Coin Toss Experiment vs Discretionary Trading

I feel as though I have a gambling mentality and prone to overtrading my account with little self control. I have struggled with my emotions and the psychological side of trading. I've only recently seen the benefits of tight MM and a good RR ratio which in the past I've never had, hence three blown accounts.

I've recently started using the 3 Ducks system as noted on these boards by Captain Currency. I've been trading FX for three years and have a fairly good view of how the market moves at what times etc... My only problem is discipline and mastering myself.

I'm starting this journal for two reasons, one to log my discretionary trades, that is, in a demo account for four weeks starting Monday 15/3/10 using the 3 Ducks system and my own technical and fundamental analysis and MM to see if I can at last end a month in profit, if I do then I'll go back to a live account (micro).

The second reason is to test my discretionary trading against a random entry. If my discretionary trading gives no better results than a coin toss entry then I may have to think again about trading as whole and maybe keep it as a part time hobby instead of a potential career choice. It will mean I've been doing this for over three years and still no better than the flip of a coin.

Rules;

Discretionary trades: Pairs; Eur/Usd, Gbp/Usd, Aud/Usd, Eur/GbP
S/L: 15
T/P: 30
Lot: 5.0 (£5 pp on IG)
Opening balance: £5000
Trade never closed manually
Maximum of two trades per day, if first trade is a win no second trade. No trade Fridays and Sunday evenings.
Maximum of four wins outright in one week, i.e 4 wins no losses, 5 wins 1 loss 6 wins 2 losses etc..
No minimum i.e if I only have one trade per week due to no high probable set up then I don't trade for the sake of trading.

Second Demo Account

Coin Toss: Same as above
Coin flipped at 7am every morning
Heads long/Tails short for all four pairs, coin flipped individually for each pair
All four pairs entered on daily basis, no trade Fridays and Sunday evenings.




I've just had a thought, I'm not sure if having a definite 16 trades on the coin toss and only 1 to a maximum of 8 discretionary trades will skew the results slightly, in order for it to be a valid test I might need an equal number of trades on both? I'll ponder this over the weekend I think before day one on Monday.

Ok so I think I'm going to only go with 2 pairs on the coin toss, Eur/Usd and Gbp/Usd, this will give me a definite maximum of 8 trades during the week and my discretionary trades anywhere from 1 to a maximum of 8 but on all 4 pairs mentioned above. Should make the results slightly more valid.

I'm hoping by keeping this journal it will enable me to become a better disciplined trader, I feel better about trading in my mind already, just having written down a few rules and can see them in black and white has helped. If I can get out of this gambling mentality and become disciplined I'm confident I can become consistently profitable.

may i politely suggest a slight variation on your coin toss, that may add a bit of patience/discipline and may reduce the number of trades ?
Rather than flipping a coin and going straight in At Market, instead pick a price level above and/or below current market, eg a round number 00 or 50 etc
Let the coin flip then determine what your course of action will be only if price reaches that level during the day/week .....
if price doesn't hit your trigger, no trade .....

Second Demo Account

Coin Toss: Same as above
Coin flipped at 7am every morning
Heads long/Tails short for all four pairs, coin flipped individually for each

You could at least give me a credit for this strategy!! I invented it a few weeks back.

rathcoole_exile said:

may i politely suggest a slight variation on your coin toss, that may add a bit of patience/discipline and may reduce the number of trades ?
Rather than flipping a coin and going straight in At Market, instead pick a price level above and/or below current market, eg a round number 00 or 50 etc
Let the coin flip then determine what your course of action will be only if price reaches that level during the day/week .....
if price doesn't hit your trigger, no trade .....

Click to expand...

That seems a lot more logical thinking about it, I could place a buy/sell order at said level depending on what the outcome of the toss was, still giving me the randomness of entry but with a possibility of reduced number of trades, I think I might have to have a fixed number for that too though, as in 30 pips above or below current market level. At 7am, toss a coin, say heads (long) then place buy orders at 30 pips above and below, not sure why 30 just an arbitrary number plucked from the ether!

Mr Flibble said:

Second Demo Account

Coin Toss: Same as above
Coin flipped at 7am every morning
Heads long/Tails short for all four pairs, coin flipped individually for each

You could at least give me a credit for this strategy!! I invented it a few weeks back.

Click to expand...

DISCLAIMER*************

Credit given to Mr Flibble who invented coin flipping as a way of making decisions based on said outcome of coin "a few weeks back".

I would however like to see a copy of your copyright papers, I'm not letting you claim intellectual property rights on this one as I'm going to call it the "Sangfroid Suicide System".

There is nothing new in trading ..
http://www.trade2win.com/boards/trading-journals/54694-how-not-make-money-trading-markets.html

Good luck with your experiment.

elitejets said:

There is nothing new in trading ..
http://www.trade2win.com/boards/trading-journals/54694-how-not-make-money-trading-markets.html

Good luck with your experiment.

Click to expand...

Hi elitejets,

yeah I'm acutely aware of the fact this has been done many times before, I've read a lot of the threads on this beforehand.

I don't think you understand what I'm doing here, I'm not trying to prove the fundamentals behind tossing a coin and trading, I'm merely pitting MYSELF against a random coin toss. I'm going up against it myself in a bid to prove to MYSELF that I am a better trader than a random coin toss over a months period. If the coin toss either makes more money than me... or doesn't lose as much money as me then I'm going to call it quits on my trading career.

I couldn't give a flying monkeys if 10,000 people have done this before, this is something I'm trying to prove to myself.

Yeah I understand what your experiment is, and I sincerely wish you good luck. Trading is technically very easy and psychologically very difficult and we have all had to conquer the same demons.

My only observation is you are basing your decision on whether to continue trading or not on whether you can make better entries than a coin flip.
Many traders (I am one of them) think that good MM and R:R are more important than entries.
Because you are applying the same trade management to both its quite possible that you will get the pretty similar results, which would be a lesson in itself.

May I also suggest that you have 2 Usd pairs...how about 1 Usd cross and 1 other ? Aud Jpy for example.

last time i looked there was minor statistical bias towards a trend.

http://www.trade2win.com/boards/forex-strategies-systems/88102-lucky-coin-thread.html

But seriously your post interests me and I will reading your updates with interest. Good luck.

elitejets said:

Yeah I understand what your experiment is, and I sincerely wish you good luck. Trading is technically very easy and psychologically very difficult and we have all had to conquer the same demons.

My only observation is you are basing your decision on whether to continue trading or not on whether you can make better entries than a coin flip.
Many traders (I am one of them) think that good MM and R:R are more important than entries.
Because you are applying the same trade management to both its quite possible that you will get the pretty similar results, which would be a lesson in itself.

Click to expand...

The thing that I've found in my brief trading 'career' which is a mighty lofty word to call it a career so far is thus.... I have not been able to stick to a MM plan nor had a sound RR in the past. In fact prior to this I had no RR at all, I'd let trades run and hit my S/L yet never let trades hit my T/P instead took the profit far too early thus negating any kind of MM plans in place.

I'm hoping that in pitting myself against a coin toss and thus adding another dimension to trading by not only trying to make x amount of pips per week/month but to also 'beat' another element (the random coin toss) will instill some kind of discipline and order to my trading.

I agree with you whole heartedly that MM and RR are esential to trading, any old fool can look at a graph and buy/sell but without the above two elements are destined to fail in the long run, I've only JUST come to realise this now having blown up a few accounts.

I'm hoping that by keeping this journal, writing things down, and going up against another element might help me to achieve some kind of discipline with my trading, one thing that has been lacking so far.

I hear what you're saying though, that with only two pairs traded for the coin toss which are the same as the ones that I'm using for my own discretionary trades the results might in fact come out the same, there's perhaps not enough variables in there... I think the answer to that lies in Counter_Trends suggestion that perhaps I have two Usd pairs, including Aud/Jpy this might be a solution, whereby I trade different pairs for both systems.

Captains log.... trade date 1.00.00

Ok so an interesting day all round, I've taken on board some of the suggestions made above and decided on 2 pairs for the coin toss, (this has since been added to and now stands at 3 as of tonight and ready for trading tomorrow.) The pairs are Eur/Gbp Usd/Jpy and Aud/Usd. The reason for these pairs is because they are a good mix and tend to be fairly independent of each other. I've gone with 3 because of the RR ratio I'm using 1:2 so all I need is to get one coin toss trade right and I've broken even for the day.

So, anyway as of today,

Results:

DISCRETIONARY TRADE: 0 MADE
0 WINS
0 LOSSES
0 PROFIT

I'm actually very happy with this, there were no setups on the 3 Ducks method, for the first time I actually stuck to a plan instead of jumping on the back of a trend when I see it move slightly, it would have been very easy for me to be tempted by the large moves this morning on the Eur/Usd but the 3 ducks hadn't set up and STICKING RIGIDLY to my plan meant there were no trades, on the H1 the price was hovering around the 60sma but not enough to ensure a high probable trade. While I made no profit I made no losses either and STUCK TO MY PLAN! No gambling here today which this time last week I'd have probably had a little punt and gone long trying to catch a pullback. All in all a good day.


COIN TOSS;

2 MADE
1 WINS
1 LOSSES
+13 PROFIT

What can I say? Goes to show that even with 1 loss and 1 win I still made profit, RR ratio and good MM does pay off! If only I had realised this 3 years ago I might not be doing this stupid experiment!

So as of tomorrow I've added a third pair into the coin toss section, might see what happens then, I've got a feeling this might end up going down to the wire and being closer than I first thought, just hope I can pull a discretionary trade tomorrow, hopefully the ZEW Survey due out at 10.00am will shake things up a bit.

I didn't want to hijack your thread as I do with everyone's threads, but I want everyone to read what I have to say so I won't use a private message. My opinion is that - if as I think we have similar personalities - your attempt at quitting compulsive gambling and moving to rational trading will fail. I mean, that is only if we have the same type of personality.

The compulsive urges are just too many and if you haven't defeated them in 3 years you might not be able to defeat them in 12 years as has happened to me. I place a trade because a cab driver ripped me off a few minutes earlier. I place a trade because i remembered something that happened to me at work which I didn't like. I place a trade because I am bored. I place a trade because I want to make money to feel better about my life and change my life (even if I don't see an opportunity). After that trade succeeds, I get addicted and I place more trades until I eventually give everything back. If the first trade fails, then I place more trades out of revenge to make my money back. Bottom line: I always blow out my account. It's happened for 12 years and 144 unprofitable (discretionary) months. Blowing out dozens of (small) accounts, for a total of over 50 thousand dollars.

And mind you I am not a drug addict or smoker or drinker and in my life I don't show other unhealthy behaviours. From documentaries I've seen on gambling, it can happen to anyone, even if they lead apparently healthy lives. In other words, you don't have to be a drug addict or alcoholic to develop a gambling addiction. If you're prone to it, it will be very hard (if not impossible) to trade and yet don't fall into temptation. Think about it: how many alcoholics keep on drinking just one glass of wine/beer a day after they quit drinking? I've never heard of any. They either quit or they don't. So you and I (if you're like me) are like alcoholics who say "I don't want to quit, but I want to be able to drink just one glass per day". Quite hard and not advisable. Still, I realize this now, but I've tried to do just like you for 12 years. And it didn't work. Yes, for a couple of days it worked, and then I always relapsed, one way or another, even when my methods were almost entirely automated.

My advice to you is to do the only thing that ever worked for me. Start developing a bunch (as many as possible) of automated trading systems that will do everything for you. Believe it or not, they will trade better than you. What they lose in intuition, they gain in discipline and patience, which gives you more money. Besides, in my case my intuition is actually wrong. Automated trading really works. But before you do, you must come to the conviction that you're totally unable to trade discretionary, because otherwise, even once your automated systems are ready, you will interfere with them or even place trades outside of them. So I guess that even if you're as bad a gambler as me, these tests will be useful to rule out that you're able to quit gambling while you keep trading (or to see if you can do it). Personally, I've completely given up. The urges to trade compulsively and gamble are just too many to keep them under control.

I have a similar problem with eating sweets: I cannot refrain from eating sweets if there's sweets (cookies, cakes, pastries, chocolates) in the house, so I am battling the maid to make her stop buying anything like (even corn flakes and salty things) and leave my refrigerator pretty much empty. Two days ago she bought some cookies, and I immediately threw them in the trash can as soon as she left, because otherwise I would have eaten them all. If she buys them again, I'll tell her to take them away next time.

sangfroidFX said:

The thing that I've found in my brief trading 'career' which is a mighty lofty word to call it a career so far is thus.... I have not been able to stick to a MM plan nor had a sound RR in the past. In fact prior to this I had no RR at all, I'd let trades run and hit my S/L yet never let trades hit my T/P instead took the profit far too early thus negating any kind of MM plans in place.

Click to expand...

Just to clarify about this experiment of yours: are you planning to take profits early on your random coin-flip trades too, or are you planning on cutting out taking profits early completely, or are you just unable to prevent yourself from doing it on your discretionary method?

sangfroidFX said:

COIN TOSS;

2 MADE
1 WINS
1 LOSSES
+13 PROFIT

What can I say? Goes to show that even with 1 loss and 1 win I still made profit, RR ratio and good MM does pay off! If only I had realised this 3 years ago I might not be doing this stupid experiment!

Click to expand...

I don't think you will be able to tell whether this coin toss method is as good as that until you have about 30 trades on the books. I say 30, it might be more or less and there is a way of working it out, but 30 is a nice round number.

Did I miss it or have you not declared what your MM strategy is?

travis said:

I didn't want to hijack your thread as I do with everyone's threads,

Click to expand...

"but here I go anyway"..........

Adamus said:

Just to clarify about this experiment of yours: are you planning to take profits early on your random coin-flip trades too, or are you planning on cutting out taking profits early completely, or are you just unable to prevent yourself from doing it on your discretionary method?




I don't think you will be able to tell whether this coin toss method is as good as that until you have about 30 trades on the books. I say 30, it might be more or less and there is a way of working it out, but 30 is a nice round number.

Did I miss it or have you not declared what your MM strategy is?

Click to expand...

I'm trying to cut out taking profits manually on both, I have a set RR ratio 1:2 and by taking profits early I end up negating this as I ALWAYS let the trade run to my S/L. By refusing to take profit before it hits my T/P level I'm hoping to become more disciplined and see an increase in my profits, this goes with the coin toss method too as otherwise it would negate the whole experiment.

You're very right about the "at least 30" trades, after a month will give me a better idea, but based so far on yesterdays..... and might add so far todays trading, I'm going to have to get my ass into gear on my discretionary trades

travis said:

My opinion is that - if as I think we have similar personalities - your attempt at quitting compulsive gambling and moving to rational trading will fail. I mean, that is only if we have the same type of personality.

The compulsive urges are just too many and if you haven't defeated them in 3 years you might not be able to defeat them in 12 years as has happened to me. I place a trade because I am bored. I place a trade because I want to make money to feel better about my life and change my life (even if I don't see an opportunity). After that trade succeeds, I get addicted and I place more trades until I eventually give everything back. If the first trade fails, then I place more trades out of revenge to make my money back. Bottom line: I always blow out my account. It's happened for 12 years and 144 unprofitable (discretionary) months. Blowing out dozens of (small) accounts, for a total of over 50 thousand dollars.

And mind you I am not a drug addict or smoker or drinker and in my life I don't show other unhealthy behaviours. From documentaries I've seen on gambling, it can happen to anyone, even if they lead apparently healthy lives. In other words, you don't have to be a drug addict or alcoholic to develop a gambling addiction. If you're prone to it, it will be very hard (if not impossible) to trade and yet don't fall into temptation. Think about it: how many alcoholics keep on drinking just one glass of wine/beer a day after they quit drinking? I've never heard of any. They either quit or they don't. So you and I (if you're like me) are like alcoholics who say "I don't want to quit, but I want to be able to drink just one glass per day". Quite hard and not advisable. Still, I realize this now, but I've tried to do just like you for 12 years. And it didn't work. Yes, for a couple of days it worked, and then I always relapsed, one way or another, even when my methods were almost entirely automated.

My advice to you is to do the only thing that ever worked for me. Start developing a bunch (as many as possible) of automated trading systems that will do everything for you. Believe it or not, they will trade better than you. What they lose in intuition, they gain in discipline and patience, which gives you more money. Besides, in my case my intuition is actually wrong. Automated trading really works. But before you do, you must come to the conviction that you're totally unable to trade discretionary, because otherwise, even once your automated systems are ready, you will interfere with them or even place trades outside of them. So I guess that even if you're as bad a gambler as me, these tests will be useful to rule out that you're able to quit gambling while you keep trading (or to see if you can do it). Personally, I've completely given up. The urges to trade compulsively and gamble are just too many to keep them under control.

I have a similar problem with eating sweets: I cannot refrain from eating sweets if there's sweets (cookies, cakes, pastries, chocolates) in the house, so I am battling the maid to make her stop buying anything like (even corn flakes and salty things) and leave my refrigerator pretty much empty. Two days ago she bought some cookies, and I immediately threw them in the trash can as soon as she left, because otherwise I would have eaten them all. If she buys them again, I'll tell her to take them away next time.

Click to expand...

In parts yes I agree with, I have an addictive personality, I recently tried to give up smoking, I went for three months without smoking, I recently had a few beers with a mate, smoked one of his fags, now I'm back on fifteen a day, it's all or nothing. Like you've said before, if there's ten beers in the fridge and I have one, I'll have to finish all of them that night, I can't leave them.

This is something that is inherent within me, I can identify this but have no real compulsion to change this behaviour, it doesn't effect me to any detriment in my life (other than a slight hangover every now and again.)

However, with my trading it does effect my life and I have identified my destructive behaviour. I DO have a compulsion to change this and believe that with the right training it can be done. The mind is like a muscle and with the right exercise and training can be shaped to how you want it.

You mentioned becoming automated, with a fixed RR ratio and by forcing myself to not cut winners early but to let the trade take out either my S/L or T/P this is almost automated anyway, the only thing that isn't automated is my entry.

I respect your views and you're right we share many personality traits, where we differ I believe is that I have a the utmost conviction and faith in my own abilites and truly believe in myself, if only I can change a few behavioural patterns that I've learned, I need to 'unlearn' them, and then re-learn the right way.

I mean that in the nicest possible way, I don't mean to say that you have no conviction after 12 years you've certainly got dedication, but unless you change your mindset and say to yourself "I AM A WINNER I AM A WINNER" you'll forever be a loser.

Maybe this is youthful naivety, only time will tell.

Good luck dude

sangfroidFX said:

In parts yes I agree with, I have an addictive personality, I recently tried to give up smoking, I went for three months without smoking, I recently had a few beers with a mate, smoked one of his fags, now I'm back on fifteen a day, it's all or nothing. Like you've said before, if there's ten beers in the fridge and I have one, I'll have to finish all of them that night, I can't leave them.

This is something that is inherent within me, I can identify this but have no real compulsion to change this behaviour, it doesn't effect me to any detriment in my life (other than a slight hangover every now and again.)

However, with my trading it does effect my life and I have identified my destructive behaviour. I DO have a compulsion to change this and believe that with the right training it can be done. The mind is like a muscle and with the right exercise and training can be shaped to how you want it.

You mentioned becoming automated, with a fixed RR ratio and by forcing myself to not cut winners early but to let the trade take out either my S/L or T/P this is almost automated anyway, the only thing that isn't automated is my entry.

I respect your views and you're right we share many personality traits, where we differ I believe is that I have a the utmost conviction and faith in my own abilites and truly believe in myself, if only I can change a few behavioural patterns that I've learned, I need to 'unlearn' them, and then re-learn the right way.

I mean that in the nicest possible way, I don't mean to say that you have no conviction after 12 years you've certainly got dedication, but unless you change your mindset and say to yourself "I AM A WINNER I AM A WINNER" you'll forever be a loser.

Maybe this is youthful naivety, only time will tell.

Good luck dude

Click to expand...

"the only thing that isn't automated is my entry"

Yeah, correct. But that's a whole lot. It's totally important that your entry is not automated. Because yes impatience and lack of self-control (and the other things we mentioned) affect your exit, but they also affect your entry.

"where we differ I believe is that I have a the utmost conviction and faith in my own abilites and truly believe in myself"

Hey, you almost make it sound as if I were a spineless lazy bum... which is not the case. I've got almost everything under control, I worked my ass off as far as automated trading, and the only thing I cannot handle is discretionary trading. Yes, I have a whole 12 years of non-stop losses in discretionary trading, which shows something is indeed wrong in my mind and I am the first one to admit that. But that doesn't mean my life is out of control: in fact I am quite a control freak. For example, I don't smoke, don't drink, I am not overweight, and precisely because I make sure I don't buy cigarettes/beer/sweets. By the way, no offense but how can you say you have faith in what you'll be able to do with discretionary trading if you've just started smoking again (because of a lack in self-control)?

I am done with interrogating you. I just can relate so much to this "trading addiction" problem that I couldn't keep myself from talking about my experience. Ok, you've had 3 years of losses, and I've had 12 years of losses and therefore we're not showing the same symptoms as far having a gambling addiction. I am definitely sick and you're still within "healthy" unprofitable trading. However, I was like you 9 years ago (a "healthy" unprofitable trader who thought he was only trying to learn how to trade and not that he was losing because of a gambling addiction), so... you're warned. You could end up like me and waste another 9 years. So my advice is to start automated trading as soon as possible, first because it will stop your discretionary losses, and second because it will take years of work.

Other than this, thanks for your advice and precious feedback (from a fellow compulsive gambler).