Advice from a LOSER

[zigglewigler]

If you believe things are different, or you act differently when real money is on the table then you haven't paper traded properly.

Try playing Monopoly with real money and see how you react when you land on Park Lane!

People will chase a $100 bill down the street, not a blank A4.

Paper is paper and has limited use.

It's like starting out as a pilot training in a flight simulator, no peril if you make a mistake, but you'll sweat buckets when you're up in the air faced with the same situation.

 

[ducados]

Hi Pitbull

Man. You are SPOT ON with your analysis. You have described me perfectly. I had the rules but never stuck to them. I jumped from indicator to indicator and time from to time frame all of the time. I never settled on just one strategy and I almost never took a stop loss. I had zero discipline and now I look back I can see that I was gambling instead of trading. The biggest problem is that I had no respect for money. It was just points on a computer screen to me at that time. However, I really feel that I HAVE LEARNED MY LESSON now and when I do come back I will be a much better trader. The problem now is I have zero confidence and little cash so time for a break.

However, I have to fundamentally disagree with your analysis of automated trading systems. You said it yourself. You need a trading plan, that implies a set of rules (simple or complex) and you need discipline in order to succeed. Well if you have a trading plan with a set of rules then you must be able to write the plan on paper. If you can write the rules on paper, a programmer can program them into a system. If the rules are subjective or open to interiptation on different days then it’s not a very solid plan. I can understand there maybe days you wish to avoid like Fed days or heavy data. Fine, you can just switch it off. If you would need to make constant tweaks to the system then that implies you would also need to make constant tweaks to your trading plan. I can’t imagine a more disciplined approach to trading than allowing a computer to apply your rules.

 

[ducados]

Excellent post. My advice would be to stay away from "Black box" trading systems and automated back testing. They teach you nothing! There isn't a computer or software package on earth that comes close to being as sophisticated as the human brain. Trust me, there are none. One well respected scientist said that if you added up all the computing power on earth today it would barely equal the intelligence of a lobotomised cockroach.

Dr Robert Zubrin, who is eager to get a manned mission to Mars favours human explorers over robotic explorers. He issued a simple challenge to NASA. It is an Easter Egg hunt where NASA could have 1000 planetary rovers versus a 10 year old child to see who ends up with the most eggs.

Finally, take a look at this page to see what it takes to make a computer “out smart” a person

http://en.wikipedia.org/wiki/Deep_Blue

http://www.newscientist.com/article.ns?id=dn2934

I know that this has nothing to do with trading, but at the very least it should make you realise that you are capable of achieving much more with time, practise and experience.

While I agree with your comments on the intelligence of computers I feel you are missing the main point of Automated systems (as do most people). For the very reasons you have listed as to why a computer can not think for itself or out smart a human, these are the very reasons why they are perfect for the task of automated systems. The human brain and simple human emotions and reactions can be a weakness when trying to follow a highly disciplined procedure involving risk.

You don’t want a computer to second guess your rules, try and out smart you, be in a bad mood or be in a very good mood, suffer from fear of risk or hesitate to take a position, run past a stop loss because it thinks the market will bounce, have a hang over, get depressed, or feel unwell. You want the computer to do EXACTLY what you tell it to do when you tell it to do it. That’s it, it’s a dumb machine. Perfect. It will either win or lose but in fact what is winning or losing is your own trading plan. You can’t blame the computer because it will only do what you tell it to do. 100% pure robotic discipline 100% of the time. I don’t think any human can claim to achieve that.

 

[new_trader]

Try playing Monopoly with real money and see how you react when you land on Park Lane!

People will chase a $100 bill down the street, not a blank A4.

Paper is paper and has limited use.

It's like starting out as a pilot training in a flight simulator, no peril if you make a mistake, but you'll sweat buckets when you're up in the air faced with the same situation.

I completely disagree and you have given poor examples to illustrate your point. My investment decisions and what happens to them are not based on the roll of a dice. If they were then monopoly would be an excellent way to practice.

If you want to make money by chasing $100 bills that blow down the street then chasing A4 sheets blowing down the street is an excellent way to practice. Unless you have reason to believe that the aerodynamics of an A4 sheet are different to a $100 bill. If so, then you should find something that has the same aerodynamics as a $100 bill and practise chasing it down the street.

As for your pilot training, I work with someone who has a private pilots license and guess what? He uses a simulator to practise his instrument flying. Two instructors have commented on how good his instrument flying is considering he hasn't practised in a real plane for over 20 years. He attributes it to the time spent on his PC with his flight simulator. Why would he get into a real plane and ignore all the experience and practise he has attained on the simulator?

Airline companies and NASA spend millions on creating accurate simulators to train pilots and astronauts. Why would they waste time and money doing this if the pilots and astronauts are simply going to ignore what they have learned through doing this?

Would you happily be a passenger on a plane knowing that the pilot will ignore everything s/he has experienced in a simulator during an emergency?

I think you should practice paper trading until your trading has become so ingrained that making the transition to real trading makes no difference. If you have a good system that you have thoroughly back tested then your focus should be following that system exactly as you have practised rather than simply making money out of a trade. You will make money by default if you do this.

If you think paper trading is a waste of time then you aren’t doing it right.

 

[ducados]

Well, I actually agree with both of you. In fact you are both right.
If you are paper trading correctly and for long enough, have a great system and self-control, professionalism and mental discipline then it should be a seamless transition from paper to real money. It sounds like you do and that’s a part of your character that I envy. The reality for most people is somewhat different when they start to take a few losses in a row. Doubts start to set in, emotions start to run high and the need for a win starts to creep into peoples mind. At that point objectivity gets lost along with some discipline (I include myself in this). Very soon after a position goes into profit the overriding temptation is to close that position and take the profit just to get the win and fear of further loss. So your system would have made 60 points but you closed out for 10 points. Its downhill after that unless you have the discipline to regain the objectivity. That just does not happen in the world of paper trading.

On the airline thing I also agree with both of you. I am also training to be a private pilot after spending many years on Flight Simulator. My instructor was very impressed with my knowledge on instrument flying and navigation using instruments (not GPS). But, I still close my eyes on landing the real thing as the speed at which the ground is coming towards you while nose down still scares the pants off me. Not in the simulator.

 

[new_trader]

While I agree with your comments on the intelligence of computers I feel you are missing the main point of Automated systems (as do most people). For the very reasons you have listed as to why a computer can not think for itself or out smart a human, these are the very reasons why they are perfect for the task of automated systems. The human brain and simple human emotions and reactions can be a weakness when trying to follow a highly disciplined procedure involving risk.

You don’t want a computer to second guess your rules, try and out smart you, be in a bad mood or be in a very good mood, suffer from fear of risk or hesitate to take a position, run past a stop loss because it thinks the market will bounce, have a hang over, get depressed, or feel unwell. You want the computer to do EXACTLY what you tell it to do when you tell it to do it. That’s it, it’s a dumb machine. Perfect. It will either win or lose but in fact what is winning or losing is your own trading plan. You can’t blame the computer because it will only do what you tell it to do. 100% pure robotic discipline 100% of the time. I don’t think any human can claim to achieve that.

A trader will still need to enter the necessary parameters required for the computer to make a decision. Most traders would supervise the trades and I almost guarantee that if the computer makes 5 losing trades in a row there would be an irresistible urge to alter the original parameters.

 

[ducados]

A trader will still need to enter the necessary parameters required for the computer to make a decision. Most traders would supervise the trades and I almost guarantee that if the computer makes 5 losing trades in a row there would be an irresistible urge to alter the original parameters.

Yes I agree. But who's fault is that? The trader or the computer?
If thats the case the same would also be true of their trading plan. How would they cope with that? At least you would be sitting back objectively thinking about the problem and not try and force trades because of stress. Because the trader is not actually glued to the charts second by second there would be an element of detachment from the market. The worst he should do is switching it off and have a rethink.

With an automated system long term paper trading has real value and the transition from paper to real money is truly seamless.

 

[zigglewigler]

I completely disagree and you have given poor examples to illustrate your point. My investment decisions and what happens to them are not based on the roll of a dice. If they were then monopoly would be an excellent way to practice.

If you want to make money by chasing $100 bills that blow down the street then chasing A4 sheets blowing down the street is an excellent way to practice. Unless you have reason to believe that the aerodynamics of an A4 sheet are different to a $100 bill. If so, then you should find something that has the same aerodynamics as a $100 bill and practise chasing it down the street.

As for your pilot training, I work with someone who has a private pilots license and guess what? He uses a simulator to practise his instrument flying. Two instructors have commented on how good his instrument flying is considering he hasn't practised in a real plane for over 20 years. He attributes it to the time spent on his PC with his flight simulator. Why would he get into a real plane and ignore all the experience and practise he has attained on the simulator?

Airline companies and NASA spend millions on creating accurate simulators to train pilots and astronauts. Why would they waste time and money doing this if the pilots and astronauts are simply going to ignore what they have learned through doing this?

Would you happily be a passenger on a plane knowing that the pilot will ignore everything s/he has experienced in a simulator during an emergency?

I think you should practice paper trading until your trading has become so ingrained that making the transition to real trading makes no difference. If you have a good system that you have thoroughly back tested then your focus should be following that system exactly as you have practised rather than simply making money out of a trade. You will make money by default if you do this.

If you think paper trading is a waste of time then you aren’t doing it right.

I paper traded 5 five years ago when I started. It's useful to understand the basics, such as basic flight control.

But you miss the point completely. There is a fundamental emotional difference between paper trading and real money.

If you land on Park Lane and have to pay out real cash instead of Monopoly money, you WILL have a different emotional response.

The $100 bill will be chased down the street because it has value, A4 sheets don't. People are emotionally charged to do that.

Sure I don't want pilots that aren't properly trained, but I don't want pilots that have nothing but simulator experience. They've got to have been up in the sky for real. Pilots don't qualify without going solo, they could've spent 100 years solid on simulators, but unless they can handle real world situations, they ain't pilots!

Trading real money, dealing with all the emotions and controlling them is how you make money. You can back test until oblivion, but with a statistical draw down of any system, you have to have the mental capacity to take your real world cash losses and not undermine your trading approach. You can't learn that with paper.

Paper trading doesn't involve any emotions, it's not for real. It has it's uses, but limited.

 

[ducados]

Well that’s what I like. Go out on a high note for my last trading day for a while.
I had a confirmed sell signal at 16:00 GMT on the DOW. I waited until it pulled back to the 34 EMA on the 30 min chart and shorted at 12219. I have just taken the exit at 12115 because it is a strong support level from 3 days ago. +104 points.

Finally a bit of discipline after all of this time. I must have been a complete idiot before. But also there was no real emotion on this trade as I new I am getting out for a while.

Good luck to all of you. Speak again when I come back.

Regards

Ducados

 

[new_trader]

I paper traded 5 five years ago when I started. It's useful to understand the basics, such as basic flight control.

But you miss the point completely. There is a fundamental emotional difference between paper trading and real money.

If you land on Park Lane and have to pay out real cash instead of Monopoly money, you WILL have a different emotional response.

The $100 bill will be chased down the street because it has value, A4 sheets don't. People are emotionally charged to do that.

Sure I don't want pilots that aren't properly trained, but I don't want pilots that have nothing but simulator experience. They've got to have been up in the sky for real. Pilots don't qualify without going solo, they could've spent 100 years solid on simulators, but unless they can handle real world situations, they ain't pilots!

Trading real money, dealing with all the emotions and controlling them is how you make money. You can back test until oblivion, but with a statistical draw down of any system, you have to have the mental capacity to take your real world cash losses and not undermine your trading approach. You can't learn that with paper.

Paper trading doesn't involve any emotions, it's not for real. It has it's uses, but limited.

Ok, but I am still trying to understand why paper trading should be different in regard to actual execution of the trades. Is the trader losing money because s/he cannot execute the trades in the same way as they did during paper trading? Are they losing money because they are doing something different? Having money on a trade shouldn't change the entry and exits. If it does then they aren't trading a system they trust and will probably lose faith in their ability because they haven't practised enough. I think people who experience huge drawdowns during paper trading and think they can cope with it in real life are deceiving themselves.

Take the example of chasing $100 bills. If the trader practises using worthless bits of paper and treats them as if they are worthless then the practice is pointless and it will only ingrain a reckless attitude. It may be better to practice chasing $1 bills, then $5 bills and so on.

I understand what you mean by being emotionally charged but using the pilots analogy, I doubt that any pilot is constantly thinking "Must not crash" or "I don't want to die" whenever they are flying a plane. They are focusing on actually flying the plane and watching their instruments. As long as they do everything they have done time and time again both in the air and in the simulator, why would they have any reason to think they will crash and die?

Before you ever step inside the cockpit of a real plane wouldn't you first want to practise in a simulator? If you were certain you wanted to fly a real plane would you treat your simulator experience like a game or like your life depended on it? If you constantly crashed in the simulator would you still be willing to fly a real plane or would you continue practising until you always landed safely in almost any situation?

 

[zigglewigler]

You can't trade without draw down, period. It shouldn't be huge, but losses are part of trading.

You are not a trader whilst paper trading. If all you have ever done is trade hyperthetically and not experienced the sometimes shaking emotions during a run of aberrant trades, irrespective of what your system should deliver because it is never even and linear, you are simply practising.

Trading isn't simply executed trades. Clicking in and out is easy. Dealing with the consequences of decisions you make is far harder. There are no consequences involved in paper trading.

I won't fly in a 747 with a pilot that has only ever practised. If an announcement is made over the tannoy that the pilot's very first flight, for real, is the one you're on, you and the other 500 passengers will get off pretty quick!

Because he is NOT a pilot.

If you paper trade, you are NOT a trader.

See if you can find investors to stick money in your account, after you've told them you've only paper trader. No matter how good your results, you have not had to deal with the clouding of judgement that comes with losing money. Indeed making money early on can have similar adverse effects. It all starts to question what shouldn't be questioned.

Yes, paper trade, to a point.

But until you get in the ring, in don't mean a thing.

 

[Charlton]

No substitute for the real thing

Ok, but I am still trying to understand why paper trading should be different in regard to actual execution of the trades. Is the trader losing money because s/he cannot execute the trades in the same way as they did during paper trading? Are they losing money because they are doing something different? Having money on a trade shouldn't change the entry and exits. If it does then they aren't trading a system they trust and will probably lose faith in their ability because they haven't practised enough.

new_trader
It's different because emotions may kick in. You cannot paper trade emotions, because they are generated when you face the actual cause of the fear, excitement, greed or whatever. That is why one of the most powerful ways to remove phobias is to face the actual thing you are afraid of.

Your first question about executing trades in the same way as they did during paper trading is the crux of the matter. No they might not be able to execute them in the same way, because this new factor of emotional baggage may creep in, so they will do something different.

With entries they might not evaluate risk/reward ratios properly during the thrill of the chase of a trade. They might get bored with being out of the market and desperately want to get in for excitement. Once in, they might make an early exit through fear that the trade is not going their way, when in fact they are just facing a quite normal retracement. They might stay in a trade too long because they are sure it;s about to turn. Yes - they are not following their previously thought-out strategy played out tremendously successfully during paper-trading. That's the point.

That is not to say that paper trading does not have value. It's useful for the purpose of setting up a strategy and practising reading charts for example. It's useful for becoming familiar with the broker's platform and other software.

However like top-shelf magazines it's no substitute for the real thing !

Charlton

 

[damianoakley]

Hi All,

I think that paper-trading has its uses and its drawbacks. I agree that during papertrading you don't experience the full flood of emotions that you get when trading with real hard-earned cash.

I would say that the closest thing you can get to trading for real but with virtual cash is the paper trading account that comes with IB.

I think that it all depends on how disciplined and serious you are taking your paper-trading. When you know that it doesn't matter whether you win or lose, there is the temptation to take greater risks with your virtual cash and then feel great about yourself if such gambles pay off. However, if you can have the discipline to program yourself to trade seriously even though the money isn't real, then you can start to feel the pain of the losers and the glory of the winners just like in real trading.


Thanks

Damian

 

[new_trader]

new_trader
It's different because emotions may kick in. You cannot paper trade emotions, because they are generated when you face the actual cause of the fear, excitement, greed or whatever. That is why one of the most powerful ways to remove phobias is to face the actual thing you are afraid of.

Your first question about executing trades in the same way as they did during paper trading is the crux of the matter. No they might not be able to execute them in the same way, because this new factor of emotional baggage may creep in, so they will do something different.

With entries they might not evaluate risk/reward ratios properly during the thrill of the chase of a trade. They might get bored with being out of the market and desperately want to get in for excitement. Once in, they might make an early exit through fear that the trade is not going their way, when in fact they are just facing a quite normal retracement. They might stay in a trade too long because they are sure it;s about to turn. Yes - they are not following their previously thought-out strategy played out tremendously successfully during paper-trading. That's the point.

That is not to say that paper trading does not have value. It's useful for the purpose of setting up a strategy and practising reading charts for example. It's useful for becoming familiar with the broker's platform and other software.

However like top-shelf magazines it's no substitute for the real thing !

Charlton

Charlton,

I don't disagree that there is an emotional attachment to a trade once a trader starts using real money but you are basically agreeing with me. The trader hasn't paper traded correctly because they were taking risks that they weren't prepared to take in real life. They wouldn't have panicked in a normal retracement because if they had paper traded long enough they would have been able to recognise and deal with a normal retracement. Perhaps you are suggesting that in a traders mind, support and resistance, Fibonacci Retracements, moving averages and any other practised technical analysis will completely fail when real money is being used?

 

[Splitlink]

,

I The trader hasn't paper traded correctly because they were taking risks that they weren't prepared to take in real life.

I don't think that is possible to paper trade correctly. Paper trading removes one of the most important factors in the act of trading. The fear/greed factor.

Split

 

[Charlton]

Paper trading is not real trading

Charlton,

I don't disagree that there is an emotional attachment to a trade once a trader starts using real money but you are basically agreeing with me. The trader hasn't paper traded correctly because they were taking risks that they weren't prepared to take in real life. They wouldn't have panicked in a normal retracement because if they had paper traded long enough they would have been able to recognise and deal with a normal retracement. Perhaps you are suggesting that in a traders mind, support and resistance, Fibonacci Retracements, moving averages and any other practised technical analysis will completely fail when real money is being used?

new_trader

I will highlight one phrase from my reply:

You cannot paper-trade emotions.

Charlton

 

[Legion]

new_trader

I will highlight one phrase from my reply:

You cannot paper-trade emotions.

Charlton

Hello just a quickie on this.... I had a friend visit a few months back and went through a fast track of whats going on basics, he opened a demo account 100k and i left him to it.. in the space of an hour or so he made 8 trades or so.... feeling panicky, the market goes up, i buy then it start to come down so i sell 🙂 anyhow he lost about 5 Grand, he said he felt sad.

He felt genuine emotions, maybe because i was around , knowing id be comming back to have a look now and then... but with him i suspect even if i wasnt there then he would of felt the emotion of sadness due to losing that chunk.

LOL he was checking his screen off and on for the few days he was here, "Hooked"

Maybe because i was talking to him seriously before about typical journeys/ challenges one may face he was intent to do his very best, with what little knowledge he had learned.

Anyway it was very good to watch him and see his reactions he was happy to of made a few hundred dollars 🙂 then sad to lose it ,plus some 🙁 .

So maybe paper demo would deliver realism, if you believe you are playing it for absolute real, like airline flight pilots or something, I bet they feel something in sim's .

 

[new_trader]

Hello just a quickie on this.... I had a friend visit a few months back and went through a fast track of whats going on basics, he opened a demo account 100k and i left him to it.. in the space of an hour or so he made 8 trades or so.... feeling panicky, the market goes up, i buy then it start to come down so i sell 🙂 anyhow he lost about 5 Grand, he said he felt sad.

He felt genuine emotions, maybe because i was around , knowing id be comming back to have a look now and then... but with him i suspect even if i wasnt there then he would of felt the emotion of sadness due to losing that chunk.

LOL he was checking his screen off and on for the few days he was here, "Hooked"

Maybe because i was talking to him seriously before about typical journeys/ challenges one may face he was intent to do his very best, with what little knowledge he had learned.

Anyway it was very good to watch him and see his reactions he was happy to of made a few hundred dollars 🙂 then sad to lose it ,plus some 🙁 .

So maybe paper demo would deliver realism, if you believe you are playing it for absolute real, like airline flight pilots or something, I bet they feel something in sim's .

I agree. I have an emotional attachment to success and I get emotional during my paper trades because I want to be good at what I do. I don't like making bad trades even if hasn't resulted in a penny being lost. I suppose that is why I don't feel any different when making real trades. Sorry, I should say, I feel the same amount of emotion paper trading as I do when trading with money.

 

[jiggly]

ok then so where does one draw the line,

how should the transition be made from paper trading to live trading?

 

[yacarob1]

Why would anyone take advice from a loser ?

I think I would prefer to take advice from a winner - possibly someone who has been through the loss making period early in his/her career and eventually made the grade.