Speculation by definition requires some amount of loss otherwise the game is fixed. However, I believe loss can be broken down into avoidable loss and unavoidable loss. Unavoidable loss is, well, unavoidable. But in my personal experience (and based on pretty much all speculative loss I have seen or read about) all avoidable speculative loss is traced back to some core elements/violations: not being disciplined (many interpretations), getting emotional and all of the associated errors and mistakes that brings, sizing positions too big so that regardless of odds you eventually have to reach ruin, not being consistent in your approach (the switches), not managing your risk adequately either via position sizing or stop losses, finally you have to be patient for the right pitch whatever that may be for you.
Archives of “switches” tag
rssDifference between Real Traders and the mass
1) Trading – Speculating – Gambling – In the eyes of the vast majority, these things are blurred together, and very many things that the herd get up to in the name of “trading” is really either speculating or gambling. To that end, much of the advice published on the subject of trading can equally be as confused.But not to real traders; real traders know the difference and are very clear that what they are doing is neither speculating or gambling. Just because you can know your risk per trade when speculating or gambling does NOT mean you are trading. Every game at the roulette table you can know your risk. Think about that…
2) Real traders create and trade systems. They follow the rules exactly because they know that to break the rules is to break the fundamental expectation of their system which immediately throws them back into the speculation/gambling camp. Oh by the way, casino owners do not gamble; they trade. Think about that too…
3) True systems can be rigorously forward and back tested and withstand shifts in the market, or at least behave more or less as expected as the market switches between trending and non-trending, high volatility and low volatility.
4) Real traders take every trade, even when their systems are getting a hammering. Why? Because they know that the next trade could be the turn around, and that their system can weather the storm. Again, to tinker with the system is to immediately be back to speculating and gambling.
5) All systems experience drawdown. Real traders know this, and they weather it without emotion. You can be flat or in drawdown for an extensive period, but they keep on following the rules. It’s a part of the business.