Installing New Beliefs

[dbphoenix]

You mentioned keeping control of your trading environment would care to elaborate on this. I assume you're talking about ensuring you aren't interrupted while you are trading. That you have any resources you may need to hand (i.e. reference material, news reports etc)

No, I'm referencing Douglas' remarks, i.e., you decide what it is you're going to look at, how you're going to look at it, what you're going to do with it, when you're going to do whatever it is you plan to do. For example, you decide whether or not you're going to use charts, what kind of charts, the bar interval (if any), the type of bar (if any), the timeframe, the stock or future or bond or whatever, the setup, the pattern, the entry, the type of trigger, etc., etc., etc.

Put simply, you have no control over the hand you're dealt, but you have complete control over what you do with it.

Do you use any of Steenbarger's techniques like cue cards?

After all these years, I use a lot of shortcuts and shorthand. My "rules", for instance, at one time, went on for pages. Now you could put them on a 3x5 card. The notes I take are also much more abbreviated because I've been doing this for so long that I don't have to explain myself to me in so much detail. Only when I'm stuck and can't get unstuck do I go back to the old-style journal and write it all out in detail.

So I'm selective with regard to what I take from Douglas, Steenbarger, Yoder, Sperandeo et al. This doesn't mean I read only part of it or study only part of it. I learn all of it. Then I take what I need. For example, one may not use all of Vad's stuff, but his idea of the conditional stop (which may or may not be original) can be very helpful, depending on where you are in your trading (too early and it can have the opposite effect).

So use what looks to be useful and makes sense. What somebody else thinks about it is immaterial.

 

[rfk_from_za]

Managing Expectations

Hi Guys,

Ok in order to ensure we are calm and not stressed when we are trading we need to manage our expectations. When we trade we should not have any expectations, since if the market does not meet those expectations we will be disappointed. We should simply do what the market tells us to do.

However sound money management tells us to take profits at certain levels. I take profits based on how far the instrument has moved based on the number of points I have risked. e.g. If I open the trade with a stop loss 10 points away. I would close half my position when the stock moved 5 points in the right direction, then half the remaining position at 10 points and so on until I am completely out. Moving my stop up by 5 points each time.

Now in order to ensure that this happens regardless of where I am (I may not always have access to the a machine) I place limit orders (or stop orders if shorting) to take profits at these levels

By doing this am I expecting the market to fill those orders. Thus, setting myself up for a fall if they are not met?

Your thoughts are appreciated

Rob

 

[JumpOff]

However sound money management tells us to take profits at certain levels. I take profits based on how far the instrument has moved based on the number of points I have risked. e.g. If I open the trade with a stop loss 10 points away. I would close half my position when the stock moved 5 points in the right direction, then half the remaining position at 10 points and so on until I am completely out. Moving my stop up by 5 points each time.

So if I understand you, we could use an example of entering with 400 shares, 10 point stop loss.
at + 5 you close 200 shares, at +10 you close 100 shares, and leave 100 shares running with a trailing stop that guarantees you at least +5 on this last 1/4 portion.

So your initial risk is 4,000 units, and if the price goes to +10, you have already taken 2000 units off the table (200x5 and 100x10, plus you'll get at least 100X5 on the trailing stop portion). Now, with only 100 shares still open, how far would the price have to advance beyond the initial +10 in order for you to end this trade with a 1:2 risk:reward ratio? How often do your trades see that much advance on the last 1/4 portion, using a trailing stop of +5?

JO

 

[rfk_from_za]

I understand where you are coming from, however this is not really what this thread is about.

My question was:

======================================
"By placing limit orders in order to take profit at specified levels are we expecting the market to reach those levels, therefore setting ourselves up for disappointment if the market does not reach those levels"
======================================

Your thoughts on this are appreciated.

In response to the questions you have asked. I believe preservation of capital to be more important than a risk reward ratio and my profit taking mechanism reflects this.

I spreadbet at the moment (in order to build confidence in my system) while I am saving a pot to trade directly in the market.

So lets say I place a buy bet £10 per point with a stop loss 10 points away. (Risking £100) When the market moves in my direction spread + 5. I close half my position and move my stop up 5 points. (£25 Profit, Risk reduced to £25 + spread * £5), so I would just be out costs if the trade then moved against me. If the market moves a further 5 points I repeat the process at which point I have now have my stop at my entry point. There for am not assuming any risk (in terms of capital)

Admittedly this is probably not the best money management system out there, and once I become consistent doing this I will probably move my 1st profit taking to a point where the market has moved at least the amount of my stop loss in my direction.

I may PM you with regards to choosing profit targets in order to improve my risk/reward ratio. I hope that you don't mind.

Rob

 

[dbphoenix]

If you're limiting the range of responses to that particular question, then of course you're expecting the market to reach those levels. Why else would you set them? As to whether or not you're disappointed when the market doesn't comply, that depends on how easily you're disappointed.

All this sounds great in theory, but until you actually trade it, whether for real or paper-traded, the realm of theory is where it will remain. The fact that you use the phrase "when the market moves in my direction" rather than "if" is not promising. As pointed out, price is going to have to move considerably just for you to break even.

 

[rfk_from_za]

So what you're saying is that I shouldn't be placing these orders, but rather I should simply watch the trade and take profit if the price hits my pre-determined levels. If I am in a situation where I cannot manage the trade then I should not be in a trade, is this your view on things.

At the moment I am trying to build my discipline so I can trust my system. Hence the reason I am taking profits the way I am. I am aware that this will not lead me to riches straight away, I just want to train myself to take profits at pre-determined levels and not worry what the price does after taking these profits.

The 'if' & 'when' comments are noted.

Could you share how you manage a trade in terms of taking profits? I know this is an area of my trading that I need to really work on, but I am still exploring and learning about this area.

Rob

 

[dbphoenix]

What is it exactly that you're trying to accomplish with this thread?

 

[rfk_from_za]

Well I am trying to further explore what I have read in Mark Douglas' work, since one of the beliefs I am trying to install is that the outcome of each trade is uncertain and I should not attach any emotion to it. Since profit is generated by letting the system work over a large number of trades.

What I am trying to explore is how can we combine this with sound money management principles which say you should take profits at predetermined levels. Thus as you have already stated; creating expectations - which leaves us open to disappointment which if not handled correctly will affect our trading.

Hence the reason I wanted some insight in to how you manage profit taking, since that may help me see how you manage your expectations whilst trading.

I hope this clarifies matters

 

[fxmarkets]

So lets begin by making a few statements regarding the beliefs that I would like to install, that I feel need to be in place in
order to trade successfully, consistently and without becoming a nervous wreck

1. The future is unknown, we need to believe in uncertainty
2. Each trade is 100% independent of every other trade you have placed
3. How do you REALLY accept risk
4. How can we be open to all possibilities (even ones we know nothing about)
5. Learn to hope that a position will continue to move in my favour and learn to fear a position that is moving against me

What I would like to discuss in this thread is techniques that can be used to really make me believe the above statements

1. do you believe in point number 1.?

2. do you believe in point number 2.?

3 and 4 ,questions not statements of possible suitable beliefs.

5. learn to live a life without hope. especially connected to trading and money. ?

you might be able to scratch 1 an 2 off already depending on your current views, (4) but be open , we do have the opportunity for continual learning and evolution if we are open to be open to assess our interaction with our external environment.

be open? suspend your beliefs for the moment, some people live with that quality continually? no fear is there listening to, allowing information in to be assessed , why do some people block it and defend themselves? dont want to feel stupid? upbringings of being told they are stupid... life and social conditioning, ohhh i'm in a crowd and we all say yes right? well how does f88k off sound. if you get my point.......

now you see the crowd of yes men/women on your price charts all saying yes..... you know what to do.

Douglas lost everything right? he lost "Things" more importantly maybe, he lost his fear of being alive without those temporary things in his life acting as his self valuation meter.

keyword "Attachment"

can you trust yourself rfk_from_za,? do you want to take ownership and responsibility of that one? we can learn to as douglas implies. do we want that? or do we want to punish ourselves at some level? hmmm well whats done is done, time to forgive and move on its our very own being after all, isn't that important? yes it is but so is your brother.

Fx.

 

[dbphoenix]

Well I am trying to further explore what I have read in Mark Douglas' work, since one of the beliefs I am trying to install is that the outcome of each trade is uncertain and I should not attach any emotion to it. Since profit is generated by letting the system work over a large number of trades.

What I am trying to explore is how can we combine this with sound money management principles which say you should take profits at predetermined levels. Thus as you have already stated; creating expectations - which leaves us open to disappointment which if not handled correctly will affect our trading.

Hence the reason I wanted some insight in to how you manage profit taking, since that may help me see how you manage your expectations whilst trading.

I hope this clarifies matters

Begin at the beginning. Have you tested this by any means other than a backtest?

 

[rfk_from_za]

I am in the process of testing my method using real money and a spread betting account. At the moment I am sticking to my system for the most part, I have made the usual mistakes like taking profits too early and jumping the gun by trying to anticipate a signal. However I am now on to my 23rd trade and its getting easier and easier to trust my system. Unfortunately the mistakes that I made early on have left me in the red, but I am reclaiming that slowly but surely.

Does that answer your question?

 

[dbphoenix]

So you didn't forward-test it or paper-trade it in real time before trading it with real money?

 

[rfk_from_za]

I have traded it via a simulation account for the past month and it made small but consistent profits.

 

[dbphoenix]

So you backtested it, did not forward-test it, and PT'd in RT for a month, correct? Assuming you had this trade-management tactic in place, what were the results?

 

[rfk_from_za]

I made a 2 percent return

 

[dbphoenix]

rfk, I don't mind spending the time on this for now, but please don't make me pull teeth.

What do you mean by "I made a 2% return"? Over what period of time? Doing what? How? When?

 

[rfk_from_za]

Right lets start at the beginning.

I back-tested the system using ProRealTime. I couldn't quite model the profit taking method in ProRealtime, so I experimented with it in real time using a simulated account for 1 month.

I then traded my system in real time for 1 month using a simulated account on www.BullBearings.co.uk. Using the profit taking method I have described earlier. I made a return of 2% on the capital that was in the simulated account. It started @ $100000 and I took it up to $102000 for the month that I tested it.

I am now trading the system with real money (Not a lot under $500) using small bets. However due to some earlier trading errors on my part I am actually in the red. However I am becoming more precise in the execution of my system using the spread betting account and am working my way back to break-even.

Apologies if this has not been clear, I thought my answers would be clear from the context of the previous replies.

As I mentioned earlier I basically didn't really have a method for taking profits so I started out with one that I felt would be suitable starting point.The main point of this at the moment is to follow the advice I have been given and that is to choose a system and execute it precisely. To build my discipline. The money that I am using is a slush fund that I have no problem spending in order to gain the experience.

After thinking about it further I do realise this is not the best method for taking profits from the market. I have since devised a better method for taking profits and I would like to discuss this further; however I don't think that this particular thread is the place for it. So if possible could you PM so I could discuss this with you off-thread; and if it warrants further exploration we could start a thread and take it from there.

The reason I was asking you about your profit taking methodology was so that I could see how you manage your expectations in a trade and the emotions (or lack of them) you experience during the trade. Since gaining some insight into that would be helpful in cultivating the beliefs I want in order to become a consistent trader.

Admittedly this may be difficult to describe, especially if you don't want to give away your methods.

This may give me a bit more insight into the kind of thoughts I want to cultivate whilst I am trading in order to control my impulses and emotions in order to trade in a relaxed manner.

Does this clarify matters at all?

 

[dbphoenix]

Well, I suppose it clarifies matters somewhat. But it's next to impossible to provide anything other than generic bumper-sticker advice if all you're going to provide is a general description and general answers. No offense intended, but nobody really cares about the specifics of your system, particularly since it's for all intents and purposes untested.

In any case,

1. If you haven't backtested the "profit-taking" aspect of your system, what exactly did you backtest? (no reply necessary)

2. If you've traded your profit-taking tactic for only a month, it's extremely unlikely that you will have anywhere near the confidence in the tactic required to execute the tactic -- much less the strategy -- to an extent that would enable you to determine whether the tactic has any value.

My or anyone else's profit-taking tactics are completely irrelevant. All that is relevant is what you're doing. Your beliefs are also irrelevant. Either your tactics work or they don't. And the only way you can determine whether or not they work -- i.e., whether or not they meet your criteria -- is to test them, and you've hardly begun to do so.

If you test your strategy, and if it meets your criteria, and if you satisfy yourself that you've created a consistently profitable strategy, beliefs and emotions won't be an issue unless you decide that you're smarter than your own strategy and decide for whatever reason to second-guess it. In that case, the advice amounts to (1) continue testing your strategy until you have complete confidence in it and (2) stick to it. If you still can't stick to it, then you'll have the same problem regardless of what strategy you employ and probably shouldn't trade at all.

In sum, if you want to control your emotions and impulses, come up with a consistently profitable strategy. This should make the issue of emotions and impulses moot. If it doesn't, then you need to go back to the drawing board until you come up with a strategy in which you have confidence.

 

[new_trader]

Well, I suppose it clarifies matters somewhat. But it's next to impossible to provide anything other than generic bumper-sticker advice if all you're going to provide is a general description and general answers. No offense intended, but nobody really cares about the specifics of your system, particularly since it's for all intents and purposes untested.

In any case,

1. If you haven't backtested the "profit-taking" aspect of your system, what exactly did you backtest? (no reply necessary)

2. If you've traded your profit-taking tactic for only a month, it's extremely unlikely that you will have anywhere near the confidence in the tactic required to execute the tactic -- much less the strategy -- to an extent that would enable you to determine whether the tactic has any value.

My or anyone else's profit-taking tactics are completely irrelevant. All that is relevant is what you're doing. Your beliefs are also irrelevant. Either your tactics work or they don't. And the only way you can determine whether or not they work -- i.e., whether or not they meet your criteria -- is to test them, and you've hardly begun to do so.

If you test your strategy, and if it meets your criteria, and if you satisfy yourself that you've created a consistently profitable strategy, beliefs and emotions won't be an issue unless you decide that you're smarter than your own strategy and decide for whatever reason to second-guess it. In that case, the advice amounts to (1) continue testing your strategy until you have complete confidence in it and (2) stick to it. If you still can't stick to it, then you'll have the same problem regardless of what strategy you employ and probably shouldn't trade at all.

In sum, if you want to control your emotions and impulses, come up with a consistently profitable strategy. This should make the issue of emotions and impulses moot. If it doesn't, then you need to go back to the drawing board until you come up with a strategy in which you have confidence.

rfk_from_za,

I agree with DB. I don't think you have adequately backtested your system/strategy and/or your expectations are way above reality.

These threads may be of some interest and may save DB from having to repeat himself.

http://www.trade2win.com/boards/showthread.php?t=19185

http://www.trade2win.com/boards/showthread.php?t=19388

http://www.trade2win.com/boards/showthread.php?t=18855&page=1&pp=10

 

[Charlton]

Answers lie within

This may give me a bit more insight into the kind of thoughts I want to cultivate whilst I am trading in order to control my impulses and emotions in order to trade in a relaxed manner.

Does this clarify matters at all?

rfk_from_za
In Post 1 You accept Socrates ideas that you need to fix yourself before becoming consistently profitable. You also state that you want to be able to state “I can trade without any emotional attachment”

Yet – in post 4 you do not follow through what Socrates is saying about a trading persona, because you state “In terms of the Hope and Fear, I am of the school of thought that as human beings we experience emotions, and their is not all that much we can do about that, however I do believe we can train ourselves to experience different emotions based on similar stimuli”. Also in post 10 you state “I prefer 'Free' since it means you accept your emotion, but you don't let it affect your trading”

Here you are not of the opinion that you should detach yourself emotionally, but that you should merely try to change and control emotions. Socrates goes a lot further than this – you may care to read Journey from the Basement
Your thread is called “Installing New Beliefs” and point 4 of your opening post asks “How can we be open to all possibilities (even ones we know nothing about)”.

Fxmarkets picked up on this point in post 29. I perceive that you are not really open at present. In each of the suggestions others have made during this thread, there seems to be an undercurrent of defensiveness in your responses.
In your response to Twalker in post 4 you talk about your system with entry/exit points concluding “I think I have that part covered” . In your next response to Twalker in post 6 you state “Its fine telling people to keep a trading journal, but without telling them what should go in it, it leaves people to their own devices”. In your response to JO in post 24 you state “I understand where you are coming from, however this is not really what this thread is about”.

This eventually leads DB to ask “What is it exactly that you're trying to accomplish with this thread?” and again “rfk, I don't mind spending the time on this for now, but please don't make me pull teeth.”

So I think this is one area you should be looking at. Unfortunately no-one can tell you how to be more open, because the response to such a suggestion is inevitable. Only when one is ready will it happen.
You said in post 10
“Yeah, like I said in my first post I am not looking for a quick fix, and I am willing to do whatever it takes for as long as it takes to become successful at this” and in post 13 “Thats not to say I am looking to be spoon fed solutions, I am happy to put in whatever effort is required in order to explore the techniques various people on this board use in order to improve their consistency and accept what the market is telling them.”

Yet again I don’t think you are really following this through. In post 1 you state
“I would really like to focus on actual techniques or
experiences that you have had that aided you in installing new beliefs (i.e. having an ah ha moment!) and neutralising existing fears”

I think, in reality, you are still looking for quick fixes and haven’t yet TRULY accepted the fact that it requires hard work and introspection.
In fact in varoius posts you fish for these quick fixes:
Post 4 - Would you care to share how you progressed to a state where you stopped second guessing your system or just how you increased your self-discipline in general
Post 6 - I understand that the information in these journals will be tailored to the individual, however it is often useful to contrast one's own methods with those in use by others in order to profile and improve the efficiency of the system.
Post 16 - In order to further the discussion of the practical aspects how have you (and others) improved your discipline with regards to execution of your chosen system. How do you stop yourself from second guessing it and doing things like widening a stop order or over-trading.
Post 20 - I also think it would be useful if we could come up with some exercises that members could try that would aid them in increasing their trading discipline. Even if no one actually tries them it would be a way of taking our concepts/beliefs and putting them down on paper in concrete examples.
Post 26 - Could you share how you manage a trade in terms of taking profits? I know this is an area of my trading that I need to really work on, but I am still exploring and learning about this area.
Post 28 - Hence the reason I wanted some insight in to how you manage profit taking, since that may help me see how you manage your expectations whilst trading.

As DB responded to you twice, it’s not really possible to provide the kind of answers you are probably searching for in message boards such as this. Going back to Socrates postings many people found them difficult to read and frustrating. This is because he did not provide a quick-fix response of the kind “If you do X then you will consistently win Y% profit”. You had to work at reading his animal stories and other postings to achieve that “Aha” moment.

I suspect that you will probably not like the answers I am giving you and they are NOT meant to be a criticism of you, but rather something to consider under the topic of Installing New Beliefs. I fully understand your desire to seek answers from others, but I don’t think you will truly find any of them will fulfil your requirements. Only you can do that.

So I sincerely hope that you get the insights that you need to become a successful trader.

Charlton