Although I disagree with a number of elements of Travis's post at ET I still thought it was excellent:
Hey, this is very good. You understood and stressed some very important points, and I couldn't agree more.
The reason people look for psychological reasons for failure (and I did, it, too for many years) is that - not having a winning method - they say "why didn't I apply the stoploss?", thinking not applying the stoploss is the reason for their failure. But it is not true, since if you always applied that same stoploss, you probably would still have a negative balance. The truth, as you said, is that if you knew what type of a stoploss gives you an overall positive balance, you would always apply it, but you don't because you are not sure which stoploss level is the right one. So you mistakenly look for psychological reasons for your failure at trading, whereas what you don't realize is that you don't know what works and that is why you're not consistently using a stoploss (which you don't know if it works). So if anything the psychological question you should be asking is "why am I trading while I don't know a sure method of winning?".
Now comes the second part of the problem though, which still makes me come to this psych forum here, and ask myself psychological questions. And it is as follows. If I have a winning method (automated system), why am I still trying to make "more" money with discretionary trading, where instead I do not have a winning method, and where I always end up losing?
I have tried answering, too. Maybe I find it hard to believe that, having created the winning automated system, I am unable to do things right by myself. I am starting to accept this limit, though, and rather than reasoning on "why" do I trade discretionary and lose, when I have an automated system that wins, I now ask myself "since it's a fact that I am not as good as my system (I lose and he wins), why is it that I am not as good since I created it?".
This makes me come on this forum, to see if others have answers, or also it makes me go on the automated trading forum, to see if others have had the same problems and questions.
Right now the answers to this question (why am I worse than the system I created?) seem to be, in random order:
1) The system has infinite patience and waits long enough to pick the right entries, whereas I am impatient and I anticipate
2) The system knows (from backtests and forward tests) what really happens in the markets - it weighs everything perfectly (as well as it can, enough to have probability on its side), whereas I tend to expect the market to bounce much more than it does in reality (I tend to do too much top and bottom picking). Also, for the same reason, the system stays in trades longer than I would, and it makes more money as a consequence.
3) Besides letting winners run (which I don't), the system cuts losses short - which is definitely my biggest problem, as I feel paralyzed every time I'm losing as little as commission costs (I can't get out of a trade unless I see a profit).
So, in summary, the system is patient and at the same time alert and quick, it is wise, it has self-control both in good and bad times, and it doesn't lose its balance in the face of adversity.
So I'll just have to remember these 3 qualities, into my head - qualities which I will never have. That is why I am trying very hard to stay away as much as possible from the screen, I don't even want to look at quotes, until markets are already closed. I've been losing for months whatever the system made (and more).
As you said, if you have a method that works, you will definitely use it. The question - psychological - that still makes sense to ask for all of us is "why are some of us (including me) using methods that they don't know if they work, or even that have not worked in the past?". Maybe because we don't care about money, maybe because we see as a game? Many answers are possible.
So psychologicaly won't help us trade - we can't learn to trade because of psychology. But thanks to it, we can learn to stop trading when we don't have a method that does not work.
Then, once we have stopped trading, we can work on finding a method that works. But the first step is to stop trading unless you have a method that's proven to work. Psychology won't make us winners, but it will stop us from being losers. It will make us understand (if we are lucky, I still don't know if I will be lucky) that trading is not a game, that we are not infallible, and that we will not win unless we have a method that's proven to work, and finally that we should not waste our money if we don't have a method.
Psychology will help you to stop trading and losing, just like it will stop you from cutting your wrists, or injuring yourself - because the real question for those of us out there losing money consistently because of discretionary trading is - why are we hurting ourselves?
Why did I lose money with discretionary trading, year after year, month after month for 12 straight years? Despite having created in the meanwhile an automated trading system that makes money? Why have I been trading on the side (discretionary) on my own, losing whatever the system made? Do I wish to not ever succeed? Did I really think I would help the system make more money? Sometimes I don't know which one is the answer. Right now I have a new rule that I won't even look at the markets all day long, until after close I will have to collect data, turn off programs and so on. Now, if I won't respect this rule, after losing as much as I lost recently because of my discretionary trading, then it will mean that something inside me wants to lose, or at least wants to break even. If I let it run, instead, it will have meant that I actually thought I was going to figure out a way to be as good as the system I created (or better). But now that I realize that I will never have its qualities (patience, alertness and self-control) there are no excuses anymore, all other reasons are discarded. If I still trade discretionary, it will mean that I want to lose.
Psych and Systems
