Friday, December 16, 2011

The Week That Was.

I have been very quietly plugging away at my trading over the last couple of years. After taking an infinite number of notes on trading (even more on myself..), recording data from various approaches to trading the markets and keeping them in separate spreadsheets, one thing has become crystal clear... isn't the method. It's me holding,umm, me back. I sorely underestimated the influence that mindset has on the outcome when using anything even remotely discretionary to navigate the markets. I am fixing that now.

I have three decent datasets whereby I did/tried to adhere to one way of doing things for a large number of trades. All three have very similar equity curves that ultimately finishes with losing in the "end" (we'd have to go to infinity to find the real end, but that's another post!). Adding more weight to the above assumption.

So here I am at dataset four. I got off to a stellar start and have got to the point where, historically,I usually stop working (because we KNOW that several differing systems producing the same results in any given trader's hands is almost certainly connected to the trader's behaviour and not the systems themselves).

I'm currently in what could be 1) a draw-down in a rising equity curve or 2) The beginning of the end!

But, in the past, I've often found myself literally discontinuing data-keeping after a period of bad trading as the extent of the losses made the idea of going on with the idea seem...well...pointless.

But herein lies the difference. I've just had a terrible week, nothing worked the way it was supposed to. The week was negative but the percentage of gains lost was tiny in relation to how bad the week felt. This type of week would have usually resulted in a new spreadsheet!

So I didn't need to make this week, along with it's trades, just's just the week that was.

...Maybe this is what "1)" feels like...

Thursday, December 1, 2011

The Flintstones

They were fortunate enough to have a car that was a) easily accessible for the whole family and b) able to run without an engine!(although they got really fit doing so!!)

...we have a three-door which just cost us a small fortune in repairs as, unlike the Flintstones' car, ours needs to have all the parts in full working order.

And so too does a trading strategy.

If we have numerous "nuts and bolts" to tighten (criteria of a trading strategy) we also have many potential points of weakness. Taking that idea one step further, the more parts in the car (strategies in the trading approach) the more things we have to learn to do effectively in order to harvest a profit.

It only takes a quarter-turn of each nut in the car to end up with a trading approach that's as uneffective as this....!

So why not simplify, reduce- take away all those extra parts to the car - and just make sure the nuts and bolts are as tight as possible??

Wednesday, June 29, 2011

Cut & Paste.

"I skip trades. But, somehow, I skip more winners than losers".

A statement made regularly by struggling traders.

But how is that possible? If you were randomly skipping trades then you'd end up with the same Win Rate and, therefore, the same result over time right??

After reading a recent post by MBAGearhead, I started thinking about the effect that losing streaks can have on a traders psyche.

This "Streak Calculator" says that you'll almost certainly (99.2% probability) experience 4 losers in-a-row during your trading week if you take an average of 20 trades per day with a 45% WR. As the length of the streak increases, the chances of said streak happening goes down.

So what if you habitually skip trades after x losers in-a-row? Logic would suggest that the chance of you bumping into a winner increases drastically after a string of losers as the likelihood of said streak continuing decreases.

Maybe that's why otherwise uptrending equity curves end up looking like a cut 'n' paste job- all ranges and sell-offs with a few rallies left in for good measure...?