Is the Holy Grail found in loss management?

737

Newbie
9 0
Hello all,

I have been trading off and on for about 10 years. I have experimented with multiple strategies over the years. I have tried moving average crosses, Bollinger band extreme retracements (my current favorite), and using all the common indicators, MACD, Stochastics, RSI, you name it. I have never been able to come up with an entry signal that's gets me into a winning trade much more than 40-50 percent of the time. Each time I start trading, I start off with a couple losers immediately and I get frustrated. I am only paper trading right now because I don't feel like I have the psychological confidence to enter real trades right now.

I have been thinking a lot about strategies lately and searching for a high success winning entry. Since I haven't found this Holy Grail for entries, I am beginning to believe that the real edge in trading comes from cutting losses short and letting winners run. I know there are a lot of pros on this board and I feel like this is a great place to get a little advice. Any thoughts or advice from anyone on this idea? Am I looking in the right direction?
 

Fugazsy

Veteren member
3,661 677
First of all thank you for your post.

Many others traders took 10 years before they became consistently profitable.

You are right, it is about probability and money management also gaining skills to place yourself in a favourable position.

Personally I do not relate myself to indicators which you mentioned, Price Action is my bread and butter

Said that absolute truths or method do not exist in trading, the only truth will be in you finding a way that relates to your personality and availability to interact with the market in a way where light fluidity is acquired.

I hope it helped a bit.
 

tomorton

Legendary member
8,087 1,195
I like that you are cutting your focus on entries. Entries are what sell out of the box strategies and training courses and trading blogs and signal services, but its exits that make the profit.

I don't find it encourages me or re-pays the effort to delve into my win rates on various strategies I have used but its always interesting to see where & why I exited any trade. I find pyramiding a winning trade very hard as opposed to simply banking the profit. Yet that's where the real money lies, in making your winners so much greater than your losers that you can live with the losers as just a business overhead. This is absolutely a psychological issue rather than a technical one and demands investment of real funds - losing real money, and developing from that scenario as a trader, is an experience tha cannot be replicated on a demo.
 

737

Newbie
9 0
Great advice, thanks for the responses. I like using price action as well. I am currently trying to learn more on that area as well. Any advice on educational material in that area? Seems like that knowledge is mostly gained with time behind the screen. I like the idea of losses being part of the business model. What a great way to look at it. You are defiantly gonna have losses with any business. Just a matter of controlling it. Please keep the advice coming. Good stuff.
 

10%Club

Junior member
30 10
If you gave a 100% certain profitable trading system to 10 traders, 9 would still lose money.

Everyone spends many years and many thousands on chasing a holy grail system and no time or money on sorting out their own subconscious emotional and psychological problems that prevent them from making easy money and being successful. It mostly boils down to your subconscious belief system, not your trading system.
 
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dbphoenix

Legendary member
6,952 1,250
Great advice, thanks for the responses. I like using price action as well. I am currently trying to learn more on that area as well. Any advice on educational material in that area? Seems like that knowledge is mostly gained with time behind the screen. I like the idea of losses being part of the business model. What a great way to look at it. You are defiantly gonna have losses with any business. Just a matter of controlling it. Please keep the advice coming. Good stuff.
If you're interested in trading price, I suggest you look at the approach posted to the first thread under my name. Entries and exits are automatic, and it's designed to let profits run and to cut losses short. If you can draw a straight line :).

If "emotions" are a problem, you may be interested in an article I wrote on fear.

Db
 

737

Newbie
9 0
If you're interested in trading price, I suggest you look at the approach posted to the first thread under my name. Entries and exits are automatic, and it's designed to let profits run and to cut losses short. If you can draw a straight line :).

If "emotions" are a problem, you may be interested in an article I wrote on fear.

Db
Thanks DB, I'll take a look. I can draw a straight line most days!
 

737

Newbie
9 0
If you gave a 100% certain profitable trading system to 10 traders, 9 would still lose money.

Everyone spends many years and many thousands on chasing a holy grail system and no time or money on sorting out their own subconscious emotional and psychological problems that prevent them from making easy money and being successful. It mostly boils down to your subconscious belief system, not your trading system.
That's what I believe I am beginning to understand. Managing your trade has to be the biggest part of success. Just like said above, "like a business". Now I just have to figure out the secret to that little management problem.
 

AlphaUnlocked

Newbie
3 1
Are you familiar with the term "expectancy"? If not, I' recommend familiarizing yourself with it.

Trading can be boiled down to your 1) win/loss ratio, 2) the average size of your profits relative to your losses, 3) how often you have the opportunity to trade, and 4) trading costs (commissions and slippage). If you have those numbers, you can theoretically figure out if your trading has a positive or negative expectancy (would you expect to make or lose money in the future?).

For example...

If you had a system that won 50% of the time and every time you won you would gain 1 unit and every time you lost you would lose 1 unit, would you want to trade that system?

How about a system that won 30% of the time, but when you won you gained 3 units and when you lost you lost 1 unit?

How about one that wins 65% of the time, but when you won you gained 1 unit and when you lost you lost 2 units?

Which one(s) would you trade?

This is just theory and there's a lot more to it (do you expect the win/loss and payout ratios to be stable over time? what % of your capital do you risk on any given trade?, etc.), but it's a step in the right direction and will help to shape the way you're thinking about your trading.

Positive expectancy comes from two places: 1) being able to spot and ride positive expectancy trades using "market intuition" or discretion (it sounds like this is what you've been trying to do), and 2) systematically capturing a structural risk premium(s) in the market (ie. trading opposite commercial hedgers in the futures markets and capturing the "capitalism" premium through buying and holding all-time-high breakouts in equities). I tried using my discretion for years, but ultimately concluded that my personality and relationship with money wasn't well-suited for that style of trading and I made the jump to the systematic side.

If you're interested in reading more about expectancy, Van Tharp's book "Trade Your Way to Financial Freedom" would be an excellent starting point.

Good luck and let me know if I can help further or answer any other questions.
 
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johnfox1234

Junior member
43 0
yeah... it seems to take on average 10 years.
just like any other business or skillset.

You go to college and study a subject for 4 years.
get some experience and hand on experience for a few years.
setup on your own and after two or three years you are cutting a profit.



No reason why trading should be anything different.

There is so much info out there now its brilliant to be a trader if you can muster it.

I suppose the short answer to the holy grail is keep losses small and ride the winners.
 
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