# How do you remove emotion from trading?



## markrmau (13 April 2006)

As much as I try to suppress/ignore it I have to admit that I have some feelings of elation (depression) when a stock I have selected goes up (down).

Obviously this is not good for trading. You want to be completely objective and impartial.

How do others deal with this? Is it even possible to eliminate it? Could hypnotherapy help - similar to an alcohol/gambling addiction?


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## rederob (13 April 2006)

Mark
A bex and a good lie down!
What plan do you work to?
What do you want to achieve?

If you trade actively and are emotional, you need to have coping strategies.
If you have no personal trading rules your emotions will get the better of you.
I cannot conceive of an active trader being driven by emotion - you won't be an active trader for long as you will be broke.

I do not trade actively, but have a number of objectives I work to.
Beneath these objectives is an acceptance that from time to time I will sell too early or too late.
If you accept there are only 3 outcomes (profit, loss, or break-even), and each trade will have only one, learn to live with the outcome you decided on and move on.
We all want to dwell on the mistakes, or the massive profits forgone because of poor decisions.
If you are a trader and prefer to dwell on the past, your capacity to trade with an eye to the future is diminished.
I cannot admit that I don't feel emotional about the odd trading decision or two, but I never let it cloud my judgement in future choices.
I don't know how it is possible to learn from only being right.
Many of the world's best winners were once the biggest losers.


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## tech/a (13 April 2006)

I think this is simpler to avercome than most realise.

Just trade in parcel sizes which are small enough not to cause grief if your stock moves against you.
Over trading and trading more than is comfortable is in my view strongly correlated to that roller coaster ride.

Make your million over a few years rather than weeks!


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## happytrader (13 April 2006)

Hi Markmau

Every trader eventually gets to this point. If you find yourself saying "this always happens to me" you need to get help (all counsellors listen for this important warning).The will is so strong that it will recreate these the same case scenarios. You are right about addiction but remember they do and have served a purpose for that person, because at the base of every addiction is a wound. Heal the person and you heal the relationship. (in your case a money relationship).

So next question is, "who is there to help me?" 

A student of a well known option trading guru was advised to go to a psychologist for - timeline therapy. The issue was related to being made to feel worthless and underserving as a wee child. 

His trading results reflected this as his will subconsciously maintained this identity of undeservedness and worthlessness - possibly in a childs mind, survival was an issue here. Some of you out there may laugh as much as you like, but I see plenty of adults right into old age that still throw tantrums. Toddlers aren't the only ones that regress into baby behaviour when under stress. This behaviour goes across all ages. Also the guru himself is an NLP Master.

See a counsellor, practitioner, psychologist or lifecoach with eclectric treatments such as BSFF, EFT, EMDR for rapid results. You might also like to learn some of these therapies yourself to maintain your mindset. BTW, there are medicare rebates on counselling visits now. 

Websites

www.emofree.com
www.bsff.com
www.nlpinfo.com
www.theaca.net.au

Cheers
Happytrader


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## RichKid (14 April 2006)

tech/a said:
			
		

> I think this is simpler to avercome than most realise.
> 
> Just trade in parcel sizes which are small enough not to cause grief if your stock moves against you.
> Over trading and trading more than is comfortable is in my view strongly correlated to that roller coaster ride.
> ...




Great tip, I find it helps immensely, also keeping the total number of open positions to a no you can cope with also helps.


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## noirua (14 April 2006)

markrmau said:
			
		

> As much as I try to suppress/ignore it I have to admit that I have some feelings of elation (depression) when a stock I have selected goes up (down).
> 
> Obviously this is not good for trading. You want to be completely objective and impartial.
> 
> How do others deal with this? Is it even possible to eliminate it? Could hypnotherapy help - similar to an alcohol/gambling addiction?




Selling is usually the most difficult part of investing, especially if it involves taking a loss. Set a stop-loss and do not change it, and promise yourself to immediately dump the stock once it hits your sell target. There are no IFS or BUTS, JUST DO IT. ( If only I took my own advice. )


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## Milk Man (14 April 2006)

Radge was seeing a pschologist to better understand his trading mindset I think. Care to enlighten us Dr Nick?


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## Nick Radge (14 April 2006)

Morning Milko and Happy Easter to all ASF'ers.

Yes I saw a therapist for quite some time. 1-session once a week for about 8-months if I remember. In my opinion psychology is the make or break of a trader and the easiest way around the conscious side of your mind is:

(1) trade a method/style/instruement that suits YOU. You need to feel comfortable and you need to *understand* why it can make money over the longer term. If you intuitively understand why it will make money and you're comfy executing the plan, then you will have a higher chance of making it.

(2) As tech/a rightly says, trade small enough that it just doesn't matter if its a win or a loss. Think of trading as controling the losses and simply forget about the profits. If they come, they come. You can also up the ante when you get better prepared. When times get tough there are two actions to take (a) trade small and then even smaller, so it doesn't even hurt. (b) use wider stops so daily market noise will not take you on a roller coaster. 

The above is the simple CONSCIOUS side. These types of things are what you will get when you attend a seminar on psychology, although I don't beleive these are value at all and would avoid them. I have strong opinion sabout these types of seminars, mainly because of what I'm about to say below.

The second side of th mind - and the part that smacked me between the eye's when I saw the therapist - is that most of the major issues are sub-conscious. These, I beleive, cannot be seen or solved in some kind of seminar. These are the things that are deep down and driving you. You cannot see these traits yourself because you hide them away. They exist because of your upbringing and your sub-consious values and beliefs. Its these one's that do the major damage, not only to your trading but to your life in general.

The one thing that I realised is that I'm not aware of my sub-conscious personality traits. Everything you do in your life, trading or otherwise, will come from these sub-conscious issues and if you cannot recognise them (or should I say *want* to recognise them, then you will, over time, defeat yourself in any endeavor you pursue - trading included. I wrote an article a few years ago on the conflict of a smoker who plays the pokies. Perhaps on another thread we can discuss that then I'll provide the answer. Whilst its not trading related in its basis, its is directly related to trading, as is all these sub-conscious issues.

My personality traits had implications on my trading without a doubt. To not deal with these would've, eventually, destroyed my trading but more importantly my family relationships. 

The only way to get the real sub-conscious answers is to have one-to-one sessions. There is absolutely no way that a seminar or course can delve into your sub-conscious.

One source of highly recommended information can be found here:

www.brettsteenbarger.com

The other source is Mark Douglas' Trading In The Zone. But don't just read this book. I've read it some 20 or 30 times (I actually have the pre-book manuscript) and I can recite it verbatim. I think the large difference comes from really understanding, not just reading.

Nick


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## Milk Man (14 April 2006)

Excellent reply (and quick too  do you keep checking back to see how much I plug your book or something?  ). 

A couple more questions 1) can/has your subconcious been changed by using a psychologist, and 2) how much does it cost (generally). It probably wouldn't be worth it until you get big enough that the cost isnt that significant, huh?
Cheers.


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## ice (14 April 2006)

I find taking my loss in advance is the easiest way. 

I run an excel spreadsheet of my trading finances.
When I open a trade I enter the position in the spreadsheet and immediately enter the 'sold' column at my stoploss. That way the 'loss' is already acknowledged and I can manage the trade without stress. 

i.e if I have $100k in my trading account and take a $10k position with a 10% stoploss I enter $9000 in the 'close' column and the total  adjusts to $99k. Thus I have already accepted that as a loss and don't feel pressured if it occurs.

Of course doing that doesn't guarantee I'll only lose $1000 but that's a separate issue.


ice


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## Julia (14 April 2006)

Nick Radge said:
			
		

> Morning Milko and Happy Easter to all ASF'ers.
> 
> Yes I saw a therapist for quite some time. 1-session once a week for about 8-months if I remember. In my opinion psychology is the make or break of a trader and the easiest way around the conscious side of your mind is:
> 
> ...




Nick

Great comments.  I, for one, would be really interested in hearing more about the smoking/pokies conflict.  Can you start this thread off?

Thanks
Julia


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## David123 (14 April 2006)

hi, i just stick to plan, no emotion in it... buy here... sell here... so dont change rules... just stick to plan...simple!


cheers


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## Porper (14 April 2006)

David123 said:
			
		

> hi, i just stick to plan, no emotion in it... buy here... sell here... so dont change rules... just stick to plan...simple!
> 
> 
> cheers





I doubt that it as easy as that David123, maybe for a tiny percentage of people it is.Plus it depends how much your starting fund is.If I was trading with pocket money I wouldn't have a problem with losses.However when getting more serious and investing a lot of hard earned savings, maybe even thinking about trading/investing full time, then this is where it shows, the stress levels rise substantially when a few losses stream in together.

I understand what tech said, and it is true, trade small enough parcels and it will be a lot easier, that said, it isn't the most profitable way (from what I have experienced).Finding a happy medium I feel is the key to start, but this is just scratching the surface of this whole issue, and I believe a lot of traders/investers struggle with the emotional side of things and don't address the issue.

I am finding issues with my own trading now I have started trading cfd's.Having drawdown of 30% in a few weeks isn't fun, even if the raging Bull market comes and turns it round for you in a few days.Of course that isn't just an emotional issue but a method issue.

In the end though it is our methods that cause us to have the emotion.


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## ducati916 (15 April 2006)

You will never eliminate *emotion* from trading/investing.
Emotion is, and always will be a basic human experience. What you can do is learn, and understand how emotion and all other psychological components can be utilized effectively, to augment, rather than detract from the goal.

Emotion, and emotional responses are located in the oldest genetic areas of our central nervous system, the *limbic system*. Detailed anatomical knowledge is not a prerequisite, however understanding the *function* is useful, and with understanding, you can learn to manipulate the *state* of your *sub-conscious*

In no particular order, the areas that must be addressed;
Motivation
Goal-setting
Vizualization
Training and warm-up  
Arousal
Concentration & Relaxation
Competition (Trading & Timeframes)
Attribution  (testing, systems, records)
Teamwork   (team sport, or individual endeavour?)

As can be surmised, trading, and particularly trading in short time frames has a very close link with professional sports, and prepping for competition.
However many of the issues cross all timeframes, with some having stronger links into the longer time frames.

I actually wrote about this subject some three years ago on Reef, but have some new thoughts to the subject, and so will post the revised edition if you will.

Just returning however to the conscious contrasted with the sub-conscious.
As an easy example;

When you first learn a skill, in this case a motor skill, you learn via the cognitive centres in the brain, viz. the cerebral cortex.
Once you have learned the skill, it becomes second nature, or reflexive, and is shifted from the cortex to the sub-conscious areas........Thalamus, Pons, Cerebelleum, etc.

Example;
Learning to drive a car, initially, we concentrate very hard on the mechanical aspects, changing gear, indicators, clutch control etc.

Once we have been driving for a period of time, we concentrate on talking on our mobile phone, doing our make-up on the way to work, finding juniors lunch that he's left at home etc.

When Douglas et al talk about *Trading in the zone* they are referring to trading on automatic pilot, trading sub-consciously.
Professional athletes, talk about the *zone* in exactly the same way. Golfers, Tennis, Racing drivers, Sprinters, all have their optimal performance zone. It is this zone that *professional* traders can also occupy. 

The same way that professional athletes increasingly rely on psychological training and coaches to teach them how to achieve that zone consistently, so can traders.

jog on
d998


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## tech/a (15 April 2006)

Dont think emotion can be removed as we cannot be stoic.

But its the swings that people are having trouble with.
When emotion effects a traders ability to make sound judgements and decisions.


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## Sir Burr (15 April 2006)

How about re-mapping the mind using Cognitive Therapy for Traders:

http://www.brettsteenbarger.com/Remapping the Mind.doc

Nick R. what do you think about this doc?

SB


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## nizar (15 April 2006)

ducati916 said:
			
		

> You will never eliminate *emotion* from trading/investing.
> Emotion is, and always will be a basic human experience. What you can do is learn, and understand how emotion and all other psychological components can be utilized effectively, to augment, rather than detract from the goal.
> 
> Emotion, and emotional responses are located in the oldest genetic areas of our central nervous system, the *limbic system*. Detailed anatomical knowledge is not a prerequisite, however understanding the *function* is useful, and with understanding, you can learn to manipulate the *state* of your *sub-conscious*
> ...




Excellent post ducati, very well written and explained, thanks for that


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## Knobby22 (15 April 2006)

Good stuff Duc.

I would like to add something; 
as we intellectually know, a decision made in the spur of the moment is invariably wrong. The problem with the ability to buy or sell over the computer is that it is very easy to do this. In the old days you would ring a broker which caused you to have a good argument for your action and let you think about it.

One rule I follow is to always wait a day after making a decision. I find that it helps most of the time as you are doing the buying or selling without the adrenaline.


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## tech/a (15 April 2006)

> I would like to add something;
> as we intellectually know, a decision made in the spur of the moment is invariably wrong.




Ah

Knobby similar to the *50/50/90 rule.*

If you have a 50% chance of making the correct decision there is a 90% chance you'll get it wrong!


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## Mofra (15 April 2006)

Not to oversimply the issue, but I have found in general that the more mechanical your system, the less emotion is a factor. If emotion is becoming a problem, the increasing automation of the trading process becomes a higher priority.


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## Strw23 (15 April 2006)

I personally dont think its a good idea to remove ALL emotion from trading. Yes I DO agree that you want to remove the part were you are happy if you make a proffit and sad if you make a loss as this shouldnt phase you as it should just be one section of your equity curve as it climbs higher. The emotion I think should be kept is enjoyment. I think if you enjoy it you will try harder, be more determined to suceed and work through the slow times. Now I dont want this to be confused with trading for pleasue were you have fun trading and dont really care about the outcome because to you trading is entertainment and something you can brag to your friends about, because that isnt me.

I trade a mechanical system so the way I keep the other emotions out is by having thoroughly back testested system that I am completely happy with and can trust. I always allow for more drawdown than was given in backtesting and if my loosing trades in a row is double those given in backtesting I consider my system to over opertermised and not robust enough and time to develop a better system. Being mechanical all decisions have allready been made before I start trading by my set of rules so when a situation arises I already know what to do and I am not making a decision in the heat of the moment.

I also chat on another forum and a lot of people there who are being troubled by their emotions (selling early to take profit or quitting a system before its had a decent run) normally post what they're about to do. They then get about ten replies telling them not do it and why the should be following their system and that is often all the reasurance they need to remind them to stay on track.

My two cents worth.

Scott


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## happytrader (15 April 2006)

I am assuming that the system itself is sound and that the emotions are not in fact warnings of issues not covered.

Change can be stimulated either externally or internally. I have mentioned some internal resources in my previous post on this thread. 

Externally I like the Nike, Just do it! works well if thinking too much is a problem. So is acting like a winning trader and going through the motions.
Take one trade at a time. Trade one stock. Trade one pattern. Trade small. If you are trading derivatives trade shares for a while.
Don't hold yourself up for judgement and the issues of others by telling them what you are doing. Instruct your broker to adhere to  your profit and loss targets (thats my idea of a good broker)  Don't giveup your job. (I do not know any seriously wealthy person who has given up theirs)  Don't isolate yourself (the market does not define who you are). Become aware of your self talk (most people's suck) . Keep a journal. Learn to be in the moment. 

Cheers
Happytrader


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## Knobby22 (15 April 2006)

tech/a said:
			
		

> Ah
> 
> Knobby similar to the *50/50/90 rule.*
> 
> If you have a 50% chance of making the correct decision there is a 90% chance you'll get it wrong!




Yea, funny that. Even for long term investors. :brille:


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## ducati916 (16 April 2006)

*Arousal* 

This is the component that is specific to the question contained within the threads title.

While disciplines such as motivation, goal-setting, visualization, teamwork, preparation can be consciously introduced by yourself, excitement, or arousal is a natural emotion that can either augment and improve your results, or detract from your performance, hurting your results.

Returning to professional sports briefly, to illustrate some differences.
Professional rugby, a physical, demanding sport, with much contact.
The level of arousal, must be as high as possible.
Professional target shooting. Polar opposite, arousal must be far lower.

What exactly is arousal?
Arousal is the body's physiological response to the event or situation, that is currently taking place, or, will take place in the determinate future.
It is a hormonal cascade of epinephrine, nor-epinephrine that stimulates end organs to a point of performance preparation..........muscles (including cardiac muscle) blood supply, neurological structures.

The sum total at one extreme is a hyper-active state, the fight, fright, flee syndrome......which is exactly what our rugby player requires, but not our target shooter.

Arousal operates on a scale, at one end we have low or zero arousal, or deep sleep, at the opposite end we have maximum arousal, a state of adreneline (epinephrine) secretion so high that eventually it generates fear.
This is the source of the *fear* in the markets.

Drive Theory, as it has been labeled, is the methodology (psychological manipulation) that has been designed to control the levels of hormonal stimulation to the correct levels for the individual, commensurate to the task at hand.

jog on
d998


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## tech/a (16 April 2006)

> I always allow for more drawdown than was given in backtesting and if my loosing trades in a row is double those given in backtesting I consider my system to over opertermised and not robust enough and time to develop a better system.




Scott.

Defeats the purpose of backtesting.
If a mechanical methodology trades beyond its blue print to ANY extent let alone by large degrees,then its not even remotely close to its tested results.

If your getting drawdown beyond that found in testing then chances are your system hasnt enough data or the testing you are using doesnt have the capacity to test large data bases or multiple timeframes or portfolios.
Are you trading stock?
Or Futures?

What software do you use for testing?
Have you tested using MonteCarlo analysis.

Rather than take away emotion,results as you have described would heighten in security and deminish trust!
Why give any allowence at all!


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## Julia (16 April 2006)

tech/a said:
			
		

> Ah
> 
> Knobby similar to the *50/50/90 rule.*
> 
> If you have a 50% chance of making the correct decision there is a 90% chance you'll get it wrong!




Tech

I'm interested in knowing the background to this.  Was this "Rule" derived from some scientifically conducted research or is it the result of a lot of anecdotal experiences (often just as valid).

Thanks

Julia


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## tech/a (16 April 2006)

Julia.

Nothing scientific here.Some other character came up with it and I liked it so much I claimed at as my own! Every time I go into a street I'll turn the wrong way 90% of the time and I'll be most others do to.
90% of the time I'll say the wrong thing according to the missus.


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## RichKid (16 April 2006)

tech/a said:
			
		

> Julia.
> 
> Nothing scientific here.Some other character came up with it and I liked it so much I claimed at as my own! Every time I go into a street I'll turn the wrong way 90% of the time and I'll be most others do to.
> 90% of the time I'll say the wrong thing according to the missus.




'Given a 50/50 chance, you'll get it wrong 90 of the time.'

Tech, I'm interested in the concept too, so if you have a 50% chance of getting the right outcome YOU get it wrong 90% of the time. Of course we only know it's wrong in hindsight.

So the initial odds don't change (provided there are only two possible results) and to alter the outcome (for your benefit during future ventures onto the streets of Adelaide!) we'll have to know what your initial judgement was based on. Has anyone discussed this in a meaningful mathematical way over the years that you have mentioned it? Has piqued my interest since I'm still looking at probability vis a vis trading and expectancy. I don't think there's much in it, ie just a phrase, but some one wiser may think otherwise.


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## tech/a (16 April 2006)

Settle down its a joke.


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## Strw23 (16 April 2006)

strw23 said:
			
		

> I also chat on another forum and a lot of people there who are being troubled by their emotions (selling early to take profit or quitting a system before its had a decent run) normally post what they're about to do. They then get about ten replies telling them not do it and why the should be following their system and that is often all the reasurance they need to remind them to stay on track.




Happy Trader I am assuming part of your post is a reply to mine, if it is not ignore what I say



			
				happytrader said:
			
		

> Don't hold yourself up for judgement and the issues of others by telling them what you are doing.




I have to disagree with this. Following the signals that are given by a mechanical trading system is perhaps one of the hardest part of trading. A mechanical trading system forces you to take actions that can be in direct conflict with natural human responses. For example, if a newly purchased share decreases in value, the natural reaction for many people is to hold the stock in the hope that the price will recover. Most mechanical trading systems would give a sell signal to cut your losses in this situation.

A mechanical system will not be right all the time, we all know this but some of the traders I socialise with will often comment
* That their system told them to buy XYZ and it was a loosing trade so they sold it. Next week it comes up again so they buy it and again it gives a loss. The next time it comes up they say Im not falling for this again I have already been bitten twice and dont buy it, only to discover it makes considerable gains.

* That they bought ZFX (real example) in June 2005 for about $3.00. Now its six months later they have doubled their money and want to lock in profits instead of waiting for the the price to fall and hit their trailing stop. They sell out and cant believe how lucky they are. Now its another three months later and the price has hit $10.00.

These are both real examples of people not following their mechanical trading plans and giving in to their emotions and loosing out. I also have another dozen examples of people who were going to do this or similar things and break from their plans. The spoke to others or posted what they were planing to do on the forum and have been encouraged to stay true to their plans as it has been tested. This is often all the reassurance they need and most of the time sticking to the plan was the profitable idea.

Their is a saying for mechanical trading "The only thing worse than breaking from your plan and loosing money is breaking from your plan and making money", as this teaches you it is alright to break from your plan which it isnt.



			
				tech/a said:
			
		

> Scott.
> 
> Defeats the purpose of backtesting.
> If a mechanical methodology trades beyond its blue print to ANY extent let alone by large degrees,then its not even remotely close to its tested results.
> ...




tech/a, 
Fistly I made a mistake in my last post, its if my drawdown doubles I quit my system. On the other issue Im sorry but I have to disagree.  Backtesting results are simply that tested over past performance. We all know the disclaimer at the bottom of every financial product "Past performance doesnt guarentee future results". Given these results I know how it performed in the past and how it should perform in the future but there is no guarentee. If it deviates from past results to much I know I have over optimised it. One rule in my trading plan will clearly state if ABC deviates from backtesting results by XYZ then to stop trading the system.

The following is taken from the TMS website
"Having a trading plan is a good start. However, it is important that a strategy has been historically tested before using it. While this is not a guarantee of future performance, it may be better than simply relying on someone’s subjective opinion on whether something is good or bad – do you really know their full track record? Do rely on quantifiable results, involving records of every single transaction that could have been taken by a trading plan before ever trading it.
...
Back testing a trading system involves applying the rules and conditions of a trading system to historical price data.
...
Back testing does not give a 100% accurate measure of a trading system’s properties, as price movements in financial markets are never exactly repeated. The price of a share is driven by supply and demand.  Supply and demand ratios are the direct result of decisions made by humans. For this reason, price fluctuations are somewhat similar over time, which makes it possible to estimate the properties of a system based on back testing results.
...
By back testing your system you can quantify the profitability of the system with reasonable certainty."

As for you other questions I trade CFD's on AUS stocks. I use Metastock 9 EOD and Tradesim for my backtesting, but I am not overly happy with the limitations of both programs. I also have WealthLab Developer but havent got around to learning this yet, thats my next task. When testing I normally use ten years of data and do out of sample testing as well. Sometimes I use MoneCarlo testing and rely on the worst case situation given in backtesting, but generally prefer to trade systems where I can take all possible trades. One thing I would like to incorperate into my testing is that if my system throws up three trades and I only have the equity to take two I want a rating system built into my rules so it tells me which two to take to make it completely mechanical. Metastock cant do this but I am told it can be done with WealthLab.


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## Sir Burr (16 April 2006)

Strw23 said:
			
		

> One thing I would like to incorperate into my testing is that if my system throws up three trades and I only have the equity to take two I want a rating system built into my rules so it tells me which two to take to make it completely mechanical. Metastock cant do this but I am told it can be done with WealthLab.




or AmiBroker!

see http://www.amibroker.com/guide/afl/afl_view.php?id=223


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## happytrader (16 April 2006)

Hi strw

No my comment, 

_'Don't hold yourself up for the judgement and issues of others by telling them what you are doing' _ 

was not actually in reply to your post. The majority of 'others' I refer to are those who have very limited understanding of trading. I also refer to those who don't know anything about you, your risk profile or your time frame. Chances are they are not even likely to see what you see. I've heard and seen people show visible signs of distress just listening and thinking about a possible loss of your or their own money in many business endeavours. Nine times out of ten these types haven't developed the tolerance or the knowledge and can't understand or handle any concept that involves risk. And of course their are others with ulterior motives.

If your goal is to make consistent money as a trader you do not have the luxury of being mediocre or fearful in any area of your trading. If you want to increase your level of irrational and emotional fear, then telling others and listening to their emotive fears and their issues will accomplish this anytime. 

Most traders aren't particularly interested in anyone elses opinion but their own. Of course along with this attitude comes self responsibility. If you listened to all that 'noise' how could you possibly make sound decisions and follow your system consistently or any business venture for that matter?

Cheers
Happytrader


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## tech/a (16 April 2006)

STRW27

Would you be a Hometrader student?

You are using the same as I.



> Back testing does not give a 100% accurate measure of a trading system’s properties.




But what sound systems testing will give you is a very accurate set of numbers based on the performance of those conditions and variables chosen for use in the system.
What you have in the end is a business plan based on those inputs.
A good system does not require all trades to be taken,infact due to capital constraints often this is not possible.

You keep mentioning optimisation.
What are you optimising? 
Variables used in a Stock trading system?
How many stocks do you trade at a time?


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## Julia (16 April 2006)

RichKid said:
			
		

> 'Given a 50/50 chance, you'll get it wrong 90 of the time.'
> 
> Tech, I'm interested in the concept too, so if you have a 50% chance of getting the right outcome YOU get it wrong 90% of the time. Of course we only know it's wrong in hindsight.
> 
> So the initial odds don't change (provided there are only two possible results) and to alter the outcome (for your benefit during future ventures onto the streets of Adelaide!) we'll have to know what your initial judgement was based on. Has anyone discussed this in a meaningful mathematical way over the years that you have mentioned it? Has piqued my interest since I'm still looking at probability vis a vis trading and expectancy. I don't think there's much in it, ie just a phrase, but some one wiser may think otherwise.




Tech

Your response to Richkid's post above was "Settle down, it's a joke".

That's why I asked the question as the "Rule" didn't make a lot of sense to me.  e.g. I don't think that, when faced with a 50/50 choice, I - or for that matter, most people -  would get it wrong 90% of the time.  

You will probably consider that I'm being stuffy and pedantic here, and perhaps I am, but I'm always conscious of new investors who will take anything they read which is written by someone who obviously knows what they are talking about - and you know you are thus classified - as being TRUTH.  They may not have the confidence to question what you mean so will puzzle over it and wonder what they're missing or doing wrong.

This is not intended to "get at you" at all.  Rather to ensure that all the useful and constructive info you post which people find so helpful doesn't get confused with the bits that you regard as jokes.

Cheers
Julia


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## Strw23 (16 April 2006)

Tech/a

Yes I did do my initial training with Home Trader and highly recommend them.

When I talk about optimising I am talking about changing moving averages, indicator periods, etc etc to produce more profit over the sample data. Obviously you dont want to over optimise over one certain period or it might not perform in different market conditions, that is also why I do out of sample testing. Generally speaking though most systems will break down over time.

As for how many stocks do I trade at a time it depends on what systems I have running. I have a few designed but dont trade with them all. Most of the time when I design a system it will be for stocks in the ASX200 because I trade CFD's to increase my returns. Other systems will be for ASX FPO shares but include price gates to exclude some stocks. The latest system I am fine tuning is for GICS Sectors traded on margin with CMC and looks to be very profitable I am just trying to find the right balance between profit and drawdown. Once this sytem is complete I will be designing a short system for CFDs as this bull market cant last forever. I would like to get into FX but that is a little down the track at the moment, to many other projects.

The reason I often prefer to trade a system were I can take all possible trades is to increase my chances of a profitable return as based in back testing. As you know with montecarlo testing it generaly gives you the highest, lowest and average results. If I am given five trades and can only take two what trades do I take? They all have the same probability of making money based on my entry conditions but more often than not they all wont. I want to take the ones that will give me the highest return but will never know until all trades are closed and its to late then. With a system that has been MC tested you have a predicted profit range between the highest and the lowest but if I take all trades I have one target I feel more confident in being able to reaching.

Scott


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## yogi-in-oz (17 April 2006)

Hi folks,

Just going back to Mark's original question in this
thread:

How do you remove emotion from trading?

Answer is:

... remove the fear of winning or losing MONEY !~!

If you doubt this at all, stop trading for real and
just paper-trade the markets for a month and
hey presto ..... NO EMOTIONS.

Car sales 101 ..... the reason for getting a deposit 
from the prospective buyer, is:

..... because, his MIND is where his MONEY is !~!

Trading is no different, if we have a sizable chunk
of cash tied up in a trade, then that's where our
minds (emotions) will be centred.

-----

Any trader, who feels emotional about paper-
trading should give up immediately and find 
another vocation ..... for real trading will 
burn you out, very quickly.

-----

For some, trading for real presents a fear of loss,
brought on by a variety of factors, but the main
reasons are probably:

Lack of a proper overall trading plan.

No mechanical trading system within trading plan. 

Positions sized too big, triggering constant concern
and monitoring of  trade positions ..... scale back
and sleep soundly.

Poor risk and money management, which should
also be addressed in the trading plan.

By trading according to a (winning) trading plan,
we gain more confidence in our systems, with
every winning trade ..... 

As our confidence builds in our own trading plan, 
our emotions become more positive and the
negative emotions subside significantly ..... but
this can only happen, if we can see a log of
profitable trades building in our records, over
a period of time.

So, during the time it takes traders to improve
their win/loss ratio significantly, raw emotions
are bound to surface .....

..... it's all part of learning our craft ..... 

Eventually, with enough PRACTICE, trading our
own plan becomes second-nature, even to the 
point where it becomes a mundane operation,
with few thrills ..... for some, it's just job or
another way to pay the bills.

Believe it ..... there's much more fulfilling things
EMOTIONALLY-speaking, than making money ... 

happy easter

  yogi

P.S. ..... there's a similar story connected to the
             fear of winning, but the emotions are
             still responding to the same triggers.


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## Knobby22 (17 April 2006)

Julia said:
			
		

> Tech
> 
> Your response to Richkid's post above was "Settle down, it's a joke".
> 
> ...





The point Tech is making, is that given a 50/50 chance and given you are trading on spur of the moment judgements with emotions running, adrenaline flowing etc. you are more likely to get it wrong than by instead tossing a coin. The 50/50 is the coin, the 90% is the chance you CHOSE wrongly.

If anyone thought about it then they would see that the 90% chance is just a figure plucked out of air as everyone is different in any case and usually improve their decisions over time.  

I didn't take it very seriously but there is TRUTH in it. 

..and yes I agree with you that your argument is pendantic. Come on, people should be thinking about information, not just accepting every bit of info as gospel. Otherwise it's garbage in garbage out. 

Even the best info is not 100% true 100% of the time. When we stop questioning we are allowing our minds to atrophy. I hear many people quoting books that are basically a lot of crap but I don't bother with questioning them as I would be doing it all day. This thread has quite a lot of it.

Sorry to be so black and white. Please do not take offence.
This forum is hardly an academic study in human behaviour.

Regards

Knob


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## bullmarket (17 April 2006)

Human nature being what it is I doubt anyone will be able to eliminate emotion from trading/investment decisons 100% of the times.

But what imo can certainly help eliminate emotions say 99% of the time is *discipline*

*Discipline * to firstly put to paper what your objectives and investment/trading methods, criteria, paramaters etc etc (an investment/trading plan) are.

*Discipline* to then paper trade, back test - call it what you like - and fine tune that plan *until it generates the returns included in your objectives.*. Friends have paper traded a few hundred trades before they were happy to start trading with their own funds and are still successful today.

*Discipline* to stick to that plan (when trading with real funds) even when you make a few losses and not throw it out the window. (remember, losses would also have been made during paper trading)

*Discipline* to review the investment/trading plan periodically especially if for some reason expected returns are not being achieved.  Reviews could be monthly, quarterly or whatever suits.

Also, all of the above is dependent on individual make-up, psychology, temperament, attitudes and determination.

cheers

bullmarket


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## Knobby22 (17 April 2006)

Great post Bullmarket!
No bulldust there!  
Discipline is so difficult for me at times.


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## Julia (17 April 2006)

Knobby22 said:
			
		

> The point Tech is making, is that given a 50/50 chance and given you are trading on spur of the moment judgements with emotions running, adrenaline flowing etc. you are more likely to get it wrong than by instead tossing a coin. The 50/50 is the coin, the 90% is the chance you CHOSE wrongly.
> 
> If anyone thought about it then they would see that the 90% chance is just a figure plucked out of air as everyone is different in any case and usually improve their decisions over time.
> 
> ...




OK, fair enough.  I'll pull my head in.

Julia


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## markrmau (18 April 2006)

Thanks everyone for the interesting replies. I am leaning towards saying there is some minimal level of emotional involvement that will always be present. Just as long as you understand your feelings, you will not be incapacitated by them. The feelings definately diminish with time as you become more accustomed to the ebb and flow of the market prices.


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