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Consecutive Loses

  
  Education
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loser-1

You go long and the market immediately goes down – you go short and the market immediately goes up.  That’s 2 consecutive losses AND you are getting a little ‘anxious’ so you don’t take the ‘next’ trade and it of course works.  BUT to make the situation worse you then ‘chase’ the entry and it immediately reverses – another loss AND this is 3 in a row.  Ok 1 more try – this can’t happen on every trade can it – pray mode?   
This time though you will be real clever.  You have at least noticed that the market is in a range AND it’s the bounce from the low/retrace from the high that is causing all the problems.  So this time the next trade you take will be a range extreme fade AND the hell with your trading method.  The market is at the range low AND per your new ‘on the fly’ plan you go long AND the range immediately breaks out giving you consecutive loser #4 – trading against a method trade that is going far enough to pay for the previous 3 losers and make you net ahead.   
Now what are you supposed to do – QUIT?  AND to be sure that there is no more temptation – your throw your computer out the window and dive out right behind it.  You are in a trading psychology spiral.

Over-trading

  
  Education
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56703773SO002_Markets_ReactToday I want to consider the subject of over-trading. This can take two forms:

  • Frequency of trading: we over trade when we take trades in breach of our strategy.
  • The amount at risk relative to our capital: we over trade when the size of our position threatens risk of ruin.

Frequency of trading assumes that firstly we have some sort of strategy and that you have have developed some rules to implement that strategy. And, secondly, we execute trades in breach of those rules – we take trades not within our rules. (more…)

The Psychology of Trading

  
  Education
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There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions. All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let’s look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios.

You go long and the market immediately goes down – you go short and the market immediately goes up. That’s 2 consecutive losses, and you are getting a little ‘anxious’ so you don’t take the ‘next’ trade. Of course, this trade is a winner. Now to make the situation worse, you then ‘chase’ the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss – this is now 3 in a row. Ok, one more ‘try’ – this can’t happen on every trade can it? (more…)

Psychology and Gaining Confidence

  
  Education
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Hi All,

There has been a lot of talk on the  psychology of trading and getting rid of fear etc. I think that one way to help is to understand the performance parameters of your trading system and this means extensive
backtesting and changing the way you think when entering a trade.

Now whenever I have placed a trade I have assumed that I was wrong and so if the market did not immediately prove my position correct I would be taking measures to reduce my position and, if necessary,
get out. This kept my losses small and when correct I was able to do nothing and just move my stop up. This is contrary to the way most people trade in that they place a trade assuming they are right and wait
for the market to prove them wrong.

IAlso if you have backtested a system thoroughly you will know what percentage of profitable trades you can expect. From this you can also determine the number of consecutive losing trades that you can
expect for a given number of trades. The formula is quite straight forward and is:
Consecutive losses = LN(N)/-LN(S) where
N = Number of expected trades
S = (100-strike rate %)/100

Now if you place say 30 trades a month and you have a 50% success rate, you can expect to have 5 consecutive losing trades.

But the more trades you place the bigger the chance of consecutive losing runs. So if our trader has 12 x 30 trades a year = 360 they can expect to have nearly 9 consecutive losing trades.

Of course the opposite is also true in that you could expect to get 9 consecutive winning trades as well. The problem is that I have seen many systems that have only a 40% success rate and in the same
example above this would result in 12 consecutive losing trades. Psychologically this is very difficult to handle yet if you had backtested your system thoroughly it is easily seen that this is to be expected and
means that your system is operating within normal parameters.

Food for thought I hope

Psychology and Gaining Confidence

  
  Education
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CONFIDENCEThere has been a lot of talk on the  psychology of trading and getting rid of fear etc. I think that one way to help is to understand the performance parameters of your trading system and this means extensive  backtesting and changing the way you think when entering a trade.

Now whenever I have placed a trade I have assumed that I was wrong and so if the market did not immediately prove my position correct I would be taking measures to reduce my position and, if necessary, get out. This kept my losses small and when correct I was able to do nothing and just move my stop up. This is contrary to the way most people trade in that they place a trade assuming they are right and wait for the market to prove them wrong.

IAlso if you have backtested a system thoroughly you will know what percentage of profitable trades you can expect. From this you can also determine the number of consecutive losing trades that you can expect for a given number of trades. The formula is quite straight forward and is:
Consecutive losses = LN(N)/-LN(S) where
N = Number of expected trades
S = (100-strike rate %)/100 (more…)

Why traders wins & loses

  
  Education
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WIN-LOSE

Why traders wins

1. Develop specific procedures.
2. Have a defined operational methodology.
3. Understand how your trading system works.
4. Be sufficiently capitalized.
5. Don’t take quick profits.
6. Begin using a system after it draws down.
7. Be willing to accept consecutive losses.
8. Don’t think too much.
9. Don’t set specific price target.
10. Don’t believe the tight stop loss myth.
11. Play your own game-avoid the news.

Why traders loses

1. Lack of defined methodology.
2. Poor self control and discipline.
3. Information overload.
4. Riding losses.
5. Taking profit quickly.
6. Poor understanding of system basics.
7. Lack of consistency.
8. Too emotional and suggestible.
9. Too close the makes.
10. Can’t accept more than a few consecutive losses.

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