When FAILURE is simply NOT an option

[tech/a]

After posting on discussions on forums for just over 12 yrs,its become crystal clear to me where all traders fail.

The reason is simple in nature and complex in explanation.
By the end of this post My hope is that it will be clear to all who
See Failure as Not an option.

We are told upwards of 80% of traders fail---there is a very good reason for that,and it's simple---they trade stock,derivatives,futures,indexes,warrents
you name it---what they dont do is RUN A BUSINESS--they think they do but simply they run disjointed in coherant segments of business.

Over 80% of Business's fail in the first 3 Years---and here in lies THE reason for inconsistant,unsatisfactory profit and the majority of FAILURES.

MOST have only a very basic concept of RUNNING a profitable business and EVEN LESS have an understanding of how to grow a business---what the key elements are and how to cement them into a WORKING FORMAT---or MEANINGFUL PLAN

I hope to place the KEY issues of business structure using trading as the BUSINESS MODEL below so those who see the light can have a better understanding and awareness of how to achieve CONSISTENT PROFITABLE RETURN.


Firstly,there is endless discussion,often heated on the STYLE of trading Fundamental/Technical/Both.

In your business these are just the METHOD of SELECTION of COMPONENTS Into the MARKET ---the CHOICE of your product or service into the market.There are countless ways to chose,there will be those in business who are expert in choosing their product and putting it into a market and those not so expert,it is but one cog in the BUSINESS MACHINE.
Just as a product can be selected to target a market,by demographic (Age/ gender/afluence/asthetics---its a matter of choice.

Secondly,there is endless discussion on what it is your best trading,Stock/Futures/Derivatives/Commodities.
In your business these are simply the PRODUCTS
What best suits your business? Again just another cog.

ThirdlyEndless discussion abounds on how or what is the most profitable way to do business---Mechanical/systematic/discretionary/managed funds.
In the business world this is like choosing delivery of product to the market in the form of a retail business/wholesale business or internet business---again a matter of choice.

Most Small Business owners spend

TO MUCH TIME IN THEIR BUSINESS AND NOT ENOUGH ON THEIR BUSINESS

The business of trading is no different countless managers of small trading businesses are BOGGED DOWN With what method to select a trade/What to trade/How to trade it.

**Managers are constantly told to develope a plan and stick to it.**

99% of the time I see this advice farmed out it has a few VITAL COMPONENTS MISSING.

Develope a TESTED AND PROFITABLE plan and CONSTANTLY MONITOR and REVEIW IT.

***So now to the CORE of failure***

For the moment forget we are trading as a business.
Most new small businesses will look at an area and say there is no Dress shop (as an example in this case) so I'll open a dress shop in X shopping center.
So doors open and staff wait to service the hoards of clients.

Whats wrong with this picture??

Back to trading.
Now I'll buy Y stock using fundamental or technical analysis and wait for the profits.

Whats wrong with this picture?

Answer----in both cases we may be right AND we maybe wrong.

Lets say we are right but we are unhappy with the profits we are just making a meagre profit.

Back to the shop--as owner we decide to discount heavily and have a sale.
we sell twice as much as we did before.

Whats wrong with this picture?

Back to Trading----we decide that we will be happier with smaller profits and far more trades.

Whats wrong with this picture?

Answer in both cases------we may be right but we could well be wrong,over heads could eat up all the extra we make from frequency of sale and we are no better off.---even worse off

So back to the shop.---as owner we decide to open another 2 stores so we can increase our turn over with sales and duplicate the results hence more profit---hey good PLAN

Whats wrong with this picture?

Back to trading---we decide to trade more frequently AND trade more stocks or commodities so we can duplicate the samll fish are sweet no ones ever gone broke taking a profit theory!--theres a plan

Whats wrong with this picture?

Answer in both cases------we may be right but we could well be wrong,over heads could eat up all the extra we make from frequency of sale and we are no better off.---even worse off

By now you've got the PICTURE

Nothing wrong with any of the plans OTHER THAN

There hasnt been sound collection and analysis of data to ensure that any and indeed all aspects of our business plan are actually profitable ENOUGH WHEN IMPLEMENTED

If consistant and spectacular profit is your trading goal,you'll get to that goal faster and more consistently when you research and implement profitable methodologies.This takes time effort and has an initial cost.

Ill leave you with this for some thought.

Your the dress shop owner what would you do to ensure your plan was successful---formulate the plan.

 

[Ageo]

Nice work Tech. And I agree totally with what you're saying.

Without a plan/system in place you might as well play lotto.

Obviously the basic principles to that system are (some) outlined in your post above.

 

[ghotib]

Thanks Tech/A. Down to earth and common sense: no wonder it's so easy to forget and so hard to apply

Ghoti

 

[wayneL]

Tech

Thats so good, it should be plagiarized

....and a succinct description of why trading is so different to investing.

Cheers

 

[coyotte]

Tech/A

from memory Guppy goes into this in his first book "Share Trading" where he likens S/T to retail turnover.

I think the hardest LESSON to learn is that not only is "failure an option" but is just part an parcel of trading.

IMHO most would be traders are coming from the wrong background (understanding) : they seem to think S/T is akin to investing, when in reality it is gambling -- they would be far better served to spend a bit of time looking at probability theory, odds caculations, and money managment as applied to betting --- even the very best of horse rating methods (some are VERY good) will only show a 10% PTO --- BUT with the long term probability of losing your entire bank if betting any greater than around 2% per selection --- this 2% figure seems consistate with figures quoted for S/T but where around back in the late sixties in horse racing --- it is based on 10% PTO of 2/1 selections and the probabable RUN of losses.

Cheers

 

[coyotte]

Sorry Wrong !


2/1 = 33% Strike Rate @ 10% PTO = 1% of bank --- Horse Racing

1/2 = 66% Strike Rate @ 10% PTO = 2% of bank ---- Share Trading



Cheers

 

[Magdoran]

Tech/a,


Applause.


Regards


Magdoran
P.S. Did the milk and cookies keep you up last night? – sounds like you had an epiphany!

 

[wayneL]

sounds like you had an epiphany!

I think Techs epiphany was looooong time ago.

Nevertheless, I do believe everybody should have at least one in their lifetime

 

[Smurf1976]

You've hit the nail on the head there tech.

 

[tech/a]

You've hit the nail on the head there tech.

Well I am a builder. : : :

 

[RichKid]

Great analogy there Tech, thanks for fleshing it out.

 

[srivest]

Can anyone describe a profitable plan in details ?

I'm relatively new to share trading, I've made my trading plan a few months ago based on what I've read in "Business of shares trading" and "Trading secrets".

Unfortunally, that might take me a year or so before I can tell if my trading plan is profitable (enough trades to see sounds statistics).

I've researched online and I can only find guidelines, no one seem to publish their sucessful trading plan... I'm starting to wonder if such thing exists.

 

[lesm]

tech/a

Looks like you have put a lot of effort and thought into your post, well done.

A lot of time is wasted on rhetoric surrounding FA vs TA that in real terms is unproductive and provides nothing of measurable value.

Who cares, which approach people use if it is profitable and works for them then that is what really matters.

As you and other pundits here and on other fora have stated, consider trading or investing in the same vein as running a profitable business or suffer the consequences.

Cheers.

 

[coyotte]

Can anyone describe a profitable plan in details ?

I'm relatively new to share trading, I've made my trading plan a few months ago based on what I've read in "Business of shares trading" and "Trading secrets".

Unfortunally, that might take me a year or so before I can tell if my trading plan is profitable (enough trades to see sounds statistics).

I've researched online and I can only find guidelines, no one seem to publish their sucessful trading plan... I'm starting to wonder if such thing exists.

Srivest

Wow -- if you expect to make a profit in your 1st year , you are in for a dose of reality - you will find its not the plan you have to sort out but yourself - wonderfull learning oppurtinity this trading , to drag out your short comings!

But to answer your question
first off KISS
Trade ONE stock only at a time --- after a while you will get to Know it, feel it everyday movements ahead of time -- you sort of become one with it --- if you have to many stocks in a open position or on watchlist you will not be able to do this !


Thought the 3 plans Wilson oullined where not a bad start -- he carries on further in "the next step"

But all i have done over the past 10years is keep a small watch list of Medium Cap stocks in a consolidation phase --- which do not have a great amount of previouse highs (to much resistance if they go up) -- have a far amount of daily vol (don,t get caught when you want to sell)
Wilson goes into detail in points i am outling

1: check your watch list DAILY
2: Check OBV -- is accumilation starting -- if so seperate this stock/s into another watch list
3: We know use the 2nd watch list
4: Look out for patterns ( triangles etc) -- increasing Vol
5: NOW comes the important bit --- If a stock starts to breakout(on Vol) --use Count Back Lines Before a Entery -- this will also give you your S/T stop
4: If it continues UP -- beaware of the points that S/T traders have set
5: If it continues to rise past these points then you probably have a new trend in place -- GMMAs now take over -- adjust your STOP on C/B & ATR
6: Generally there will be a S/T "pull-back" before the trend gets underway--
cleared out the S/T traders
7: Now just hitch a ride on the stock (adj Stop ) -- watch daily as this stock
hits important points eg: 21ma , trend lines, ADX , price compression ---
go back -what happened before ?

8: Whilst this is going on keep following your watchlists ,so as to begin to understand these stocks --- when the position you have is safely underway --bring in another one

Get a copy of the bible Edwards - " The Technical Anaysis of Stock Treads "
7 th Edit --- no plans -- Just T/A @ ITS BEST

But none of the above is of any use unless you apply stops & money managment !

Guppy's Trend Trading gives a detailed Plan (monthly Trade) -- allthough Shares mag is not around , the same principal applies with Mags,newspapers etc


Cheers

 

[NettAssets]

Srivest

Wow -- if you expect to make a profit in your 1st year , you are in for a dose of reality - you will find its not the plan you have to sort out but yourself - wonderfull learning oppurtinity this trading , to drag out your short comings!

But to answer your question
first off KISS
Trade ONE stock only at a time --- after a while you SNIP
SNIP

Cheers

But back to Techs original post.
remember Coyottes post is only the trading plan and spending time IN the business.
Occasionally step back a pace or two and spend some time ON the business.
John

 

[tech/a]

But back to Techs original post.
remember Coyottes post is only the trading plan and spending time IN the business.
Occasionally step back a pace or two and spend some time ON the business.
John

EXACTLY

Most traders have never run a business so its asking a bit much for them to know even rudimentary steps in formulating a business model--particularly one which is well reseached (And I dont mean analysis fundamental or technical on a stock). It is no suprise then that 80% fail in Business and a similar number when trading.

So I'll kick the ball off with key business construction components.

#1 Benchmarking. Both external and internal---whats considered acceptable by the industry--do I have already successful models to refer (benchmark against)----do I have or can I find,buy or formulate internal benchmarks??

Without benchmarks its all a guess,Idea or Plan that has no measure of success to strive for or indeed exceed.
Worse without benchmarking you have no idea of failure UNTIL it is staring at you from your bank statement!

 

[tech/a]

#2 Initial Capital.
Do I have enough to be able to invest in my business without having the psycological angst attached to undercapitalisation.?

Fear and greed can be controlled by simply having enough capital that if in MAXIMUM initial drawdown your not risking enough to cause you financial stress. As an example If My total wealth is $10K and my maximum drawdown is 30% then a 3k loss may stress me out.If my worth is 200K and Im trading the same 10K with a 30% drawdown chances are I'm not going to be hampered in my carrying out of my business plan.

AND

#3 A BLUEPRINT of your PLAN IN PRACTICE---Having a positive expectancy trading methodology which has been proven,complete with a blueprint of all aspects of method performance.
Wether that be Discretionary/Systematic/ Mechanical or a combination.

A plan alone without performance records BOTH projected and achieved has little chance of success and no chance of improvement!

THIS IS WHERE 90% FALL SHORT---its never done!

If failure is not an option----

Failure to plan will ensure you've planned to fail.

You dont have a SOUND BUSINESS PLAN until ALL #3 are in place.

 

[wayneL]

Great idea for a thread Tech.

I'm big on the "trading is a business" theme, so will be following along with enthusiasm.

Cheers