Positive expectancy & Discretionary trades

Gringotts Bank · 23 November 2010

Regarding emotions, the trick is to let them flow, and feel them fully. The second you try to control them, you're cutting yourself off from valuable information your subconscious is picking up.

For me, a discretionary buy entry would be when you feel excited and positive about the impending upwards move. Then as soon as you've made the buy, re-check how you feel about it, ie. scan for somatic markers of tension or ease. If excitement has turned to "oh ****, this is going to move against me", then sell for a loss or break even - whatever you can get away with. If you still feel good, ride that feeling till it changes. The feelings can be quite subtle, and that's the art of it.

Sounds easy put this way, but your subconscious might be full of all sorts of distracting noise relating to money and success issues. eg. if you grew up in poverty, the mere thought of a losing trade might send extreme levels of emotion through your body. The second you place the trade, your body is screaming "oh ****!!!" and you misinterpret this feeling as information coming from the charts, so you sell, and get whipsawed to buggery! Just one of many ways emotion-based trading can go wrong.

For it to work well, I believe you have to be very closely in touch with your emotions as they happen. But of course opening that floodgate might mean you also have to feel all sorts of other painful things you've been trying to avoid all your life!! A clean, clear communication between your conscious (thoughts, logic, rational stuff) and subconscious (emotions, feelings, hunches) would be necessary. Also a subconscious that's clear of "money issues" or "success issues" or "failure issues".

nomore4s · 23 November 2010

Gringotts Bank said:
Regarding emotions, the trick is to let them flow, and feel them fully. The second you try to control them, you're cutting yourself off from valuable information your subconscious is picking up.

For me, a discretionary buy entry would be when you feel excited and positive about the impending upwards move. Then as soon as you've made the buy, re-check how you feel about it, ie. scan for somatic markers of tension or ease. If excitement has turned to "oh ****, this is going to move against me", then sell for a loss or break even - whatever you can get away with. If you still feel good, ride that feeling till it changes. The feelings can be quite subtle, and that's the art of it.

Sounds easy put this way, but your subconscious might be full of all sorts of distracting noise relating to money and success issues. eg. if you grew up in poverty, the mere thought of a losing trade might send extreme levels of emotion through your body. The second you place the trade, your body is screaming "oh ****!!!" and you misinterpret this feeling as information coming from the charts, so you sell, and get whipsawed to buggery! Just one of many ways emotion-based trading can go wrong.

For it to work well, I believe you have to be very closely in touch with your emotions as they happen. But of course opening that floodgate might mean you also have to feel all sorts of other painful things you've been trying to avoid all your life!! A clean, clear communication between your conscious (thoughts, logic, rational stuff) and subconscious (emotions, feelings, hunches) would be necessary. Also a subconscious that's clear of "money issues" or "success issues" or "failure issues".

Are you for real? Sounds like a great blue print to lose money in the markets! Trading like that would be extremely draining imo, entering or exiting a trade because you feel "good" or "bad" about it is asking to be burnt. I've lost count of how many times I've entered a trade and it has moved against me and I've thought **** this isn't going to end well but have stayed in the trade because my method had not given me an exit signal (ie my stop hadn't been hit and I had no other real reason to exit) and then it takes off and I get a huge R/R winner.

I've also lost count of how many times I've done the opposite and panicked in a trade and exited even though I had no good reason too besides getting a "bad" feeling about it and then watched it go to the moon, missing out an that huge R/R winner.

Understanding and controlling your emotions in the market has nothing to do with the above, it is about understanding your system (discretionary or not), the skills required to implement that system and then being able to control your emotions to use those skills to implement that system ie following your proven positive expectancy method/system/whatever.

Instead of spending time on all the junk you've gone on about imo traders are better off improving the required skills to be a good trader.

Gringotts Bank · 23 November 2010

Fine then, don't use it. And tell everyone else here not to use it. I don't mind.

Found this, which might be helpful for discretionary trading practice. Frink had posted it on another thread.

http://www.amibroker.com/kb/2006/05/06/discretionary-equity/

tech/a · 23 November 2010

Gringotts Bank said:
Regarding emotions, the trick is to let them flow, and feel them fully. The second you try to control them, you're cutting yourself off from valuable information your subconscious is picking up.

For me, a discretionary buy entry would be when you feel excited and positive about the impending upwards move. Then as soon as you've made the buy, re-check how you feel about it, ie. scan for somatic markers of tension or ease. If excitement has turned to "oh ****, this is going to move against me", then sell for a loss or break even - whatever you can get away with. If you still feel good, ride that feeling till it changes. The feelings can be quite subtle, and that's the art of it.

Sounds easy put this way, but your subconscious might be full of all sorts of distracting noise relating to money and success issues. eg. if you grew up in poverty, the mere thought of a losing trade might send extreme levels of emotion through your body. The second you place the trade, your body is screaming "oh ****!!!" and you misinterpret this feeling as information coming from the charts, so you sell, and get whipsawed to buggery! Just one of many ways emotion-based trading can go wrong.

For it to work well, I believe you have to be very closely in touch with your emotions as they happen. But of course opening that floodgate might mean you also have to feel all sorts of other painful things you've been trying to avoid all your life!! A clean, clear communication between your conscious (thoughts, logic, rational stuff) and subconscious (emotions, feelings, hunches) would be necessary. Also a subconscious that's clear of "money issues" or "success issues" or "failure issues".

He HAS to be taking the pee wee.(Good god he's not!!)

Still---Neurotic late middle aged Women bordering on menopause should do particularly well.

skc · 23 November 2010

Gringotts Bank said:
Fine then, don't use it. And tell everyone else here not to use it. I don't mind.

Found this, which might be helpful for discretionary trading practice. Frink had posted it on another thread.

http://www.amibroker.com/kb/2006/05/06/discretionary-equity/

People in this thread are discussing positive expectancy as revealed by historical simulated or real statistics.

Would you by any chance be able to provide some statistics on your "gut feel" method as well?

lindsayf · 18 December 2010

I sim traded this method for a couple months ( here and there when I had the screen time) and it gave me the confidence to go live on a single contract. Its early days with 20 trades done and now stopped trading for the year. If it continues to perform reasonably well I will consider adding contracts. Im interested in what readers see in these metrics.

thks

Trembling Hand · 18 December 2010

lindsayf said:
I sim traded this method for a couple months ( here and there when I had the screen time) and it gave me the confidence to go live on a single contract. Its early days with 20 trades done and now stopped trading for the year. If it continues to perform reasonably well I will consider adding contracts. Im interested in what readers see in these metrics.

thks

Is that traded on the spi? If so you may struggle a bit with a 3 tick stop.

lindsayf · 19 December 2010

Gday Trembler
No its on YM, NQ and 6B. Chose these because the tick values suits the small account.
Lindsay

Trembling Hand · 19 December 2010

lindsayf said:
Gday Trembler
No its on YM, NQ and 6B. Chose these because the tick values suits the small account.
Lindsay

Good oh. Then my question would be your stops are around 6 ticks? Just a hunch but you may want to try and get your avg win a bit higher because you will probably get a lot more slippage than what the NT sim gives you on stops. What will help is the odd runner. Whats your exit method? As in fixed distance target or an exit signal?

Just as a warning the shorter trade length the system takes the dodger the sim results. Whats your avg hold time?

lindsayf · 19 December 2010

ah I didnt make it clear did I - this is on a live account, did a lot of simming previous to October. The stops are from 10 to 20 ticks. The method is based on price action ( ie outsidebars/pinbars/3 bar reversals) at levels I define as important. I use a 2000 tick chart. I aim to take profit at the next 'level' but not less than 1R. Avg time in a trade is 7 minutes.

thks

Trembling Hand · 19 December 2010

lindsayf said:
ah I didnt make it clear did I - this is on a live account, did a lot of simming previous to October. The stops are from 10 to 20 ticks. The method is based on price action ( ie outsidebars/pinbars/3 bar reversals) at levels I define as important. I use a 2000 tick chart. I aim to take profit at the next 'level' but not less than 1R. Avg time in a trade is 7 minutes.

thks

Ah OK then all good.

Then in that case trading more contracts as your account can handle it will help. You can take 1 off at the first target and then every now and again let the others run a little with a BE stop.

Very hard to trade with 1 contract IMO.

lindsayf · 19 December 2010

Will get there one day as it seems that most successful traders scale out from what I can gather. But my experience of scaling out ( on other methods) is not good in that I find the profitability of parcels after the initial one is not as good as the first one over a set of trades. I also have found that the ave win/ave loss is hard to keep above 1 as an early stop out is on the full position. But it is my aim to be trading multiple contracts by mid next year and no doubt I will do more practice of exit methods.

Any other comments on these metrics?

thks

Trembling Hand · 20 December 2010

lindsayf said:
But my experience of scaling out ( on other methods) is not good in that I find the profitability of parcels after the initial one is not as good as the first one over a set of trades.

Thats because your thinking like a poor old system trader. Your thinking of probabilities over averages etc etc blah blah.

Think like a discretionary trader. There will be times when the trade you have been waiting for for weeks eventually rolls up. Or there will be times when over a period of weeks a big dick will hit the market at the same time or same way and you will just know how to trade it and want BIG volume. Thats the disc traders edge. To hit the market when it suits.

Position sizing is for whimps and system traders :

tech/a · 20 December 2010

Position sizing is for whimps and system traders

Hmm I dont know about that!
Unless your trading with your total capital (Available) on every trade---your position sizing.

lindsayf · 20 December 2010

Trembling Hand said:
Thats because your thinking like a poor old system trader. Your thinking of probabilities over averages etc etc blah blah.

Think like a discretionary trader. There will be times when the trade you have been waiting for for weeks eventually rolls up. Or there will be times when over a period of weeks a big dick will hit the market at the same time or same way and you will just know how to trade it and want BIG volume. Thats the disc traders edge. To hit the market when it suits.

Position sizing is for whimps and system traders :

haha..my trading is far from that discretionary

think Ill be a discretionary trader with a systems approach for a while yet. The kind of market reading and feel that it would take to trade like you describe is a long way off for me.

I reckon if I maintain performance similar to above and then load up contracts over time I will be pretty happy.

Anyone notice that I had 18 shorts and only 2 longs?

Trembling Hand · 20 December 2010

lindsayf said:
Anyone notice that I had 18 shorts and only 2 longs?

No. I didn't but it does bring up a point I was going to say considering the small sample. Be careful of the daytraders curse. Playing range bound/revision to the mean trades when a period of trending comes about or the opposite. You can give back weeks of work in a few days when the market changes.

Also the same kinda thing happens when you get in sync and seem to be reading the market well then all of a sudden nothing works. And ya give it all back before you realise you're a mug not a master of the universe

lindsayf · 20 December 2010

yeh 20 trades is nothing...see where I am at after 100....hopeful though..and need to look into what looks like a tendency to a short bias.

Wysiwyg · 20 December 2010

Also the same kinda thing happens when you get in sync and seem to be reading the market well then all of a sudden nothing works. And ya give it all back before you realise you're a mug not a master of the universe

I experience this phenomena too although changing nothing about my strategy. Strong growth and then consecutive losses to cull growth rates. I have always felt there are other forces at work controlling the outcome so no one gets away. I can't prove it but I got a hunch.
Maybe why only few go on to make millions out of securities trading.

tech/a · 21 December 2010

Maybe why only few go on to make millions out of securities trading.

No
Only a few trade with enough to make millions.
Most trade with peanuts.

Presuming you are a competent business person.

If you had a company which cost you $50K (turn over $120K) Say a Lawn Round what would you expect to return from that a year?
If you had a Mc Donalds Franchise that set you back $1 mill (Turn over $2.5 mill) what would you expect return from that a year.
If you had a company that cost $5 million (Turn over $12 mill) what would you expect that to return in a year.

Good nett profit before tax is generally 10-18%

Trading is no different.

I experience this phenomena too although changing nothing about my strategy

Dont know that that's a good idea either as you should include and adjust parameters as soon as they are evident particularly if at right angles to expectation of your methods performance.

Wysiwyg · 21 December 2010

tech/a said:
No
Good nett profit before tax is generally 10-18%

Trading is no different.

I understand the bankroll size bit but if a gumby like me (with relative peanuts) can make 35 k in three months and + 10 k in a trading session on two occasions, then this is evidence to me that anything is possible. The sky is the limit?

If not, where are the boundaries or limitations? The circumstances or the individual? Why can this not be repeated? Is it luck? Maximising return is the goal so it can be done.

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