The 3 'M's of trading Mind, Method & Money Management

[cablemonster]

We often read about the 3 M's of trading Mind, Method & Money Management. I don't think anyone here would contest that you need to excel in each of the 3Ms to make it however what notional weighting would you give them.

When I started trading around 5 years ago although I didn't really have a concept of the 3Ms I would say my trading was roughly in the proportion:

20% Mind
70% Method
10% Money Management

5 years on knowing what I know now I reckon I am closer to:

70% Mind
20% Method
10% Money Management

I would be interested to hear other people opinions on how much weighting they give to each M. Perhaps I am putting less emphasis on Money Management as I know what needs to be done and do it hence focus on other things. Of course the Mind is all encompassing and is part of the the other 2Ms as well.

GTTY

 

[wino59]

We often read about the 3 M's of trading Mind, Method & Money Management. I don't think anyone here would contest that you need to excel in each of the 3Ms to make it however what notional weighting would you give them.

When I started trading around 5 years ago although I didn't really have a concept of the 3Ms I would say my trading was roughly in the proportion:

20% Mind
70% Method
10% Money Management

5 years on knowing what I know now I reckon I am closer to:

70% Mind
20% Method
10% Money Management

I would be interested to hear other people opinions on how much weighting they give to each M. Perhaps I am putting less emphasis on Money Management as I know what needs to be done and do it hence focus on other things. Of course the Mind is all encompassing and is part of the the other 2Ms as well.

GTTY

I would agree with your assessment... I think the mind is the most important aspect of the 3.

I made dumb trades yesterday, and over-traded... why? The mind...exited positions that I shouldn't have, exited to early, etc... Nothing wrong with the method, just dumb decisions on my part.

I honestly believe to be successful you have to have to keep a strong mind, and a big part of that would be self assessment... Understanding what you are doing wrong, and put a plan of action in to correct.

I know what I did wrong yesterday, and I won't do it again. I took a trade that was a position trade, then exited like I was scalping, dumb... I can't combine the two as they both have different tolerances for stop loss and time frames, but for some reason I was trying to do both.

So I think this further proves your point that the mind will have drastic affects on outcome, the method could be as solid as they come, but the mind has to execute it.

 

[cablemonster]

I would agree with your assessment... I think the mind is the most important aspect of the 3.

I made dumb trades yesterday, and over-traded... why? The mind...exited positions that I shouldn't have, exited to early, etc... Nothing wrong with the method, just dumb decisions on my part.

I honestly believe to be successful you have to have to keep a strong mind, and a big part of that would be self assessment... Understanding what you are doing wrong, and put a plan of action in to correct.

I know what I did wrong yesterday, and I won't do it again. I took a trade that was a position trade, then exited like I was scalping, dumb... I can't combine the two as they both have different tolerances for stop loss and time frames, but for some reason I was trying to do both.

So I think this further proves your point that the mind will have drastic affects on outcome, the method could be as solid as they come, but the mind has to execute it.

you seem to have the right attitude. overtrading is a mental trap that most of us faced and continue to face. For me it took me several years to get the need to trade out of my system and it is a constant battle to stop it creeping back in. I can now sit for 3 hours and not take a single trade without any ounce of regret - i have just done it on cable. 10am - 1pm not a single trade and I am happy because I wasnt tempted in.

to learn patience and discipline can take years for some, some will never learn. Others are disciplined from outset but these type of people are in the minority imo. It will be a constant journey of self evaluation where you have to fend of bad habits.

once you finally learn the patience and discipline it will then be tested again as you size up and the mental challenges increase - it never stops!

 

[malaguti]

We often read about the 3 M's of trading Mind, Method & Money Management. I don't think anyone here would contest that you need to excel in each of the 3Ms to make it however what notional weighting would you give them.

When I started trading around 5 years ago although I didn't really have a concept of the 3Ms I would say my trading was roughly in the proportion:

20% Mind
70% Method
10% Money Management

5 years on knowing what I know now I reckon I am closer to:

70% Mind
20% Method
10% Money Management

I would be interested to hear other people opinions on how much weighting they give to each M. Perhaps I am putting less emphasis on Money Management as I know what needs to be done and do it hence focus on other things. Of course the Mind is all encompassing and is part of the the other 2Ms as well.

GTTY

I think a little different. I read trading in the zone and others around the mind but it was all theory. you mustnt do this, you mustnt do that...but thats all well and good but you cant actually get your mind to not sabotage yourself. And this is where the method is more important. If I make a loss now, its simply a statistic, even 5-6 losses in a row. I know my system/method is rock solid. Without that, the mind aspect was nothing, just theory. And still is. So one looks after the other. Money is still important though
so for me, its 80% method and 20% money

 

[robster970]

5 years ago:

Mind - 0%
Method - 80%
Money - 20%

Today:

Mind - 80%
Method - 20%
Money - 0%

What is difficult to quantify is the amount of market understanding I have accumulated in that period which makes method less of an area of focus. Mind is always the issue. It was hard getting over it in the beginning, it was hard scaling up and continues to knock the efficacy of even the best set-ups and will always be the element that can create the most damage to the bottom line.

Automation is an attractive prospect for me but it is as much effort as discretionary trading from what I can see. I suppose it's what suits the individual really and the effort and commitment you put in.

 

[VielGeld]

I think they're all equally important. You do need an edge of sorts, but also need to make sure you can trade it and size yourself properly.

So 33% each for me atm.

 

[Liquid validity]

Automation is an attractive prospect for me but it is as much effort as discretionary trading from what I can see. I suppose it's what suits the individual really and the effort and commitment you put in.

Bang on there, completely agree
Either way requires a significant time and thought investment.

 

[random12345]

I think a little different. I read trading in the zone and others around the mind but it was all theory. you mustnt do this, you mustnt do that...but thats all well and good but you cant actually get your mind to not sabotage yourself. And this is where the method is more important. If I make a loss now, its simply a statistic, even 5-6 losses in a row. I know my system/method is rock solid. Without that, the mind aspect was nothing, just theory. And still is. So one looks after the other. Money is still important though
so for me, its 80% method and 20% money

Personally I agree with Malaguti - I have had a few systems in the past that I was able to model more thoroughly as I progressed only to find out they were flawed and I was frankly very happy that I never managed to develop the 'mind' to trade them! I never had confidence that they weren't flawed and that wasn't going to change with better psychology - it's an intellectual twang telling you that you aren't prepared and tested rather than a psychological flaw in my view. Many 3-1 type methods are simply break-even when you account for more than a year at a time. A method that deposits you a nice monthly profit is very rare indeed and is running counter to the 'semi-random' logic of non buy and hold market movement.

It is interesting to me that many of the older posters have disappeared forever and the new flock are just saying the same things they used to. I'd bet more in favour that the bulk of former group gave up, tired of breaking even, rather than moving onto bigger and better things. This is because there are a few people forward testing ideas for years on end who have yet to learn the sad truth about their trading that they could have learned with a bit more application on past data. I am not immune to hiding the truth from myself out of hope - I have done so before, especially on day trading. It's a terrible human flaw.

 

[cablemonster]

Personally I agree with Malaguti - I have had a few systems in the past that I was able to model more thoroughly as I progressed only to find out they were flawed and I was frankly very happy that I never managed to develop the 'mind' to trade them! I never had confidence that they weren't flawed and that wasn't going to change with better psychology - it's an intellectual twang telling you that you aren't prepared and tested rather than a psychological flaw in my view. Many 3-1 type methods are simply break-even when you account for more than a year at a time. A method that deposits you a nice monthly profit is very rare indeed and is running counter to the 'semi-random' logic of non buy and hold market movement.

It is interesting to me that many of the older posters have disappeared forever and the new flock are just saying the same things they used to. I'd bet more in favour that the bulk of former group gave up, tired of breaking even, rather than moving onto bigger and better things. This is because there are a few people forward testing ideas for years on end who have yet to learn the sad truth about their trading that they could have learned with a bit more application on past data. I am not immune to hiding the truth from myself out of hope - I have done so before, especially on day trading. It's a terrible human flaw.

that's interesting. Are you a 100% automated trader or discretionary/mix?

 

[robster970]

Personally I agree with Malaguti - I have had a few systems in the past that I was able to model more thoroughly as I progressed only to find out they were flawed and I was frankly very happy that I never managed to develop the 'mind' to trade them! I never had confidence that they weren't flawed and that wasn't going to change with better psychology - it's an intellectual twang telling you that you aren't prepared and tested rather than a psychological flaw in my view. Many 3-1 type methods are simply break-even when you account for more than a year at a time. A method that deposits you a nice monthly profit is very rare indeed and is running counter to the 'semi-random' logic of non buy and hold market movement.

It is interesting to me that many of the older posters have disappeared forever and the new flock are just saying the same things they used to. I'd bet more in favour that the bulk of former group gave up, tired of breaking even, rather than moving onto bigger and better things. This is because there are a few people forward testing ideas for years on end who have yet to learn the sad truth about their trading that they could have learned with a bit more application on past data. I am not immune to hiding the truth from myself out of hope - I have done so before, especially on day trading. It's a terrible human flaw.

Longetivity is always in the back of my mind. However I have found that living with the uncertainty has become easier over time and I am more philosophical about it than I was, say, 3 years ago.

 

[random12345]

that's interesting. Are you a 100% automated trader or discretionary/mix?

100% automated as of 2013. I used to hedge my automation with long term bets on a currency basket using a spread better and use IB for automation and intra day. However, I could see no discernible advantage in the long term of doing this. The ROI on my automation was far in advance of my other methods and therefore depriving my automated systems of position sizing in favour of a pointless hedge that may not even be a hedge, I simply went 100% automated with a relatively prudent outlook on drawdown. I have also reduced the number of currencies I trade. For an automated retail trader there doesn't seem to be any advantage in not focussing on the cheapest and most tested pairs.

 

[random12345]

Longetivity is always in the back of my mind. However I have found that living with the uncertainty has become easier over time and I am more philosophical about it than I was, say, 3 years ago.

Indeed - as you bet larger and larger, it's helpful to put numbers of everything, I always make sure that my maximum drawdown constitutes 25% of my exposure on that pair. So if I have a position size of 400 10 grand cts on the EU, my max dd in the past 3 years is $142,000 and therefore I keep $568,000 aside specifically for that pair, separate to margin and that is the most I am willing to lose before I declare my own personal black swan hit and time to start again.

 

[kimo'sabby]

We often read about the 3 M's of trading Mind, Method & Money Management. I don't think anyone here would contest that you need to excel in each of the 3Ms to make it however what notional weighting would you give them.

When I started trading around 5 years ago although I didn't really have a concept of the 3Ms I would say my trading was roughly in the proportion:

20% Mind
70% Method
10% Money Management

5 years on knowing what I know now I reckon I am closer to:

70% Mind
20% Method
10% Money Management

I would be interested to hear other people opinions on how much weighting they give to each M. Perhaps I am putting less emphasis on Money Management as I know what needs to be done and do it hence focus on other things. Of course the Mind is all encompassing and is part of the the other 2Ms as well.

GTTY

33.33 Mind
33.33 Method
33.33 Money Management

I'm emphasizing balance, but i suppose everything relates to the, Mind, 100%.