets him nearer to the next winning trade. If he knows his strike rate of the trading edge/set-up that is part of his trading edge he will know the prbability of success/failure across any extended sample and he will know too the probability of a consecutive losing run and the likely length of that losing run. He will know that as long as he continues to trade only his trading edge and implimenmt his trading plan, he can deal with any individual losses. He will also know that his leverage/risk is optimised safely to the historical strike rate of his trading edge and so any individual loss (s) resulting from a trade will not be detsabilising or critical to the future implimentation of the trading edge.

d. Has he got a game plan on exits , and profit targets?
His exit and profit target are part of his trading plan and are therefore pre-determined...he knows that in the heat of a trade, emotions can run high and cloud judgement so he is best to know this before he enters the trade, as such ist is part of implimenting his trading plan.

As discussed in another post on this thread, it is the repitition of implimenting the trading plan, [until it's implimentation is consistently perfect, or as close to it as is possible to get, with perfection the goal,] that is the goal of the trader, and this is a winning mindset because it's implimentation will result in realising a net gain for his efforts. Constant analysis of mistakes and remedies to correct them toward this aim should be the objectives towards achieving the goal.

 

[bbmac]

I was reminded recently of the excellent Mark Douglas's 5 Fundamental Truths of Trading and his 7 Principles of Consistency....he is mentioned a couple of times in this thread, and I too recommend his books/teachings.

They have been referred to and posted many times before over the various trading forums, this one included but seem very pertinent to this thread. I wonder how many of us that accept the premise contained therein, ie truly accept the Fundamental Truths and wonder too how far we are in implementing the 7 Principles of Consistency, in our own trading ?

The 5 Fundamental Truths of Trading:

1. Anything can happen.

2. You don’t need to know what is going to happen next to make money.

3. There is a random distribution between wins and losses for any given set of
variables that define an edge.

4. An edge is nothing more than an indication of a higher probability of one thing
happening over another.

5. Every moment in the market is unique.

The 7 Principles of Consistency:

1. I objectively identify my edges.

2. I predefine the risk of every trade.

3. I completely accept the risk or I am willing to let go of the trade.

4. I act on my edges without reservation or hesitation.

5. I pay myself as the market makes money available to me.

6. I continually monitor my susceptibility for making errors.

7. I understand the absolute necessity of these principles of consistent success
and, therefore, I never violate them.

G/L

 

[Black Swan]

I am thinking Michael Douglas - .

You seen Wall Street 2 yet..?

 

[Black Swan]

Weird thing is with those Mark Douglas quotes and rules of engagement is on first reading/inspection a light goes on, then you kinda forget about them...then a couple of years down the line you read them /see them written again and think "No 5hit, that is the way it is..."..

 

[Black Swan]

I also find that regular excercise, mashed swede and a complete avoidance of midget gems has helped me develop a 'winning mindset.'







G/L

I've seen/met some Swedish girls that would get a right mashing too BB...:cheesy:

 

[oildaytrader]

BBMAC.

Thanks for some really good posts.

How do the mind handle change in trend on 1 min .Let us take an example .1 min trend line is up and previous down trend is exhausted, 1 min up trend fails.Do you trade a reversal and if yes when .Here is yesterday's e/usd chart on 1 minute.What would you have done at around 9 p m?

People sometimes find it difficult when trend is changing , the mind can see the current trend ,it can not always see the future trend.

 

[slight]

You seen Wall Street 2 yet..?

lol, Mark Douglas of course .. sry

and you are right about that other post you made. reading about it is one thing, but that won't help until you actually notice when where and how YOU need to implement what he is saying in the book.

 

[oiltanker]

1min trend?

what would have happened if you took the trend off the daily and only took the 1min trades in that direction?

 

[slight]

You would pretty much always lose. The trend of daily has nothing to do with the trend of the 1min. There are many internal corrections and timeframes inbetween that don't make these too related at all. If you are looking for an overall trend when trading the 1min, you have to look at the 5 and 10 min chart. If you trade the 5/10 min chart, your overall trend is on the 30-60 min, if you trade the 30-60 min, your overall trend is on the 3-4h chart etc.

@oildaytrader:
What would one have done on EU 1 min last night at 9pm? Whatever your system would have told you to do. Don't think about it. Trade it.

1min trend?

what would have happened if you took the trend off the daily and only took the 1min trades in that direction?

 

[Wino]

This is the best thread on trading psychology I have ever read, thanks guys.

 

[oiltanker]

imo there is no trend on the 1 min. 1 min =noise

the people who move markets with 1000s of contracts are not dipping in and out of the 1 min.

but if some are getting consistency out of it fine.

 

[oildaytrader]

You would pretty much always lose. The trend of daily has nothing to do with the trend of the 1min. There are many internal corrections and timeframes inbetween that don't make these too related at all. If you are looking for an overall trend when trading the 1min, you have to look at the 5 and 10 min chart. If you trade the 5/10 min chart, your overall trend is on the 30-60 min, if you trade the 30-60 min, your overall trend is on the 3-4h chart etc.

@oildaytrader:
What would one have done on EU 1 min last night at 9pm? Whatever your system would have told you to do. Don't think about it. Trade it.

My instincts/system told me to trade long a falling wedge.It failed.

 

[slight]

imo an instinct is not a system. i am also not the greatest fan of pure TA. so dunno why it didnt work for you. however, no system is loser-free.

My instincts/system told me to trade long a falling wedge.It failed.

 

[4xpipcounter]

Well, seeing this thread deals with the mind, it would depend on the mind that is considering the trade. Also, I'm thinking we all have a pair of different eyes, and we view our trades through the eyes of our methodology. I look at your chart, and I'm in left field with regards to my method of trading. Someone else may view it and see your trendlines and say, "Based on what I see I would enter a position", and hit a home run.
My answer is vague, but nothing could really be concrete, considering we are dealing with something as personal as the mind. Also, I can't relate to a one-minute chart. I don't have the "mind" for it--lol.

BBMAC.

Thanks for some really good posts.

How do the mind handle change in trend on 1 min .Let us take an example .1 min trend line is up and previous down trend is exhausted, 1 min up trend fails.Do you trade a reversal and if yes when .Here is yesterday's e/usd chart on 1 minute.What would you have done at around 9 p m?

People sometimes find it difficult when trend is changing , the mind can see the current trend ,it can not always see the future trend.

 

[bbmac]

BBMAC.

Thanks for some really good posts.

How do the mind handle change in trend on 1 min .Let us take an example .1 min trend line is up and previous down trend is exhausted, 1 min up trend fails.Do you trade a reversal and if yes when .Here is yesterday's e/usd chart on 1 minute.What would you have done at around 9 p m?

People sometimes find it difficult when trend is changing , the mind can see the current trend ,it can not always see the future trend.

Hi,

I would answer your question as follows: Firstly it is difficult for me to objectively answer your quesion 'What would you have done around 9pm...' as I can see what happened next so this detracts from a purely objective answer. That said;

a. I do not measure trend by trend lines...I use overall price action (opa) -peak/valley analysis...ie an uptrend is composed of fractal swing HH's and HL's, coverseley downtrend's are comrpised of fractal LH's and LL's...... Taking an uptrend example, an uptrend is in question when prce makes a L below the last HL of the uptrenmd, followed by a LH and a LL.

b. Re your 1min example, ....I personally analyse price across 3 time frames, ie I use the 30min as my 'trend' t/f, 5min as the ' intermediate' t/f and 1min as the ' trigger' t/f....Obviously the 1min price action will give the first clues as to the likely strength/exhaustion or otherwise of an opa trend on the t/f's above it...If there was an opa downtrend present on the 5min and 30min t/f, then the highest probability trading opportunity would be to look for a re-entry into that downtrend following a pullback...and timing it on the t/f's below it....in so doing I would look for hidden divergence and a price action trigger on the 1min at a 5min previous fractal swing lo=prev supp=potential sbr for a re-entry into the 5min+ downtrend, and I would want to see that at a LH or H on the 1min t/f that coinciding with a LH on the 5min...If the pullback is deeper, then I would look for a 5min hidden divergence entry timed as a 1min regular divergence trigger, into the 30min opa downtrend at a previous 30min fractal swing lo = prev support=potential sbr...for a re-entry into that 30min (+?) opa downtrend, and I would want to see that at a LH or H on the 5min t/f that coinciding with a LH on the 30min.

If there was not an opa downtrend present on 5min I would not look for a re-entry timed on the t/f below (1min) in the manner descibed above, and similarly if an opa downtrend was not present on the 30min, I would not look for a re-entry timed on the t/f below (5min) - this entry iteself possibly timed on the 1min.

c. I agree it is difficult to spot when a trend is changing, but the clues are there re opa analysis when the trend is question, and when the trend has changed...all we have is our analysis as to what the highest probability future price direction is and if a set-up develops, we act on it. In a 3 t/f anlysis it is the trend on your longest trend t/f that is most importnt followed by that on the middle intermediate t/f...the shortest trigger t/f is not as important re trend.

d. If I see an opa trend that is present on my trigger, intermediate and trend t/f's and higher then should the re-entry set-up develop on either the trigger or intermediate t/f, the liklehood is that price moving with the trend after the pullback is the higher probability.

Sorry to get too technical,..but my point is that a price action approach to analysing trend is more accurate and in order to assess wether the trend is more or less likely to continue or not before attemopting to re-enter the trend or reverse, you ahve to conside

a. Is price within it's average price range, ie if well extended from it the chances of a with trend follow thru are lessened.
b. How strong is the opa trend, ie on how many t/f's does it exist?
c. If for example it is a downtrend, where will the sell the rally sellers come back in after a pullback...the phenomenon of support becomes resistance (sbr) and resistance becomes support (rbs) affords us the best analysis in determining this.

G/L

 

[Prawnsandwich]

bbmac....I'd be very interested to hear more on your approach to risk / position sizing...I'm always looking to fine tune my own approach to this...is there much of a variance between the amount of risk you take on the respective graded set-ups....do you base risk on a fixed % of account capital...how do you treat margin in calculation of risk etc...

 

[bbmac]

bbmac....I'd be very interested to hear more on your approach to risk / position sizing...I'm always looking to fine tune my own approach to this...is there much of a variance between the amount of risk you take on the respective graded set-ups....do you base risk on a fixed % of account capital...how do you treat margin in calculation of risk etc...

There is a difference betwwen the amount of leverage I use on each of my set-ups that are rated Maximum Confidence, A or B+ rated, with Max Conf attracting the highest leverage...The ratings are awared on the amount of tech confluence making up the confidence of the set-up with a max confidence having a regular or hidden divergence set-up with a certain fractal geometric pattern also etc...Risk is not based on a fixed % of capital per trade as each stop size required may be differenet depending on where it is most sensible to place the stop...within a certain maximum risk. Hope this answers your questions.

G/L

 

[Prawnsandwich]

There is a difference betwwen the amount of leverage I use on each of my set-ups that are rated Maximum Confidence, A or B+ rated, with Max Conf attracting the highest leverage...The ratings are awared on the amount of tech confluence making up the confidence of the set-up with a max confidence having a regular or hidden divergence set-up with a certain fractal geometric pattern also etc...Risk is not based on a fixed % of capital per day as each stop size required may be differenet depending on where it is most sensible to place the stop...within a certain maximum risk. Hope this answers your questions.

G/L

Thanks for the response....I risk a fixed % of capital per trade but size the actual position taken based on distance of stop from entry based on a sensible technical position for the stop...

I am looking at ways of maximising potential gains by adjusting risk size based on quality of the set-up, and also evaluating what is the optimum risk amount for my method / trading conditions etc

 

[bbmac]

Thanks for the response....I risk a fixed % of capital per trade but size the actual position taken based on distance of stop from entry based on a sensible technical position for the stop...

I am looking at ways of maximising potential gains by adjusting risk size based on quality of the set-up, and also evaluating what is the optimum risk amount for my method / trading conditions etc

I optimise the max risk size to the strike rate...ie know the strike rate and you know the most likley size of the longest consecutive losing run, should it occur and from this you know the risk of ruin...(remember that a loss of 25% of a/c requires a 33% gain to get back to original a/c size.) Knowing these variables enables you to determine what you are comfortable with in so far as risk is concerned, bearing in mind the worst case scenario-it not creating a 'catastrophic' loss from which you find it psychologically difficult to recover from, despite it falling within the known possible parametres of your trading edge's performance.

G/L

 

[bbmac]

Fleshing out what I was saying in my post above: The table below shows the 1% chance of the size of consecutive losing run over any 500set-up sample:



So consider the possible depletion of your a/c at the given historical strike rate of your trading edge...Let's for the sake of argument say a trading edge has a 53% strike rate (ie winners as a % of total)...and that a consecutive losing run occurs of 7...at 2% risk per trade, you have to ask yourself whether a loss of 14% would be catastropic to you, Remember too that a consec losing run could be followed by a couple of winners and another consec losing run of 2-3-4-5 which are common given this strike rate of 53%...so that actually this loss could quickly in practice go to 20% or more at such a 2% risk/trade. Are you comfortable see-ing your a/c deplete by 20%...is it a 'catastrophic loss ? By catastrophic I mean the following;

Theortically it should be possible to make money in trading from an arbitrary entry so long as the correct risk:reward strategy is employed and adhered to. Even without an arbritary entry employing say a 3:1 risk:reward ratio on a 33% strike rate (winning trades as a % of total trades) would over any sample of entries, prove profitable. It is rightly said that it is not the entry, but the exit that makes the money.

But here's the thing...when in a trade it is common to experience discomfort and the body communicates that to our brains, resulting in the all too common response to ending that discomfort...by exiting the trade early. (Our bodys react to perceived dangers by preparing to 'Fight or Flee.' )

In trading a lower strike rate system/methodology there are naturally more losing trades and crucially more consecutive losing trades. Our brains remember past losses and irrationally place more emhasis on them than the winners, resulting in it fearing more losses to come. It's mechanism to protect us from this discomfort is to secrete adrenaline and noradrenaline (which comes from the adrenal glands above the kidneys.) The release of these hormones results in the body increasing the flow of fatty sugars through the liver which causes the feelings of discomfort resulting in a much decreased ability to make objective judegements. To put it another way;

'..Your Neo-Cortex (the thinking part of your brain) shuts down and the survival mechanism in the middle and lower more primitive parts of the brain take over. As a result you can react to things and stop thinking things through rationally. Basic emotions like fear and anger take over from more complicated sophisticated higher function emotions.'

So our ability to adhere to strict risk:reward ratios necessary to ensure overall net profitability with a lower strike rate system is severely impaired with the greater number of losses and consecutive losses with this type of trading system. The greater the consecutive run of losses the greater the impairment, and again, crucially, the less experience/understanding one has of this, the greater the discomfort one might experience resulting in non-adherence with the critical risk:reward ratio.

Further to this, such a consecutive run of losing trades can also interfere with the ability to actually place the next trade when the trading edge presents itself, fearfull of further losses, thus interfering with the natural flow of probability upon which all trading edges rely.

Physical discomfort and Fear are powerful debilitating factors on the ability to profit from a trading edge.

Remember too that, following the example above a 20% depletion of a/c requires a gain of 25% to recover the a/c to starting bal. Ie 25% of the 80% (100%-20%) remaining a/c bal.


My rather long winded point is that every known eventuality and contingency has to be caterered for in your trading plan including the likely depletion of a/c at the strike rate being experienced and risk used, and your ability to recover from it, lest it turn into the 'death spiral' common to many a/c's.

G/L