Quote from DEM BONES:
How were you able to create a healthy balance in confidence and restraint?
Defined a set of statistical edges, back-tested them manually, defined rules for entry/stop/target that placed the edges further in my favor (risk:reward), micromanaged the system instead of simply trusting and trading it, got really frustrated by the fact that my daily post-market analysis consistently demonstrated results 200% better (at minimum) than my discretionary results, and finally gave up trying to have 100% perfect trades and just traded the system, knowing that even the #1 team has wins, losses and ties.
As for restraint, I use a protective stop on every trade and I trade size that allows a "black swan" event to result in as much slippage as 100x my max stop loss (I believe that would be a limit down move) without reversing more than a couple months profit.
Quote from DEM BONES:
How did you develop a mechanism to avoid being overconfident and taking on excessive risk?
That mechanism was developed early on when I was sometimes overconfident and took on excessive risk. At that time I was not a consistently profitable trader.
When these disastrous trades were closed, I studied the charts to find clues as to why what I was so certain would happen failed to materialize. These really bad trades were all swing trades and all counter-trend; my day trading was always just fine because it either worked or didn't during the course of the day. I found I was entering a trade based on the intraday chart and price action, when my intention was to hold for a longer term move. When I studied the daily charts, I found that I was putting on these counter-trend swing trades at levels where the trend was consolidating for the next push or was showing no sign of a reversal whatsoever.
So, I wanted to learn how to be the trader on the other side of my bad trades. I wanted to be the one sitting on an unrealized gain of $2000, $4000, $6000 or more, not holding a loss that size and just hoping to get back to break even.
I learned to recognize trends and trend continuation signals (I was mistakenly interpreting these as signs of weakness in an uptrend or strength in a down trend), and eventually learned how to trade with the trend.
When you trade against a trend, you're fighting the #1 team. I imagine that's why so many traders gravitate toward this high risk tactic. It boosts our ego to try and beat the overconfident #1 team, to be able to say, "Look at these dumbasses buying way up here, I'll show them who the smart guy is."
Counter-trend, you're making the assumption you know approximately when price will turn based on indicators such as Keltners, Bollingers, stochastics, "it's too f*cking high to go any higher", etc. It can work beautifully for a long time, giving you a sense of invincibility, of having mastered the market. You come to believe that when price becomes overextended by at least X%, Y will always follow. You become so confident you put on excessive size, or continue to average down as price runs further. This is where that one bad trade can wipe out everything you've gained (or worse).
When you trade in the direction of a trend, the strongest team has your back. The moves are stronger and longer than counter-trend pullbacks, offering the opportunity for larger profits as well. The best part is the risk management. If you're positioned against the trend, price can remain overbought or oversold for days, weeks, even months before a strong pullback or a reversal occurs. This is a biggest danger of counter-trend trading. But in a trend, there are lines in the sand beyond which a trend reversal or very deep pullback is likely. You take your remaining profits (or a small loss, if you were late to the party) at these levels and wait for the next setup.
Немає коментарів:
Дописати коментар