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I haven't found any good lottery videos, maybe because the lottery is, unlike trading, something that doesn't make any sense, since you have no edge whatsoever (but the analogy helps you understand money management). I'll just post random videos for now, to remind myself of this important analogy.
 
Well, let me explain it to myself and write it out one more time.

You should approach each trade as if you were buying a lottery ticket. You have a fixed cost for that ticket, which is your stoploss, that will get refunded if you were right.

This way you do not perceive that loss as a loss, and do not see yourself as a failure, because you feel like you paid that ticket at the moment you made the trade.

If you do it the other way around, and forget about that (potential) cost until it happens, you won't be ready to accept the loss when it happens, also because you will not have set a given loss level, and that loss may be too big to accept.

For example, on my last trade, without this analogy, I would have bought 3 contracts, but that meant a lottery ticket of 300 dollars, which right now I don't feel comfortable with. So, thanks to the analogy, I ended up buying one ticket for 100 dollars. The ticket for 300 dollars would have given me a potential jackpot of three times as much, but I didn't go for it.

Once you perceive everything in terms of risk/reward (as long as probablities are also on your side), you can afford to even make bigger bets, like investing all you got on one future, which is something everyone advises you not to do, but which makes sense if you are able to take your losses.

For example, say I am positive we just hit bottom, because of pivots and beacause of round numbers on the EUR, like 1.5 and there's a pivot line right there... say I want to bet on that. If the stoploss is just ten ticks lower, and I place it there, I could afford to buy 5 contracts, with a stoploss of just 600 dollars. Yeah, that is a lot, but if you stand to make 6000, you might want to do that.

What I mean is that, as long as you have the lottery ticket cost in mind and know exactly how much you'd be losing from a given trade, you can do anything you want. Nothing should have the power of scaring you, because you know exactly how much money you'll be losing if you are wrong, and you're accepting that.
 
Hey Trav,

I know you are averse to trading options. But I have a question.

Taking your ideology of lotteries into account, if you were to pick up options with the right greeks, wouldnt you get more bang for your buck ? Also, there is the safety of it being an option (no need for a guaranteed stop-loss).

Please advise.
 
Risk, risk, risk, risk... let's never forget it.

How many times I've read on forums sentences such as:
A good trader doesn't dream of how much he will make, but worries about how much he may lose.

I was bothered by these sentences, because I don't like anything that's popular, but these guys were all correct. Basically the whole financial forum community is saying nothing but right things. But few of us can really put everything together and make it work and produce money.

Excellent post. It is paradoxical how the knowledge of how to trade successfully is almost hidden in plain sight, and yet it's so hard to put into practice...

But yes to agree with what you say above, if you can stomach another quote, as Brian Shannon says, "our first job as trader is that of risk manager." If you forget that then sooner or later (probably sooner) you'll be punished for it.
 
Hey Trav,

I know you are averse to trading options. But I have a question.

Taking your ideology of lotteries into account, if you were to pick up options with the right greeks, wouldnt you get more bang for your buck ? Also, there is the safety of it being an option (no need for a guaranteed stop-loss).

Please advise.

Yes, if it works with futures, it works even better with options. But the variables with options are more so I quit trading them in 2003, after losing money for 6 years, to simplify my trading. It's like saying: if you can't juggle with three balls, how are you going to juggle with 5 balls. Options have time decay and other problems, and you have to worry about volume and liquidity, and bid-ask spread... since I can't even be profitable just worrying about "up or down", how can I be profitable with so many more variables? But I am sure that if - as you said - you can take care of all those things together, you will manage to make money with options, and probably more money because they can have more leverage (especially those near expiration, but of course it's a lot of work to pick the right ones). Another problem with options is that they're all so different from one another that they make back-testing impossible, and money management quite complicated. I mean: you might be losing money for years and not understand exactly what is causing it, with so many things to worry about.

I am sure other members reading may contribute some more ideas, because I certainly am not an expert at options (nor anything yet, because as I said I've been unprofitable until today).
 
Info for spread betting fans about options.

Not long time ago heard it from a famous spread betting enthusiast

“I am looking forward one day to meeting someone who makes a regular profit out of spread betting on options”
 
In the meanwhile, I've kind of over-extended myself, and bet 3 contracts instead of one, so the price of this lottery ticket will be about 250, but with this lottery ticket my jackpot will be about 2000 dollars.

The lottery is still on-going and my ticket still valid, and after so many hours this is a good sign, I mean the fact that my stoploss has not been triggered. Not much potential profit yet. Unless my ticket expires because of stoploss being reached, I will close this lottery at about 22.00 CET.
 
What's not good is that I've been doing some hoping and compulsive checking on my positions (there's a constant danger of resuming my old emotional trading/gambling), and this is telling me that this 3-contracts ticket was quite costly to me. I should have kept just 1 contract.

But now I will remind myself that the ticket was bought, and that there's nothing I can do about it. I will either win or see it expire. Nothing to worry about. My 250 dollars are gone (the trade has been made and its stoploss is in place), and I have this ticket, that might give me 2000 dollars tonight. That's all there is to it. That's how I should see it.
 
In this case the ZN future. These are the futures I trade at these exchanges:

EUR GLOBEX
GBP GLOBEX
JPY GLOBEX
ES GLOBEX
YM ECBOT
ZN ECBOT
GBL DTB
CL NYMEX
GC NYMEX
 
Ok, I closed one of the 3 contracts, at a gain of 100. Now I can go on with the other two contracts, and feel ok about it. Without having to compulsively check what's going on. So far that ticket was a winner.

On the other hand, I feel so so, because today my automated system lost 300 on the GBP.
 
Of course I appraise that it's best to close the lottery at 22.00 CET only because of my statistical back-testing, but that's part of my edge and has nothing to do with the stoploss. I mean, I know my system performs well, but nonetheless I lost money in the past, because I allowed it to lose everything when it was wrong. I lost despite having an edge.
 
Well, whatever your mystery system is, I am awestruck by the kind of intraday/ST moves you have been able to spot.
 
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