Positive expectancy & Discretionary trades

saiter · 12 January 2010

If someone is using discretionary techniques to trade, how do they know if they have a positive expectancy? I'm thinking that they get on a simulator, practice their technique to ensure that they generate money, and then apply the same technique to the real market.
Does this mean that when the market changes, your technique will have to change and you'll have to get on a simulator again?
Is there any other way besides this to check for positive expectancy?

Cheers.

PS: I have been out of the "trading game" for some time, so I'm sorry if this is a stupid question

saiter · 13 January 2010

If anyone is interested, the simulator I'm using is NinjaTrader. You can replay market data and then practice on that.
This market data can be found on another forum called Big Mike's Trading Forum or it can be recorded from your data provider.

Trembling Hand · 13 January 2010

Sim, Sim, Sim.

As you rack up the thousands of hours your learning happens during trading so you spend less and less time on it.

BUT IMO never be afraid to go back to it. Athletes, Musicians, Surgeons, Pilots, crack defensive personal & chess players are not. I don't understand what all this "paper trading" isn't like the real thing BS is about. Why are punters different? ego?

SmellyTerror · 14 January 2010

I guess the folk who think that sim isn't useful are the ones who can't get emotionally invested in simming. If you're just looking at trading as a boring way to make money (and a lot of folk say that's the only right way), I can see how it's only the sting of real loss that motivates. They couldn't take a sim seriously.

But who wants to do a boring job? Plenty of those out there.

Here's what's sold me on scalping (forex for now): I've been trying my hand at a lot of things. I trade real money on a few systems old and new, do pretty well, but I've been simming some more active stuff. I've only been trying to scalp forex for a couple of weeks, and I suck at it (ie my entries are pretty good, my stops work, but my exits suck balls. I think it'll take me a year or two to do much better than random...).

So I'm upgrading my gear, and I've been without connectivity for a week (bar some runs over to the neighbour's to keep my 2-weekers ticking over).

What have I missed? Scalping. On the sim. Not the stuff that's making me money, not the old stuff that works or the new stuff that I've learned to make work. In Forex I barely tread water, but that's what's been sitting in the back of my head all week - "tonight I can get some more time on the sim - oh wait, crap, no I can't".

If you're simming something you LIKE, it's worthwhile. You don't need the sting of real money to make it count, because sucking at something you like stings enough.

Mr J · 14 January 2010

Trembling Hand said:
I don't understand what all this "paper trading" isn't like the real thing BS is about. Why are punters different? ego?

The emotional and mental aspect (for many), but that's irrelevant without good methods, which can be developed paper trading.

SmellyTerror said:
I can see how it's only the sting of real loss that motivates. They couldn't take a sim seriously.

I think this is the case for most people. I think simming also allows for better fudging/rationalising, since we can't argue with an account balance.

Trembling Hand · 14 January 2010

Mr J said:
The emotional and mental aspect (for many), but that's irrelevant without good methods, which can be developed paper trading.

Which can ONLY be developed with sim trading. Everyone bangs on about the emotional aspect of trading. They all want to be ICE MEN trading "without emotion". LOFrickinL.

The torment and emotion they feel when putting real money on the line comes from not being properly prepared with trading skills acquired through simming. Trying to control emotions without going through a proper non threatening learning curve is like trying to stop the bleeding while your hand is still on the wrong end of a running chainsaw.

Mr C made a very good point about practising on micro accounts. How many ever get to moving real money in the real market? Probably close to nun because they aren't learning anything of value.

SmellyTerror · 14 January 2010

But that’s what I mean about liking what you’re doing. If you can’t generate a bit of passion about sim trading, then you’re not going to take it seriously. But why can’t people care enough to take it seriously, when this process (not the making of money - the process) is going to take up thousands of hours of their life? Do they want to do this trading stuff, or do they just want money?

If you like the trading you’re doing, you can sim WITH emotion – maybe not as much emotion as with real money, but some. You’ll have the motivation to work at it and get better. Screwing up in sim should hurt. Getting it right should feel good. You should want to do this. And that will motivate you to get serious, put in the hard yards, and get better.

If people don’t give a crap about their sim, and can’t take it seriously, then I think they should take a good hard look at why they’re bothering anyway. If the *only* thing that gets people motivated is making or losing real money, then they’re going to get the crap kicked out of them while they get “motivated”. Probably better to pay someone else to trade their money, and concentrate on a day job they can enjoy.

Why do people want to do a job they don’t get excited about anyway?

Mr J · 14 January 2010

Trembling Hand said:
The torment and emotion they feel when putting real money on the line comes from not being properly prepared with trading skills acquired through simming.

That's not true at all. Many (most?) people become nervous when their skills are put to the test, regardless of how skillful they are. Maybe you didn't, but that doesn't mean it applies to everyone.

ThingyMajiggy · 14 January 2010

why would one be nervous if you KNOW your system has positive expectancy?

Trembling Hand · 14 January 2010

Mr J said:
That's not true at all. Many (most?) people become nervous when their skills are put to the test, regardless of how skillful they are. Maybe you didn't, but that doesn't mean it applies to everyone.

Nonsense. Nervousness is fine to some degree(during slumps & dealing with uncertainty) but if you think that all this talk about the emotion aspect of trading is because they are highly skilled traders with a proven method just "nervous" you are lost about what causes stress.

skyQuake · 14 January 2010

If you're going crazy in a trade then its probably skill based problems.

Source: Wiki

Trembling Hand · 14 January 2010

skyQuake said:
If you're going crazy in a trade then its probably skill based problems.

Source: Wiki

SkyQuake thats a ripper of a chart. No skill & real money you are starting at a minimum in the Worry section. No wounder people end up with emotional trading problems. No diff than putting a first year med student into surgery to perform.

It's Snake Pliskin · 14 January 2010

ThingyMajiggy said:
why would one be nervous if you KNOW your system has positive expectancy?

Or if one knew one's risk.

nunthewiser · 14 January 2010

FWIW.

I still often use a sim/ demo account on occasion too .

There are times when the markets I trade do not provide me with a major probability trade which i want to enter .

Rather than waste money gambling on red or black im happy to hit up the sim to put my thoughts and entrys/strategys into play and to revise the whole trade as it happens and after without costing me a cent to test out a new gameplay.

I treat this " paper trade " on the sim/demo account just as i would have with real cash and control my risk and position sizing in the same way .....

But hey im happy to know i still need to polish my skills when im having a bad run or i hit a scenario thats of a dubious nature that may guide me the way next time i hit it because i practised.

skc · 14 January 2010

skyQuake said:
If you're going crazy in a trade then its probably skill based problems.

Source: Wiki

SkyQ... with a chart like that you will never be a top tier management consultant. They prefer 2x2 matrix, or 3x3 if you must...

Mr J · 14 January 2010

ThingyMajiggy said:
why would one be nervous if you KNOW your system has positive expectancy?

Why does a rookie pro athlete get nervous before his first big game? Positive expectancy doesn't guarantee success anyway.

If you're going crazy in a trade then its probably skill based problems.

Who said anything about going crazy?

but if you think that all this talk about the emotion aspect of trading is because they are highly skilled traders with a proven method just "nervous" you are lost about what causes stress.

You didn't get my point. Sim trading doesn't prepare people for the psychology that comes with winning and losing money. I'm not sure why you think someone can be prepared for that with no experience.

Trembling Hand · 14 January 2010

Mr J said:
You didn't get my point. Sim trading doesn't prepare people for the psychology that comes with winning and losing money. I'm not sure why you think someone can be prepared for that with no experience.

The process for mastering anything is one that is centuries old. You start with the very basics and gradually master each step BEFORE moving onto the next harder one. To learn the basic without learning bad habits one must be free from performance pressures that don't hinder the actual chunked down skill you are trying to master.

The first skills you need are to read markets and act on them. Somewhere at the end of a novices education come adding pressure with small amounts of real money.

Without the skills to read markets and act on them you are stepping right into, as you say, "the psychology that comes with winning and losing money."

So you recommended that first? Here's yet again another perfect example of that method,

Wysiwyg · 14 January 2010

Hey, that is my experience.

It's Snake Pliskin · 15 January 2010

Trembling Hand said:
The process for mastering anything is one that is centuries old. You start with the very basics and gradually master each step BEFORE moving onto the next harder one. To learn the basic without learning bad habits one must be free from performance pressures that don't hinder the actual chunked down skill you are trying to master.

The first skills you need are to read markets and act on them. Somewhere at the end of a novices education come adding pressure with small amounts of real money.

Without the skills to read markets and act on them you are stepping right into, as you say, "the psychology that comes with winning and losing money."

So you recommended that first? Here's yet again another perfect example of that method,

Good post TH.

In the absence of any form of simulation experience would it be possible in your mind, considering skills - a money making aspect in the form of ability - and risk stipulation adherence, to be able to successfully turn an account into the positive?

Or is some form of simulation experience totally necessary?

ThingyMajiggy · 15 January 2010

Mr J said:
Why does a rookie pro athlete get nervous before his first big game? Positive expectancy doesn't guarantee success anyway.

Forgive me here, but I have never seen a "rookie pro". If you are "pro" at something, you have worked towards it, have the experience that is needed to KNOW what it takes for success. Know what, when, why, how etc. Therefore this "rookie pro" athlete you speak of should not be nervous, he knows what he must do, and he knows there are going to be winners and losers in his game, losing is a part of it. So I wouldn't think there would be much to be nervous about. imo, but what would I know

Positive expectancy & Discretionary trades

saiter

saiter

Trembling Hand

Can be found on the bid

SmellyTerror

Mr J

Trembling Hand

Can be found on the bid

SmellyTerror

Mr J

ThingyMajiggy

Trembling Hand

Can be found on the bid

skyQuake

Trembling Hand

Can be found on the bid

It's Snake Pliskin

nunthewiser

skc

Goldmember

Mr J

Trembling Hand

Can be found on the bid

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Wysiwyg

Everyone wants money

It's Snake Pliskin

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