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     jayzed
Member
Username: jayzed
Post Number: 6
Registered: 01-2003Rating: 
Votes: 3
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| | Sunday, January 26, 2003 - 03:29 pm: |  
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I recommend this book for those of us (traders) who sometimes struggle to try and work out what the hell the market is doing at any given time, in other words all of us (traders).
Have you ever been in a situation where you've done all the necessary ground work, this is going to be the one, it can't possibly miss, only to find when you 'get on', the stock does pretty much the opposite of what your homework suggests.
You are sure that it'll turn up again, so you hold, you 'know' you're right, it logically can not be doing what it is.
Sound familiar, well this book helps those of us who struggle with this scenario. Accepting the market as a random set of events, some of which we may have a chance of predicting, but realising that it may well be the exact opposite.
Douglas has set out 5 fundamental truths about the market, and the first one really says it all, Anything Can Happen, if traders can get past that very first notion, that no matter what we think might happen, in truth, Anything Can Happen. We might then be far more able to accept the fact that sometimes we are going to be wrong, ( in our calculations), and therefore, by definition, we can also accept the risks associated with trading. I believe this to be one of the major stumbling blocks for traders, not accepting the fact that they've got this one wrong, and bailing out. Holding onto a losing trade sucks.
That's not to say we can't make money from trading, hell no, we just have to have our act together with respect to our strategy and once that is in place, don't waiver.
Douglas also outlines 7 steps to becoming a 'consistent' winner, ranging from objectively identifying an 'edge' (technical analysis, black boxes, whatever etc....) accepting the risks involved, taking profits etc and then states we should understand the absolute necessity of these principles and never to violate them.
This book helps to take the emotion out of trading, seeing the market through this perspective allows for clearer vision and consequently more profitable positions.
jayzed 
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seahound
Member
Username: seahound
Post Number: 7
Registered: 12-2002Rating: 
Votes: 4
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| | Sunday, January 26, 2003 - 04:12 pm: |
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Jayzed,
In terms of your first three paras about thinking you are on a winner and it turns out a dud, I would share my current reading "The Four Cardinal Principles of Trading" by Bruce Babcock (Irwin 1996) with you. (Babcock lists the four cardinal principles as: 1. trade with the trend; 2. cut losses quickly; 3. let profits run; 4. manage risk on each trade to 2% of your capital.)
It was the following comment of Babcock that came to mind when reading of your comments on duds: "mathematical analysis has shown
that in most markets, price action is primarily random, with a small trend component. It is the trend component that allows a trader to achieve a
long-term statistical edge that translates into profits."
We know that we can't forecast the future. We know statistically that 10 to 12 trades out of 20 will be small losses (if we cut losses quickly) and that say 9 trades will give a small/medium profits, with the 20th trade bringing a substantial profit. It is that trade that makes it all worthwhile. But when it is to occur nobody can tell. Hence the excitement and challenge of trading!!
Seahound
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seahound
Member
Username: seahound
Post Number: 9
Registered: 12-2002Rating:
Votes: 3
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| | Monday, January 27, 2003 - 09:12 am: |
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Further to Jayzed’s item above, I have been reading at another chat site (http://groups.yahoo.com/group/SamuraiTraders/) of some experienced American traders holding a debate about whether the method used to select the entry matters. The consensus, in accord with Babcock’s view (see entry immediately above) is that it is does not - place a Stop Loss and Take Profit target equi-distant from a set of entries, and no one has ever achieved better than 50/50. However, using the same entries, move the Stop Loss and Take Profit to be unequal, and completely different results occur, some resulting in a high win ratio and overall profit. Same entries, but now they apparently have predictive qualities? No, different risk/reward combinations are being used – still nothing to do with predictive qualities of the entry selection method.
They conclude that money is not made in selecting the entry, but in managing positions - cut losses quickly, and let profits run. Simple. Nothing complicated at all. However, as Douglas so amply details, these simple rules are managed by human beings whose emotions and egos prevent the rules being followed. We freeze before a loss, and it deepens. We take profits too eagerly and too early. Hence why Babcock suggests trading is “one of the most difficult endeavours known to man, it must be as so few achieve success at it.”(p.1)
So, these traders are suggesting we not get too carried away with the method used to select entries, but that we set our stop losses rigorously; pull the trigger ruthlessly when reached; and be patient in letting our profits run before we take them.
Seahound
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spider
Member
Username: spider
Post Number: 274
Registered: 10-2002Rating: N/A
Votes: 0
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| | Monday, January 27, 2003 - 02:48 pm: |
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Even spider gets sick of hearing himself say it, but one more time............................... your exit strategy is the most important part of your trading system.
Thanks for sharing, seahound and jayzed. Spider hopes that a lot of people read what you have said.
spider.
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carolyn
Member
Username: carolyn
Post Number: 5
Registered: 09-2002Rating:
Votes: 3
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| | Monday, January 27, 2003 - 03:36 pm: |
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Hi all, thought this thread may be interested in an experience I've had recently. I'm a member of an investment club, which has been fascinating to be in. One of the things we do apart from really buying shares, is each person is to have a fictional portfolio of $50000 and to keep track of it over a year.
I really stress the importance of having a strategy (most of the group use very random methods of buying shares) and have selected a random group of shares, but with the proviso that if they lose 10% they are "sold" from the fictional portfolio and if they go up 25%, they are added to. Once added to, that new purchase price is where a new 10% loss price is calculated from.
This random entry method but with a strict exit strategy is in front, by about 8% in a few months.Only one other of the 18 portfolios is in front.
I guess what I'm trying to say is that a tight exit strategy and stop loss is VITAL to success, even with random entries.
Interesting, eh, Carolyn.
PS most of the group have NO exit strategy at all.
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spider
Member
Username: spider
Post Number: 277
Registered: 10-2002Rating: N/A
Votes: 0
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| | Monday, January 27, 2003 - 04:05 pm: |
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Carolyn,
cool post.
Spider wishes that the rest of your group really had $50,000 to trade with, for with no exit strategy, they would be feeding my family!
Live long and prosper dudette.
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carolyn
Member
Username: carolyn
Post Number: 6
Registered: 09-2002Rating: N/A
Votes: 0
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| | Tuesday, January 28, 2003 - 07:51 am: |
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Relax, Spider, some of the group do have their own money that they do invest, so your family will be fed for a while.
One of the interesting speaker we had was a financial advisor from one othe 'Big 4' banks. He was quite unconcerned to tell the group that the bank employee's Super fund had lost 35% over the last year. It was a long term view, yada-yada.
It makes me think if they are so unconcerned with the loss of their own money, how much do they care about the general public's money that they invest for them.
When you mix with informed traders and investors on forums such as this and seminars, etc, it is easy to forget how uninformed the vast majority of amateurs and professionals who put money into the market are. (just look at the fund managers results over the last year as an example)
Carolyn
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spider
Member
Username: spider
Post Number: 280
Registered: 10-2002Rating: N/A
Votes: 0
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| | Tuesday, January 28, 2003 - 12:18 pm: |
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Yo carolyn,
spider went back to an old forum that he used to visit back in the day. Wow! You forget how obvious and often destructive these places can be.
One bloke tried to explain the basics of TA to this other turkey, the turkey wasn't even interested in listening, and couldn't care less about the time and effort that went into constructing the response!
Most of the posts were consumed with FA crystal ball gazing, bagging each other for liking one share or another, or just generally being rude!
It actually left me with a nasty taste in my mouth.
Spider was so upset,he had to lay down for a while, with his favourite teddy!
P.S. Glad to hear that your group is providing sustenance for spider's brood.
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