Trading and Blackjack

[BBB]

Hmmm

Can't say I fully agree BBB although as usual your points are the salient ones. Sure, if you don't know what you're doing, money management will only prolong your demise, but I personally don't necessarily see this as a bad thing. New traders (and even old dogs trying to learn new tricks) need time to digest all the infomation and lessons the market hands out. You can read all the books and go to all the seminars you like, and paper trade as if you were Soros himself, but in the end imho you only learn when you have a live postion. So given this, surely it makes sense to have a strategy that conserves your capital so you still have some left when you are more proficient in whatever instrument or style of trading you have been learning and are ready to up the ante.

And as for the psychology, I can only add that if you say state of mind doesnt ever come into your thinking then you're a better man than I am ;-)

I am quite happy to recognise that my state of mind can, under certain circumstances have a bearing on my trading, and am comfortable planning for this eventuality. I'm quite a self aware, introspective person and know myself well enough to know roughly when this is, what the cause is, and usually what the cure is as well. I get over excited when trading far far less than I would have done 7 or 8 years ago, and I put this down at least partly to the way I recognmise and accept the way I react sometimes (obviously the fact that I've had another few years of seeing highs lows and everything inbetween since then also helps).

Have a happy and emotional Xmas ;-)

GJ

Yep - I can see where youre coming from. The psycho bit in my original post was more to do with a point made earlier by someone implying psychology is somehow related to money management - may be I misunderstood their point???

I'm not a big fan of negative reinforcement at all in the general walk of life, e.g. how many prisoners continue to reoffend? However, as far as trading goes, I do think people learn more quickly the more painful the lesson in trading. I know I did! Maybe this is because the lessons/punishments are self inflicted. I dont know - I'm not a shrink.

All I know is that when I take a big hit and my max down for the trade is reached I know I did something wrong - and if it happens twice in the same day then it just aint my day and I find out whats wrong (Im probably trading on an emotional drive to win rather than probabilities). I usually learn something from that. I'm unlikely to make that same mistake again (well not for a while). However, if I just lose a tick or two when I decide a trade isn't going my way then the damage is minimal and I dont really feel there is much to learn. In truth though, if I added up all those 1 or 2 tick losers, the losses would far exceed the dollar loss on the occasional big loser(s) in any given week.

For a newbie, he may make the mistake of buying a spike breakout. He thinks this is it and if price continues to move like this then he will have a winning trade. So he puts in his order, perhaps risking his 1% and price promptly reverses. After 30 or so trades his account is down considerably but each time the pain was tolerable. So he continued making the same mistake. Had he risked and lost 30% on that first trade he will feel pretty bad and if he is wise will investigate the spike bars and learn they are in fact a high probability trade to short for a handful of ticks. His next 29 trades should then work out a whole lot better and he should make his money back plus - by fading the other newbies who fell into the same trap he used to.

I'll admit - when I started trading from a chart I too risked minimal percentages, so a lot of what I say is with hindsight, and assumes our newbie has the patience to learn what he is doing before jumping in the deepend with his rubber arm bands (2% stop loss order). I guess that makes me a hypocrite. Never mind - I've been called worse!

 

[wisestguy]

>>Do you mean talking through their feet ?

sure why not . kekeke

 

[wisestguy]

>>I'll admit - when I started trading from a chart I too risked minimal percentages, so a lot of what I say is ?>>with hindsight, and assumes our newbie has the patience to learn what he is doing before jumping in >>the deepend with his rubber arm bands (2% stop loss order). I guess that makes me a hypocrite. >>Never mind - I've been called worse!


You make it sound as if probabilities are hard science - they are not . No one can guarantee any 1 trade will have X % range of profit . If so the profs. at LTCM would have been rich , instead of poster boys of what NOT to do.

At best these are estimates , but important ones . Called a reward : risk ratio per trade , in normal language.

 

[BBB]

This is a fair point wisetguy. The probabilities do keep changing over time. What works today may not work out to have the same probabilites tomorrow.

 

[wisestguy]

Well , no not really .

whether they change or not over time is not the point . Like I said at best, these are estimates of profitabilty on any given trade , but important ones .

 

[wisestguy]

>>A card game is an ongoing process,where one is forced to make decisions based on what you are >dealt. A good trader doesn't have to take what is dealt-today being a case in point for me as I spent 8 >>hours not trading. May you all be profitable


rubbish . you have obviously never played poker or Black Jack before . you don't have to do anything , you can close for the round or even piggy back on someone else's hand


>>I trade for a living


in case you haven't noticed , every other person on this board claims the same thing.

 

[Roberto]

If the price reverses on him 30 times out of 30 I'd pay money for his "system" and simply trade the reversals; it would be an astonishing strike-rate of successful trades.

 

[BBB]

Fair points guys - my comments were a bit tongue in cheek to emphasise the issue.

I'd be interested to know however if people here feel they learnt most from their big mistakes, or from a large number of repetitive smaller mistakes. Thats the critical issue I'm trying to get across here. Like I said Im no shrink - and were all different.

 

[wisestguy]

>>I'd be interested to know however if people here feel they learnt most from their big mistakes, or from a >>large number of repetitive smaller mistakes.

a sensible trader would , I know I certainly have , the big ones hurt !
but I would say that a lot of people don't , even on the big mistakes.

 

[BBB]

Repetitive mistakes definitely for me. Things like repeatedly trying to fade liquidity spikes in thin currency pairs like cable BEFORE getting confirmation from elswhere that the price should turn. Yeah I have on occasion jumped the gun and caught the pullback to the previous range absolutely perfectly, but nowadays I try and wait for it to setup a bit better for a higher probability of success. Took a few goes though to learn a bit about what signs to look for.

All of my big mistakes (in terms of big money dropped) have either been big positions or illiquidity. Lessons learned from these are usually very different and, by necessity have to be learned pretty much first time.

QED

 

[chump]

Big mistakes are best ..they hurt a lot ..often very black and white..nothing marginal that can be rationalised away..and plenty of motivation not to repeat

 

[Roberto]

Good question. I think, for myself, it's the frequency of mistakes that teaches me most, not their size. I'd say I've learnt more from repeatedly doing the same thing wrong than from the occasional disaster. (That's perhaps partly because I use tighter stops now than ever before, and get out of trades more quickly if they turn against me as soon as they're on, than I ever used to.) When you've made all the mistakes I have over the years, there's been too much to learn to be able to take them all in the first time. I also have the habit of looking at trading capital as "units" rather than thinking about what the money it respresents can actually buy, and although this has some advantages, it can also mean that you sometimes don't pay enough attention to expensive mistakes.

 

[Windlesham1]

>>A card game is an ongoing process,where one is forced to make decisions based on what you are >dealt. A good trader doesn't have to take what is dealt-today being a case in point for me as I spent 8 >>hours not trading. May you all be profitable


rubbish . you have obviously never played poker or Black Jack before . you don't have to do anything , you can close for the round or even piggy back on someone else's hand


>>I trade for a living


in case you haven't noticed , every other person on this board claims the same thing.

Obviously I will never play cards for a living-having been to Las Vegas and seen the world's saddest people.

 

[wisestguy]

>>Obviously I will never play cards for a living-having been to Las Vegas and seen the world's saddest >>people.


You are not well informed . casinos BAN winning players and keep the losers . obvious . see " beat the dealer " , and many other similar accounts.

 

[DeltaGuy]

This article compares day trading to gambling (specifically blackjack):
http://www.deltat1.com/Education/articles/gambling/gambling.htm

 

[Windlesham1]

Delta guy's article confirms the validity of the Martingale,but damned if I can see what the point is. Perhaps it's a bias thing-the idea of playing cards is, for me, duller than today's ftse(to date 15:09),but then a lot of people start to get that glazed look when I talk about options.
Re: mistakes- I made a big one in the summer,taught me a lesson.

 

[Zenda]

Get Married?

 

[jsd]

I'd be interested to know however if people here feel they learnt most from their big mistakes, or from a large number of repetitive smaller mistakes.

Everybody sing along now.

"Repetitive mistakes are Bigger Mistakes to make than a Big mistake, thats a neurosis. "


Thats why psychology is important. Its not 80% its 100% (ho)

jsd

 

[Windlesham1]

Get Married?

Marriage is a fine and noble institution,whereas LSE and LIFFE? Mine is the vitriol that dare not speak its name!
Nah,just having a bit of fun. My big mistake was to run a losing position-this week's big mistake was not holding a winning position. Did I mention I have made more than one mistake?

 

[Mr Subliminal]

rubbish . you have obviously never played poker or Black Jack before . you don't have to do anything , you can close for the round or even piggy back on someone else's hand
.

I agree and append a post I made on EliteTrader on the similarities and differences between a trade and a hand of poker.

Similarities between a trade and a hand of poker

(1) The outcome of each is uncertain.

(2) Both are zero sum games, ignoring commissions, rake etc. (Assume futures)

(3) At any time, a trader may elect to stay out of the market, and a player may elect to stay out of a hand, at no cost. (Blinds, antes, like software and DSL costs, are assumed to be running expenses. Or alternatively, the player may elect to leave the table.)

(4) It is possible for both trader and player to benefit from information gleaned about his opponents.

Differences between a trade and a hand of poker

(1) In a trade, the opponents and their numbers are unknown. In a hand of poker, the opponents and their numbers are known.

(2) Once a trade is initiated, a trader can do nothing more to influence the outcome of that particular trade, unlike a player who, because of the betting structure, may influence the actions of other players and hence the outcome of the hand.

(3) A trade, once initiated, may be closed out at any time only by the trader. A hand of poker, once initiated, may be prematurely completed by the action of the player eg. he folds, or by the action of others eg. everyone else folds.

(4) Unlike a trade, a hand of poker has a fixed, predefined length.

(5) A trade may be "prematurely" closed for either a profit or loss by the trader. A player can only prematurely complete a hand for a loss.

(6) At all times during a trade, the P&L is uniquely and unambiguously defined. At all times during a hand, the player's equity in the pot can only be subjectively estimated using incomplete information (in most instances).

(7) As a corollary to (6) above, the intra-trade equity curve is generally smooth and continuous, while the intra-hand equity curve is jumpy and discrete.

(8) As a corollary to (7) above, a player will encounter many "bad beats" with their accompanying psychological pain. A trader will rarely see profits snatched away from him so suddenly; his pain is of a more gradually built-up nature.

(9) A trader may predefine profit target and stop loss. A player will have different losses and profits depending on the particular hand. In fact optimal play negates the notion of a stop loss.