Discretionary trading attitude

[Gringotts Bank]

I'm going back to do something I did a few years back which proved very useful in terms of getting the right attitude for discretionary trading. I'm in cash as far as my stock trading goes, and my system holds no positions at the moment. I'm practising my "trading" using my Betfair account. There's lots of advantages for this:

-- I can reduce my position sizing right down to a very small size. I can't do that with stocks because the brokerage gets too high as a percentage.
-- Betfair has heaps of games playing all day/night.
-- I don't need to resort to paper trading stocks. I always found paper trading useless because you have no consequences of your choices. No skin in the game.

I choose a market that I know nothing about, say NHL.
I decide that this whole exercise is going to cost me $x. The amount chosen has to be within my psychological tolerance for loss - let's say it's $300. In other words, the amount lost has to cause no reaction when I think about it. My last discretionary trade cost me ten times that, and this is for education purposes. Then I commit completely to the loss. It's gone, the whole $300, and I'll never, ever see it again. The pay off (hopefully) will be that I get to see the stock market more accurately when I go back to it. (It worked last time).

I divide the $300 up into say 10x$30 bets. I commit totally to losing not just the $30 but every single bet I make. I also commit to being wrong, messing it up entirely. If the thought of getting it all wrong and losing $300 makes me feel bad, then I'm not ready to bet. I either need to reduce the bet size or the total gamble size, or I need to understand what it is I'm afraid of, then work on accepting that. When I feel ok about the loss and about being wrong, I'm ready to bet.

Next I very briefly read a few game previews from some NHL forums. I get a feel for the markets, but I don't apply any logic, because I can't since I know nothing about NHL. This is essential - no logic. But forums will give you a feel for markets, and it's that feel that I want to pick up on, and bet on. I read between the lines for tone and sentiment, not predicted result.

Then I place my bets and wave bye-bye to my money. I don't watch the live scores because ...why would I? The money is gone and I've lost. I check in the next day.

If you're after a cheap way of improving your discretionary trading, I recommend this. The whole idea behind it is this: you can't see markets as they are when you're trying to protect yourself from loss.

 

[waza1960]

Why not just open a nano fx account = 1c /pip surely you can achieve the same thing and at least its closer to trading than sports betting IMO.

 

[Gringotts Bank]

Why not just open a nano fx account = 1c /pip surely you can achieve the same thing and at least its closer to trading than sports betting IMO.

Good idea.

My only concern is that i would be applying knowledge to the market, and I want to get away from that. I want to base my decision on sentiment alone, because I think that's what the top discretionary traders are doing.

 

[burglar]

... Then I commit completely to the loss. ...

+1 GB

 

[peter2]

Wow, I have never read a post with so many psychological issues as this one. Nothing personal GB as I think most people reading this have the same issues.

I think your approach is wrong. You can't use gambling to learn the mindset required to trade profitably. The real skill to trading well is developing the right mindset and getting it into our subconscious mind (internalize it). The best book for help in understanding what's in the right mindset is Mark Douglas, "Trading in the Zone". You would be better off studying this than gambling.

Why choose something you know nothing about to gamble on? It gives you an easy excuse. "I lost because I don't know anything about the market". It's a cop out.

Discretionary trading when practiced properly is not gambling. I know that 90% of people who say they are disc. traders are really gambling. No plan, no process, no profits and I have no sympathy for them.

The big psychological issue I see in your post is the inability to fully accept the risk of your trades. The two major risks in every trade is the loss of money and the risk of our analysis being proven wrong. You can minimise the effect of losing money by reducing the your trade size but you can't reduce the risk of being wrong. Not accepting that we can be wrong is my biggest issue and I know many others have this problem as well. If you can't trade properly (without mistakes) when the monetary loss is of no concern then your real problem is this psychological loss.

Find a market that you know well, have a written plan for every step in the process (perfect setup, entry, reducing risk, eliminating risk, protecting profits, final exit, records, review, improve). Do Mark Douglas's exercise (~p180) until you can complete a batch (20T) of trades without any mistakes.

Perfect practice is my suggestion.

 

[Gringotts Bank]

Wow, I have never read a post with so many psychological issues as this one. Nothing personal GB as I think most people reading this have the same issues.

I think your approach is wrong. You can't use gambling to learn the mindset required to trade profitably. The real skill to trading well is developing the right mindset and getting it into our subconscious mind (internalize it). The best book for help in understanding what's in the right mindset is Mark Douglas, "Trading in the Zone". You would be better off studying this than gambling.

Why choose something you know nothing about to gamble on? It gives you an easy excuse. "I lost because I don't know anything about the market". It's a cop out.

Discretionary trading when practiced properly is not gambling. I know that 90% of people who say they are disc. traders are really gambling. No plan, no process, no profits and I have no sympathy for them.

The big psychological issue I see in your post is the inability to fully accept the risk of your trades. The two major risks in every trade is the loss of money and the risk of our analysis being proven wrong. You can minimise the effect of losing money by reducing the your trade size but you can't reduce the risk of being wrong. Not accepting that we can be wrong is my biggest issue and I know many others have this problem as well. If you can't trade properly (without mistakes) when the monetary loss is of no concern then your real problem is this psychological loss.

Find a market that you know well, have a written plan for every step in the process (perfect setup, entry, reducing risk, eliminating risk, protecting profits, final exit, records, review, improve). Do Mark Douglas's exercise (~p180) until you can complete a batch (20T) of trades without any mistakes.

Perfect practice is my suggestion.

I've got his book sitting on my desk in front of me. I was reading it over again last night, and that's what made me post this.

By accepting a possible loss and the possibility of being wrong, I accept the risk. That's the whole thing - it's the same as what you're saying/.

 

[burglar]

Perfect practice is my suggestion.

Agree that what you practice in drills is what you do in emergencies!
But overcoming the terror of losing, is something some of us need to learn.

We are not all of us, Peter Perfect ... yet!! :

 

[waza1960]

My only concern is that i would be applying knowledge to the market, and I want to get away from that. I want to base my decision on sentiment alone, because I think that's what the top discretionary traders are doing.

IMO you should be applying knowledge to the market and logic as well hence the FX nano idea.
I can assure you that professional disretionary traders regard knowledge of the markets as very important.
So I think the basic premise of learning to accept your losses is valid butI think there is a better way of doing it
more in tune with proper trading.

 

[Trembling Hand]

I'm going back to do something I did a few years back which proved very useful in terms of getting the right attitude for discretionary trading.

Actually you would have to say it didn't by the fact that your are back where you were "a few years ago"!

My only concern is that i would be applying knowledge to the market, and I want to get away from that.

Thats a terribly desperate delaying tactic to not wanting to do your homework.

. I want to base my decision on sentiment alone, because I think that's what the top discretionary traders are doing.

Like who? How do you know what "top" traders do?

 

[Trembling Hand]

IMO you should be applying knowledge to the market and logic as well hence the FX nano idea.
I can assure you that professional disretionary traders regard knowledge of the markets as very important.
So I think the basic premise of learning to accept your losses is valid butI think there is a better way of doing it
more in tune with proper trading.

Yes you can accept your loses with not much more than a twang of annoyance if you know its part of your well worn road map.

If you haven't a F'in clue as to whether or not your map leads you to riches or the poor house you spend all your time jumping off on side trips because you are literately lost in the woods.





GB really??????????????!!!!!!!!!!!!!!!!!!!!!!

 

[pavilion103]

I only trade a small account of around $15,000 at present ($200 risk per trade) but have never really been impacted by the psychology of it all. Maybe because I'm person who is generally very detached from the outcome. Tbh I lost $40,000 on my last investment property when I sold it and was quite philosophical about it all.

I would have thought with trading, being psychologically impacted by losing relates to not having confidence in your system because you are not confident that it has a positive expectancy/edge.
I would think the answer would be to develop a tried and tested system that you have confidence in and this will remove much of the uncertainty which will lead to better psychology. This includes all aspects such as entry setups, risk%, trade management, portfolio management etc.

When you have a system that you are confident in you won't have to second guess yourself or try to change your psychology. You will simply follow it with confidence.

 

[waza1960]

The other solution is to go down the systems/algo trading route.
But I think you have been there and done that.
At least psychology isn't as much of an issue.

 

[peter2]

B. You've overcome the terror of being seriously injured in a car accident. Haven't you? You overcame this fear by driving safely and within the rules and repeating this every time you decide to drive. You've driven too much that this fear is hardly recognised. Trading is no different.

FX markets: The fx markets do provide a minimal cost market experience and can be a great learning medium. However it's my belief that they move quite differently than the ASX stock markets. Do you want to spend the time and effort to observe and learn this and will it help you in trading stock markets?

Another underlying problem within this thread is the failure to understand how to create a consistent and repeatable profitable edge and just as importantly how to maintain it in different market conditions.

 

[Gringotts Bank]

Guys I'm not discounting system development. I'm trying to separate the two processes to see which one is more influential on the bottom line.

I know about system development, and my best one does make money over a 12 year period, and it stood up very well (in backtesting) to the 2008 crash. But the speed of returns doesn't satisfy me. That's why I'm looking elsewhere/. I'm not very patient.

I don't want to say the guys name but he is a successful futures trader and he told me that the best discretionary traders do better than the best mechanical traders. So I thought I'd investigate.

 

[Trembling Hand]

I don't want to say the guys name but he is a successful futures trader and he told me that the best discretionary traders do better than the best mechanical traders. So I thought I'd investigate.

I would agree, discretionary will kick a systems traders ar$e. But you couldn't be further away from travelling down that path with this little exercise.

 

[Gringotts Bank]

I would agree, discretionary will kick a systems traders ar$e. But you couldn't be further away from travelling down that path with this little exercise.

I already know what you'd suggest to become a good discretionary trader. You'd say: watch the depth for 5 hours a day for 10 years.

 

[Trembling Hand]

I already know what you'd suggest to become a good discretionary trader. You'd say: watch the depth for 5 hours a day for 10 years.

Nonsense!

 

[Gringotts Bank]

Nonsense!

What can you suggest then?

 

[Trembling Hand]

What can you suggest then?

I'll get back to you. Bit busy trying to be a top trader at the mo.

 

[Boggo]

If you haven't a F'in clue as to whether or not your map leads you to riches or the poor house you spend all your time jumping off on side trips because you are literately lost in the woods.

+1

When you have a system that you are confident in you won't have to second guess yourself or try to change your psychology. You will simply follow it with confidence.

+1

B. You've overcome the terror of being seriously injured in a car accident. Haven't you? You overcame this fear by driving safely and within the rules and repeating this every time you decide to drive. You've driven too much that this fear is hardly recognised. Trading is no different.

+1

Those three posts say it all, excellent.