Getting Out Of A Trading Catastrophe

[HMB]

To make it short - I probably should have never started trading.  Over the last 12 years I have accumulated total net losses that exceed my annual salary by a multiple.  And I could have actually used that money quite well.  To help my partner, my family, to feel more confident, more independent, to have more flexibility to enjoy life.

I lived a relatively modest life, always focused on building wealth in the long term to be some day independent - free.  And if it was not for my trading losses, I could have probably achieved that by now.  But instead I not only lost massively, I also wasted an excessive amount of time trying to trade successfully.  The fascination for markets I've had since childhood made me miss out on life.

I made every mistake you can think of.  And I made I made every mistake again, and again, and again, and again.  Since I Iost my first 10 K when Lehman defaulted, I was never up.  My losses grew to 40K, then 70K, then shrank to 40 K, and over the last two years rose to around 400K.  In my best six months period I made 30K.  So even if I would have only such periods from now on, it would take me almost seven years to break even.  No need to mention that this affected my life in all areas.  Depression, chain smoking, neglecting physical fitness, it all impacts on-the-job performance as well.  Social contacts - don't get me started.

What would have saved me, seems obvious:  for one, setting strict loss limits, and adhering to them no matter what.  Second, mentally preparing for losses.  Having a clear plan what to do when you lose, like taking a break, waiting till you can be sure your head has cooled, and you're acting on the RIGHT emotions (intuition), not on the urge to mitigate your suffering.  So why didn't I?  More on that further below.

With my track record, I guess 99.999% of you would tell me to stop and never start again.  And I've tried that.  And succeeded for periods exceeding a year at times.  I also succeeded trading only small amounts for months.  As well as following low risk strategies for a year or so.

But positions suddenly moving against me, increasing market volatility, or also trades working out surprisingly well, all trigger "my other self" to take over - and suddenly I'm aggressively hunting for all the money I've lost - at times being extremely lucky and making nice short-term gains - just to loose them within a day, a few hours or even minutes.

I am writing this, after seeing a youtube video by Denise Shull, who states that neurological research indicates that the better you can express your emotions, the better you will be able to handle them.  And I believe my story may be useful as a warning for some of you, and maybe give hold to others of you, who may be suffering from a similarly disastrous experience.  Such can take you to some very dark places - and I believe I can assure you I've been there - and I always found happiness again after.  Time heals all wounds.  You can change NOW.  And yes, it's not only the money - it's the shame as well, being a loser.  In my case, maybe it would have been easier if I was not working professionally in the investment industry, mostly in risk management, to complete the irony.  I have a masters degree in finance with specialization in capital market research, am a certified financial risk manager, and a chartered alternative investment analyst.  I've worked in the industry 15 years, been following markets for more than 30 years and have a Bloomberg screen in front of me for 40 hours a week.  So if there's a loser of losers, the worst loser ever - it's most likely me and not you, so cheer up.

But obviously I cannot tell you how to improve - if you're like me, then there's nothing I can say that has proven to work.  There's a monster inside me, that keeps me coming back.  I would name this monster "Hope".  All you have to do is start with a thousand, double your capital 10 times (to 2, 4, 8...), and you're a millionaire, right?  And how easy is it to double one's capital.  We all can make 200 out of 100 within hours at some point (we may have lost a few thousands the hours before though). 

Finally back to above question:  why did I not adhere to my limits and plans.  I wish I knew.  Maybe resisting urges is harder for some of us than it is for others - like those who have longer legs are likely to run faster - ceteris paribus.  What do you think?

I'm trying a new approach now.  I changed my target: full focus is now on not losing more than 500 the coming week.  As J Powell would phrase it:  I'm not even thinking about thinking about thinking about profits.

[Caseynotes]

28 minutes ago, HMB said:

Finally back to above question:  why did I not adhere to my limits and plans.  I wish I knew.  Maybe resisting urges is harder for some of us than it is for others - like those who have longer legs are likely to run faster - ceteris paribus.  What do you think?

People will say that patience is important in trading  but it's nowhere near as important as discipline. 

Most people can't stick to a basic strategy for love nor money, we have to tinker, we tell ourselves these adjustments are improvements and continue on till there is no semblance to the original and then discard it and move onto the next thing having decided it doesn't work without realising we didn't actually give it a chance.

Find a simple strategy with cast iron entry rules and add a fixed stop loss and profit target amount so that when the alarm goes you just hit the buy or sell and then forget it.

Backtest and forward test to prove positive expectancy. If it actually works over a fair number of trades try it out live with minimum bet size.

If your account grows have a fixed time period to reassess bet size.

Have a max amount you are willing to lose per week, once hit stop trading till next week (market conditions not conducive to your strategy).

Discipline can only be applied if the objective is fixed.

Fixed entry rules, fixed loss and target, fixed periodic position size adjustment, fixed max weekly loss amount.

Working in the industry is probably more a hindrance than a help and just saying 'walk away' is not much use, hope the above might help.

 

 

[HMB]

Many thanks, Caseynotes.  I highly appreciate.  You are very right, I believe, regarding discipline  - in particular when it comes to sticking to loss limits.  And stopping trading once the loss limit is hit - that is exactly what I set as only goal for the coming week.  Obviously that's where I believe I have an extraordinary weakness.

A scaling plan to increase size thoughtfully will hopefully become important at some point, yes - for now something to keep far back in my mind, though. 

I further fully agree regarding profit targets - at least levels at which to re-asses if profit should be taken and how much, or locked in, and again yes, it would have improved my performance a lot if I had taken profit earlier more frequently. 

 

Also very useful I think is how you describe how people generally deal with strategy.  Interestingly, there is another perspective to it taught in some business schools, you may have heard of under the label "planned evolution", implying that a strategy consists of a holistic view, influencing the next steps, but getting itself adjusted with experiences made and changes in the environment.

 

Definitely, a strategy with clear, simple rules would have also protected me from relatively large losses.  I worked on such strategies, but never found one that was convincing for me personally.  Although most of what I read on trading strategies focuses on such approaches, and I definitely look at indicators like Fibonacci retracement levels, VWAP, RSI, MFI and other oscillators, volume, and watch the tape, but I stopped trying to formulate strategies with clear rules - I always come to the conclusion that yes, using such together with strict limits would have avoided misery, but I can't help believing that for me markets are too complex and dynamic that I will master them like that.  Probably I'm missing a point, and most likely they work better for more quantitatively orientated traders.

The few things that worked for me for again and again for some time were careful monitoring and trading on short-term price action while following the news-flow attentively and having an as complete picture of current macroeconomic and other relevant narratives as possible, and not ignoring the technicals; or the odd contrarian longer-term "mean-reversion" trade.

What was missing was typically the realization of structural changes (e.g. NDX suddenly not rebounding anymore as usual after around a 1% drawdown, but almost linearly moving lower...)  - and instead of taking a significant loss as a signal that I'm missing something, and taking a break to get a cool head, I just got overwhelmed as described.  I think therefore, focusing on this particular issue, starting and finally achieving the goal of not exceeding a weekly loss, as you suggest will be challenging enough for me now.  If I really manage that, I will be in a better position to review strategy and your other - very good - suggestions

All the best

 

[THT]

Every trader has been in that zone and made most trading mistakes - it's why only 5% survive the journey

Discipline I'm afraid - rules, stick to them, read them, apply them

Another aspect is because of your qualifications and work (I used to be a Financial Adviser) you'll think you know what the markets going to do and you'll be fighting that subconsciously with proving yourself right

Everything comes into the mix - the keys to success is not a method although that does help, it's managing emotions, controlling things you can manage and being absolutely disciplined and ruthless in your execution of trades etc

 Thanks for sharing your story - it will be applicable to others, I just hope that you rectify the issues and start to win 

One method for keeping yourself in check is to withdraw 50-70% of winnings shove them in another non-trading/Investment account and leave them, so you're growing an account slowly

Wishing you all the best for your future

 

[HMB]

"Another aspect is because of your qualifications and work (I used to be a Financial Adviser) you'll think you know what the markets going to do and you'll be fighting that subconsciously with proving yourself right"

Exactly!  It's almost like education becoming counterproductive, just raising the pressure..

"One method for keeping yourself in check is to withdraw 50-70% of winnings shove them in another non-trading/Investment account and leave them, so you're growing an account slowly"

Yes, I'll believe that will also be part of the solution to keep in the back of my mind for now

Also the remainder of your response hits the nail on the head, I think.

Thank you very much for your kind and encouraging feedback - wishing you all the best for your future too!

 

[jlz]

Would you be willing to share your trading diary? We can run backtesters to highlight what could have been done to improve your history of trades.

If you are planning to start with a new system you can post it here in the forum or at:

https://www.mql5.com/en/code

People there are great at giving feedback that  can improve your system.

[Caseynotes]

44 minutes ago, HMB said:

Definitely, a strategy with clear, simple rules would have also protected me from relatively large losses.  I worked on such strategies, but never found one that was convincing for me personally.  Although most of what I read on trading strategies focuses on such approaches, and I definitely look at indicators like Fibonacci retracement levels, VWAP, RSI, MFI and other oscillators, volume, and watch the tape, but I stopped trying to formulate strategies with clear rules

I personally don't worry too much about indicators myself though vwap and volume can be useful tools, instead I prefer repeating chart patterns like simple dip buying in strong trends or perhaps reversals off strong support/resistance levels.

I was just re-watching a short video I posted in another thread about strategy selection, development and execution which might interest you (the process rather than the actual strategy he uses to demonstrate the process).

 

[HMB]

Dear jlz

Many thanks for offering help.  Yes, at times I started a trading diary.  I would document my trade rationale, at times include charts.  It would read something like this (the only trade I have on currently, long NDX, stop at 11110):

"entry rationale:  Expected rebound after 2 day correction, with intraday low 10.4% below intraday ATH days ago.  Oscillation around 25% retracement.  Correction move was likely accelerated after unwinding of dealers' hedges of calls sold to retail and Softbank (Bloomberg, WSJ).  resistance at 50% retracement was likely due to long labor day weekend."

now, the problem is, that when I entered a trade like this, typically one of two things would happen:  my stop gets hit within an hour, and soon after some news comes out, the price  moves significantly above my initial entry etc. - and I get angry.   Or, the trade immediately moves in my favor and I get hopeful.

In the former case I would reopen, likely larger (revenge trade). in the latter case I would add, kinda thinking "now is the time".  All without much deliberation, decisions within seconds.  no break to become aware of emotions and consciously decide to act on them or not.  Typically sooner or later things would move against me (even more), losses increase.  I would then add size improving average entry levels and so on.  I lose more.  I try with larger exposures and tighter stops - already being desperate.  a few more times and I have to refund the account.  for example:  Wednesday, Thursday and Friday  together I made 324 trades (losing a bit more than  2K, I fortunately managed recently to cut down typical exposures - but it's still bad of course)

Obviously in those periods I forget completely about my trading journal.

 

so now I want to try it differently, thinking first what to do when the trade goes well, and when it doesn't, in other words adding a rationale for the stop and a soft profit target - like for the long NDX trade I have on now:

"soft profit target for reevaluation at 11790

"rationale for soft profit target:  50% retracement of corrective move.  Given previous months' run, valuation levels, election risk, China and Covid risk, return to previous highs soon maybe challenging.

rationale for stop:

Below low of correction move - getting hit would imply correction wasn't over."

obviously, I want to avoid crazy periods of 100 desperate actions per evening.   the challenge will be obviously to stick to that, maintain the discipline.

Maybe on some days I'd try a more active approach (scalping), but as mentioned in the previous response, while I will look at a variety of things, it I do not have a fully defined system that works solely with formulated rules - but I look at the forum, maybe I find a way to make it more explicit - many thanks for the hint!

(and as mentioned before: target for the week is not lose more than 500, and stop when loss reaches that - believe me, that will be incredibly hard for me, although it sounds easy on Saturday after a good night's sleep).

 

Have a successful week!

 

 

 

[HMB]

20 minutes ago, Caseynotes said:

I personally don't worry too much about indicators myself though vwap and volume can be useful tools, instead I prefer repeating chart patterns like simple dip buying in strong trends or perhaps reversals off strong support/resistance levels.

yes, that's similar to what I do - on the few days when I know what I'm doing, thank you!  I will start documenting that better.  thanks a lot for the video - checking it out, seems to make a lot of sense at first sight, but will have to watch closer a couple of times

[jlz]

I started losing massively as well and what improved my situation was the ability to follow a system. If you don't have one that is clearly a flaw to fix. 

We discussed in this post our loses : https://community.ig.com/forums/topic/12368-whats-your-record-for-the-most-losing-trades-in-a-row if you want to laugh, we all have been there. 

What went wrong for me, I:

... didn't have a plan to exit before I entered, no risk management at all.

... executed my trades manually.

... revenge-traded chasing loses.

... used indicators.

What went right for me, I:

... removed completely all indicators, I entered randomly. There is no way I can justify why I entered in a trade using indicators so I removed them, I also didn't look at charts at all.

... had a clear exit point that I never changed and executed with stoicism, specially when taking loses. This came out of a risk management plan. 

... automated every single trade and set my trailing limits and stops loses in a separate database. This can be done with orders trough the web interface, it was just my preference to do it.

... never read the news, specially the ones specialized about stock markets.

 

[HMB]

interesting, jlz!  some of your points I find immediately convincing and applicable for me in particular having an exit plan, risk management, automated stops, not chasing losses  - again, it sounds so easy...  if I could somehow bet on me failing again to do that, I would as hedge..!  but I get the feeling the exchange with you and others here in the forum is actually a great way to make my mind be stronger and in control... will check out the link

 

 

[HMB]

2 hours ago, Caseynotes said:

I was just re-watching a short video I posted in another thread about strategy selection, development and execution which might interest you (the process rather than the actual strategy he uses to demonstrate the process).

thanks again - had to watch it three times, but now I think I took some important insights out of that video - general points, as you said, not regarding the specific strategy:

 - planning, execution, post-trade error analysis and correction are all important parts of the trading process - this maybe sounds like nothing new, but you gotta "live that" - and the video makes that clear nicely

 - don't wait after the market signals you that you were right, but not that right, and now it's time to take profit and run.  I find that very interesting.  one reads so much about reward to risk ratio, and for sure it's important to not enter trades for which this seems low ex ante - but not closing a trade although the market tells you that you get some reward, but not the expected one can't be right either... or can it..?

 - if you don't see the order book, you have a limited picture (I use an IG spread betting account, so I see the tape on pro realtime, but not the order book...  will dig more into that...) 

 - embarrassingly (again..) I made the error he says "young traders" make - basically expecting profitable trade to keep running...  now I'm mid 40ies and I think I made this error a few times last week...  anyway, good to be told about it, still - also kinda confirms my understanding of more recent market environments

 

really helpful video (hope I haven't misunderstood it completely...)!

 

   

 

 

[Caseynotes]

3 hours ago, HMB said:

thanks again - had to watch it three times, but now I think I took some important insights out of that video - general points, as you said, not regarding the specific strategy:

`The key really (for everyone not just you) is to change the mindset to stop thinking like a gambler and instead think automation, as in the video - know your strategy so well you don't need to think.

So instead of all the maybe, could and should nonsense it's the, - if the market does this then I will automatically do that.

The strategy needs to be simple and applied to a certain chart structure and be tested to ensure positive expectancy.

It doesn't matter if it only has a win rate of 50% if the overall risk/reward is 1:1.5 or more over multiple trades. 

yes, everyone wants to run their trades to massive profits but nearly always end up seeing any profit disappear and scramble out at break even or a loss hence have a realistic set target, at least till you are consistently profitable.

and yes, it's often not worth the torture of waiting to get stopped out, pull the plug if the reason for taking the trade in the first place has been nullified.

 

 

[HMB]

14 minutes ago, Caseynotes said:

The key really (for everyone not just you) is to change the mindset to stop thinking like a gambler and instead think automation, as in the video - know your strategy so well you don't need to think.

So instead of all the maybe, could and should nonsense it's the, - if the market does this then I will automatically do that.

The strategy needs to be simple and applied to a certain chart structure and be tested to ensure positive expectancy.

I think I start to understand what you mean...  after all those years, I'm still in very early stages of developing the ability to formulate my strategies in the first place (or maybe I lost that ability long ago...) - which is a step well before automation I'd say...  Most of the time, while reading loads and doing all kinds of analysis, for decision-making I eventually had more of a "I know it when I see it" approach....  you gave great examples for clear formulations in an earlier response - like "dip buying in strong trends".  so if I would formulate the strategy underlying my current NDX long with relatively low soft profit target it would maybe be like: "buying after strong corrective move with subsequent stabilization above a roughly 25% retracement level; being prepared to exit around 50% level given potential medium-term trend reversal; stop below the low of the corrective move"  (will think about how to phrase that better...)

...in summary I think you brought me on the right track - however I'm probably less advanced than you'd expect; focusing on formulating strategies seems a logical next step...  many thanks!

 

I get your point regarding the could/should nonsense.  And maybe I find it at this stage simply hard to change habits...  will definitely think about that longer - still at first sight it seems challenging to ignore "narratives" completely...  and testing I guess is of course a bit dependent on how much data history is available with similar scenarios...?, ...I also wonder how much role "fundamentals" might play for conditioning...

 

Maybe it's better to ignore narratives/fundamentals, rely solely on charts and technicals...?  Definitely it would take certain risks out of the equation  as you highlight...

How do you handle this?  valuation ratios at post tech-bubble highs, but interest rates much lower than 1999, company profitability much better, high concentration (six companies 50% of NDX...), vaccine risk, US-China tensions, Fed buying high yield debt...  I wonder how I could test a strategy that accounts for such factors given that those are pretty unique circumstances..? or are these just irrelevant..?

obviously my performance speaks against letting humans trade...  however I don't want to give up the idea completely that it's a strength of humans vs. robots - the ability to process unique, unstructured and unprecedented information...  maybe that's a fantasy..?

 

sorry for lengthy response, working on being more brief...

 

[dmedin]

2 hours ago, HMB said:

I think I start to understand what you mean...  after all those years, I'm still in very early stages of developing the ability to formulate my strategies in the first place (or maybe I lost that ability long ago...) - which is a step well before automation I'd say...  Most of the time, while reading loads and doing all kinds of analysis, for decision-making I eventually had more of a "I know it when I see it" approach....  you gave great examples for clear formulations in an earlier response - like "dip buying in strong trends".  so if I would formulate the strategy underlying my current NDX long with relatively low soft profit target it would maybe be like: "buying after strong corrective move with subsequent stabilization above a roughly 25% retracement level; being prepared to exit around 50% level given potential medium-term trend reversal; stop below the low of the corrective move"  (will think about how to phrase that better...)

...in summary I think you brought me on the right track - however I'm probably less advanced than you'd expect; focusing on formulating strategies seems a logical next step...  many thanks!

 

I get your point regarding the could/should nonsense.  And maybe I find it at this stage simply hard to change habits...  will definitely think about that longer - still at first sight it seems challenging to ignore "narratives" completely...  and testing I guess is of course a bit dependent on how much data history is available with similar scenarios...?, ...I also wonder how much role "fundamentals" might play for conditioning...

 

Maybe it's better to ignore narratives/fundamentals, rely solely on charts and technicals...?  Definitely it would take certain risks out of the equation  as you highlight...

How do you handle this?  valuation ratios at post tech-bubble highs, but interest rates much lower than 1999, company profitability much better, high concentration (six companies 50% of NDX...), vaccine risk, US-China tensions, Fed buying high yield debt...  I wonder how I could test a strategy that accounts for such factors given that those are pretty unique circumstances..? or are these just irrelevant..?

obviously my performance speaks against letting humans trade...  however I don't want to give up the idea completely that it's a strength of humans vs. robots - the ability to process unique, unstructured and unprecedented information...  maybe that's a fantasy..?

 

sorry for lengthy response, working on being more brief...

 

 

 

 

With your 1:1.5 or 1:2 ratio you will make money over the long term (i.e. over a large enough number of trades), so you need to make sure you can withstand a run of 10 - 20 losses and still have money left to keep going.

Also be aware that you will be sitting on the side lines during large trending moves, because you got out at 1.5 times your risk, so you will have the excruciating pain of sitting watching the market continuing to go in your favour for days on end after you took your profits.

Even worse, there will be days upon days upon days when you are sitting watching a sideways market, and it will test your patience to the absolute limit trying not to put on a trade.

No wonder a lot of people say 'f8ck this' and just put their money in an S&P 500 tracker

[HMB]

8 hours ago, dmedin said:

No wonder a lot of people say 'f8ck this' and just put their money in an S&P 500 tracker

...that's probably what I should have done long ago...

to be honest - obviously I'm most likely a template for mistakes to avoid - but getting a reward-to-risk of above 0.8 is the exception for me.

for example again the NDX long I have on now - I have the stop below the Friday intraday low, because I believe if that gets hit again, then my trade rationale is invalidated.  that stop is like 400 points below entry.  I can see a 75% retracement scenario as not unlikely, but possible resistance already around the 50% retracement level, so around 11790 - less than 300 points above entry.

maybe my whole way of thinking is somehow fundamentally wrong...  I had a few successful "scalping days", though, with high numbers of winning trades compared to numbers of losing trades, but each trades stop distance typically significantly larger than realized profit on the trade.  I often used tighter "mental stops", though, in addition.

often I also got too nervous and got out of trades too early - which ex ante had a much better reward to risk ratio.  of course I had also periods with heavy overtrading.  maybe the core issue is not having enough risk tolerance at some point anymore - as you say, one must be able to withstand bad runs.

however a video Caseynotes shared makes a lot of sense to me: 

 

...I understand this like if the market tells you, you're not getting your expected reward, why waiting till your stop gets hit..  (or in other words, in summary, to improve realized reward-to-risk in may be better at times to close trades even significantly before profit targets get hit when new information "arrives"...) - or am I missing the point (again..)?

[dmedin]

It certainly seems like certain 'kinds' of people are more drawn to trading than others.

Most of these kind seem to have issues with sadness, loneliness, lack of fulfilment, insecurity etc.

I certainly do.

Dunno what I'd do if I had $400,000 though.  At some point I'd like to think I'd go abroad and spend money and have some fun (when Covid is over), but I suppose it's entirely possible that trading becomes your life and you are never happy even when you'd had some success.

[jlz]

1 hour ago, dmedin said:

It certainly seems like certain 'kinds' of people are more drawn to trading than others.

Most of these kind seem to have issues with sadness, loneliness, lack of fulfilment, insecurity etc.

I certainly do.

Dunno what I'd do if I had $400,000 though.  At some point I'd like to think I'd go abroad and spend money and have some fun (when Covid is over), but I suppose it's entirely possible that trading becomes your life and you are never happy even when you'd had some success.

An active mind needs to pass through all the stages including the ones we consider negative.

I always like to refer to this painting when I talk about this subject.

https://en.wikipedia.org/wiki/The_Sleep_of_Reason_Produces_Monsters

The one that we must control is anger because produces an effect in others, normally a negative one. But the ones you have described are perfectly fine if you understand them as part of your personality. A person cannot be forever happy neither sad. We inflict guilty to ourselves when we don't reach happiness because of those never ending marketing campaigns that are forcing us to look for it. Trading magnifies the adrenaline rush of regular emotions so either the peak of the decline of what would be a normal state of mind gets magnified as well.

A person can get addicted to adrenaline and create a behaviour to produce it, hence here we are on Sunday night looking at the clock counting hours to have a go again. 

[HMB]

3 hours ago, dmedin said:

I certainly do.

same.

400K doesn't seem that much anymore when you're mid-fourties, not feeling high job security (it took me two years to find a new job after being let go five years ago, guess that experience scarred me...), having to take care of your partner, calculating the numbers you might need for retirement.

I more or less constantly felt that I could be let go again any moment, that it might be impossible to find any similarly paid role, and didn't expect an inheritance or anything, and had no significant pension entitlements etc.

Trading seemed a way out of this constant fear (but made it much worse of course)

[HMB]

1 hour ago, jlz said:

The one that we must control is anger because produces an effect in others, normally a negative one. But the ones you have described are perfectly fine if you understand them as part of your personality.

I find it now extremely important to be aware of your emotional state the moment you want to put on a trade.  for example all types of feelings dmedin mentioned caused me to lose money (anger as well, of course).  general lack of fulfillment makes you constantly try to achieve significant short-term profits, sadness increases your risk tolerance, because a corresponding larger gain seems more urgently needed, loneliness makes me wanna be able to travel more, buy people drinks...  etc.  maybe one should only trade when one's happy.. or at least not in states that likely come with increased risk tolerance

 

I understand you guys are working with more clearly defined strategies, that likely mitigates the issue drastically, though  

[HMB]

On 05/09/2020 at 05:16, THT said:

Another aspect is because of your qualifications and work (I used to be a Financial Adviser) you'll think you know what the markets going to do and you'll be fighting that subconsciously with proving yourself right

...for the sake of completeness:  sure most of you know, but same effect can come from dummy portfolios.  I have (only) one on a public platform (real prices of course, long only stocks and ETFs + options (index puts/calls))  - since inception late 2013 it's up 126%, it's also up over 5 years, 3 years, 1 year, 6 months, 3 months, 1 month and YTD.  1 year Sharpe ratio is 1.6, average annual return 12.8%, maximum drawdown 25.5%.   so forget your dummy portfolio performance !  it's meaningless - and in the worst case makes you dangerously overconfident.  wish I had crashed that to 0 in the first month.   

Edited September 6, 2020 by HMB

[jlz]

9 hours ago, HMB said:

I find it now extremely important to be aware of your emotional state the moment you want to put on a trade.  for example all types of feelings dmedin mentioned caused me to lose money (anger as well, of course).  general lack of fulfillment makes you constantly try to achieve significant short-term profits, sadness increases your risk tolerance, because a corresponding larger gain seems more urgently needed, loneliness makes me wanna be able to travel more, buy people drinks...  etc.  maybe one should only trade when one's happy.. or at least not in states that likely come with increased risk tolerance

 

I understand you guys are working with more clearly defined strategies, that likely mitigates the issue drastically, though  

A well defined plan will get rid of all your emotions. Trading has to become a boring job to be profitable, one that you do without getting any feelings from it, very close to what a robot would feel if it would behave like a person.

If you are able to take a loss and continue like nothing happened then you are handling just numbers. If the meaning of taking a loss is no longer similar to a painful feeling you have reached a milestone.

Two years ago I told every single one I met that I was getting into trading, it was so exciting that I didn't understand what I was getting into. Today I don't even talk about it with anyone, my relatives think that I stopped all together. I avoid getting into any conversation about it with anyone, very much like I would do with my IT job.  No one is interested in hearing about my job, so trading has to become the same, another job.

When is no longer exciting, loses don't produce pain and the only way to achieve that point is by executing a system step by step. When everything is scripted you know what is going to happen, you are expecting the result way ahead it comes, so feelings are way more reduced.

There are many books on the topic but one I like is this podcast:

https://www.youtube.com/watch?v=B9Z9qUTTuhA

There are a couple of parts, they gathered together good advise for retail traders.

 

[THT]

8 hours ago, HMB said:

...for the sake of completeness:  sure most of you know, but same effect can come from dummy portfolios.  I have (only) one on a public platform (real prices of course, long only stocks and ETFs + options (index puts/calls))  - since inception late 2013 it's up 126%, it's also up over 5 years, 3 years, 1 year, 6 months, 3 months, 1 month and YTD.  1 year Sharpe ratio is 1.6, average annual return 12.8%, maximum drawdown 25.5%.   so forget your dummy portfolio performance !  it's meaningless - and in the worst case makes you dangerously overconfident.  wish I had crashed that to 0 in the first month.   

Yep trading can be really hard due to all the aspects going on

Keep everything simple - A major signal that you're not ready to trade is that you chase every possible trading out there thinking its the holy grail - It doesn't help that most of the methods touted out there work fine on paper but not in the real line of fire

I'm publishing on here a monthly dummy trade - THT NEW MOON Method - to prove that you can make money and sometimes beat all the pro fund managers out there by a semi-random method 

The method WILL beat most fund managers most years and the point of it is to show people you don't need to know anything about trading/Investing to make money apart from having a decent handle on risk, risk control and money management - I 1st learned of this years ago and I paper traded it - the eye-opener came when it beat the highly coveted trading method I'd created and invested months in tweaking and trying to perfect!

[HMB]

Thank you jlz and THT, makes a lot of sense to me what you're saying, will check out the video and the new moon portfolio

[Sunny Days]

Hi,

 

I can empathise with you on this. My solution was to walk away from it for 6 months. come to terms with my losses and except them as it being my head space as the key issue. have a good look at my self. Chose the markets i want to trade, max five. Research, research and some more research.I don't trust these gurus who have systems they want to teach. Those that can do and those that can't teach.

Chasing losses is the biggest issue to overcome, loose a hundred then up the best size to cover it, a bigger loss up the bet size goes. Repeat until funds are gone. Blame the platform, blame the markets, blame everyone except myself.

Now I am profitable again. Slowly slowly catchy monkey. Avoid any FX pairs with USD, Avoid high volatility and avoid setting day, week, or month targets. 

All the best

[HMB]

Thank you, Sunny Days!  Maybe I should teach then...  seriously, glad to read you found a way to steady profitability.  I think you're a number of steps ahead of me, and it's good to hear it's possible to learn, change, and come back.

All the best for you too

[dmedin]

9 hours ago, jlz said:

When is no longer exciting, loses don't produce pain and the only way to achieve that point is by executing a system step by step.

Pretty easy for someone who has both a well-paid, in-demand day job and a fully automated trading system to say.

I don't think this guy realizes what you mean.  You don't look at charts.  You have some kind of algorithm doing it for you. 

Good f*king luck creating your own 'algorithm'.

In the future there will be only high-paid jobs and low-paid jobs with nothing in between.  And nobody stands a chance at beating the market with their own home brew algos - the big financial firms pluck the best mathematical and scientific brains directly out of university and, now, out of all the bankrupted firms.  That's why no one is working on a cure for cancer.  They're too busy making money for Shlomo and Cohen on Wall Street.

Edited September 7, 2020 by dmedin

[dmedin]

7 hours ago, HMB said:

 the new moon portfolio

 

Sorry, but there is already a strategy that involves putting money regularly into the account every month (long only): https://www.investopedia.com/terms/d/dollarcostaveraging.asp#:~:text=Dollar-cost averaging (DCA) is an investment strategy in,volatility on the overall purchase.

 

It's not a trading strategy, and you should be aware of this fact.  (DCA is a sound investment strategy, but it will only pay off over the VERY long run.)

You can define your risk management however you want, but if you don't win enough trades you will eventually run out of money.  

You may limit your losses never so skilfully, but if you can't come up with a system that wins often enough you won't make any money.

Sadly, a lot of people lack common sense.

Edited September 7, 2020 by dmedin

[jlz]

22 minutes ago, dmedin said:

Pretty easy for someone who has both a well-paid, in-demand day job and a fully automated trading system to say.

I don't think this guy realizes what you mean.  You don't look at charts.  You have some kind of algorithm doing it for you. 

Good f*king luck creating your own 'algorithm'.

In the future there will be only high-paid jobs and low-paid jobs with nothing in between.  And nobody stands a chance at beating the market with their own home brew algos - the big financial firms pluck the best mathematical and scientific brains directly out of university and, now, out of all the bankrupted firms.  That's why no one is working on a cure for cancer.  They're too busy making money for Shlomo and Cohen on Wall Street.

I offered myself in the forum a couple of times to people that don't know how to write code. I have worked in the past with traders that wanted to automate their system with good results. I say it again, if you want something automated we can work on it. You get the benefit of executing your system by a bot and I get to see what you are doing and the way you think.

An algorithm is no more than a group of sentences that matches every single possibility into a system.

 

[HMB]

8 hours ago, THT said:

'm publishing on here a monthly dummy trade - THT NEW MOON Method - to prove that you can make money and sometimes beat all the pro fund managers out there by a semi-random method 

The method WILL beat most fund managers most years and the point of it is to show people you don't need to know anything about trading/Investing to make money apart from having a decent handle on risk, risk control and money management

Read your posts on the new moon strategy - very interesting!  I get your point about risk and money management, and how powerful a simple strategy can be with discipline in both.  As you pointed out, the strategy also exploits the upward bias of equities (Buffet attributes this bias to retained earnings, others would likely add ever easier monetary policy and rising government debt).