Is Delusion Common Amongst Traders?

[traderunner1]

I'm starting to get results from backtesting which show that exits may in fact be more important than entries. Is this possible? Maybe delusion comes from focusing on the wrong thing, i.e. the entry. Maybe I'm delusional, but I've started testing with parameters I've never considered before as they haven't seemed "logical" ... and the lack of alignment between what seems logical and what actually makes money may cause disruption in the space-time continuum = delusion.

Exits ARE more important than entries; I have denied it in the past, and experienced that it IS the case and it has been explained thoroughly by Van K Tharp (trading your way to financial freedom).

TR

 

[meanreversion]

I re-read that book recently and it's true, he does bang on about exits. Maybe this is the origin of delusion, we simply can't accept what doesn't "sound" right, and the resulting emotional conflict makes us believe that which is not true.

 

[oildaytrader]

I'm starting to get results from backtesting which show that exits may in fact be more important than entries. Is this possible? Maybe delusion comes from focusing on the wrong thing, i.e. the entry. Maybe I'm delusional, but I've started testing with parameters I've never considered before as they haven't seemed "logical" ... and the lack of alignment between what seems logical and what actually makes money may cause disruption in the space-time continuum = delusion.

It all depends on the instrument and volatility patterns of the instrument, some instruments are smooth trenders and others are noisy trenders, applying controlled exits can make a difference the results of noisy trenders but have negative results to smooth trenders.

 

[oildaytrader]

Criteria of exit triggers is also an important factor, exit triggers can be lax or very negative for the strategies.

 

[oildaytrader]

Exits ARE more important than entries; I have denied it in the past, and experienced that it IS the case and it has been explained thoroughly by Van K Tharp (trading your way to financial freedom).

TR

Could you explain thoroughly because I have mislaid my copy.

 

[nunrgguy]

Of course exits and trade management are far more important than entries, that's why most lose: almost everything you see in books and on the internet is about entries.

The delusion is that the next trade will be a winner because a green candle happened on the 4hr in the past and the dog next door has started barking, and she's still at secondary school.

The traditional logic of triple screen is a great example of being delusional. Multi time frame strategies work - I use one but the traditional view of seeing something on 4hr, therefore something may happen on 1 hr then 15 min is delusion at it's best, if you see it on 4hr it already happend on 15 min and 1hr. The move may still go 'right' but the reasons behind it aren't what you perhaps think they are....they don't neccessarily have to be if you know past statistics and have some forward testing to gauge probabilities but don't kid yourself about reasons.

I have no idea if my entry criterea provides any edge over random entry but I know it stops me from overtrading, keeps me out of some choppy markets and with my trade management statistically gives +ve expectancy.

The 'logical' conclusion of R:R will lead you to lose too if you're not careful. 'I'm risking 10and for +ve expectancy I need R:R of 2:1 so my target is 20', so the trader sits there, sees the trade hit +9 and then retrace to -ve territory eventually hitting that -10 stop. Is it not better after seeing the +9 and starting to see price fall to get out at +ve a couple of pips and wait for the next trade that turns into a runner?

Oh but that's fear driving you says the 'logical' but perhaps delusional trader as his account drops another 10:innocent:

OK so fear gave us +2, logic gave us -10.

All a point of view, old boy.

 

[meanreversion]

Of course exits and trade management are far more important than entries, that's why most lose: almost everything you see in books and on the internet is about entries.

I've mentioned entries vs exits in other threads before and even started a thread about random entry systems (which garnered some interesting responses).

Yet somehow I never see the day when CNBC starts banging on about exits. For them, it's all entry, entry, entry.

So I don't think you can say "of course exits .. are far more important" because although it may be true, it's not what one would conclude from general information.

I'm trying to think of an analogy to this in another area, but I'm struggling. The best I can come up with is in golf, where people are always aiming for the perfect shot. It's actually more about minimizing the bad shots, as opposed to maximizing the good ones. But that's tenuous.

 

[meanreversion]

However, your point about risk/reward is a good one, and maybe this is where Van Tharp doesn't help by talking about expectancy/"expectinuity", as it encourages people to think "I'll risk 1 unit to make 3 on every trade, then all I need to do is be right 30 pct of the time and I'll have a positive expectancy of 0.2" etc. What happens when you get to 2.9 units profit and it starts to retrace ...

 

[nunrgguy]

I've mentioned entries vs exits in other threads before and even started a thread about random entry systems (which garnered some interesting responses).

Yet somehow I never see the day when CNBC starts banging on about exits. For them, it's all entry, entry, entry.

So I don't think you can say "of course exits .. are far more important" because although it may be true, it's not what one would conclude from general information.

I'm trying to think of an analogy to this in another area, but I'm struggling. The best I can come up with is in golf, where people are always aiming for the perfect shot. It's actually more about minimizing the bad shots, as opposed to maximizing the good ones. But that's tenuous.

CNBC are more interested in entries because that's where a broker will make its money, who pays CNBC?

The long and the short of it is that entries do not make or lose money (apart from spread/delaing costs), exits do.

 

[meanreversion]

Agree with you on that. So that's the source of delusion nailed down, entries are important. All other delusion leads from that.

 

[Splitlink]

Of course exits and trade management are far more important than entries, that's why most lose: almost everything you see in books and on the internet is about entries.

The delusion is that the next trade will be a winner because a green candle happened on the 4hr in the past and the dog next door has started barking, and she's still at secondary school.

The traditional logic of triple screen is a great example of being delusional. Multi time frame strategies work - I use one but the traditional view of seeing something on 4hr, therefore something may happen on 1 hr then 15 min is delusion at it's best, if you see it on 4hr it already happend on 15 min and 1hr. The move may still go 'right' but the reasons behind it aren't what you perhaps think they are....they don't neccessarily have to be if you know past statistics and have some forward testing to gauge probabilities but don't kid yourself about reasons.

I have no idea if my entry criterea provides any edge over random entry but I know it stops me from overtrading, keeps me out of some choppy markets and with my trade management statistically gives +ve expectancy.

The 'logical' conclusion of R:R will lead you to lose too if you're not careful. 'I'm risking 10and for +ve expectancy I need R:R of 2:1 so my target is 20', so the trader sits there, sees the trade hit +9 and then retrace to -ve territory eventually hitting that -10 stop. Is it not better after seeing the +9 and starting to see price fall to get out at +ve a couple of pips and wait for the next trade that turns into a runner?

Oh but that's fear driving you says the 'logical' but perhaps delusional trader as his account drops another 10:innocent:

OK so fear gave us +2, logic gave us -10.

All a point of view, old boy.

How true you are! Unfortunately, though, these loss cutting trades can be depressing inasmuch as, in my case, it may take several sessions to get that runner. It is not, always, in my case, as easy as all that to be correct in the direction decision and that is crucial.

Nevertheless, those who let losses accumulate before cutting are running the risk of seeing their trade, if not getting stopped out, then watching the level hang around between the stop loss and the entry point. This is a terrible waste of time and is worse than cutting early. IMO.

 

[Splitlink]

If anyone wants a tip from me it is, do not delude yourself into thinking that you are able to spot the turn. Wait for the trend and direction to establish and get the safer trade after the trend has developed. Two posters, BSD and Mr Charts, as well as others, push this strategy and I think that it is a safer way than trying spot a turn.

 

[meanreversion]

It's very tough to predict a turn, besides which you don't need to buy the absolute low/sell the absolute high to make money. Comes back to the notion that entries aren't that important.

 

[DionysusToast]

I use one but the traditional view of seeing something on 4hr, therefore something may happen on 1 hr then 15 min is delusion at it's best, if you see it on 4hr it already happend on 15 min and 1hr.



The 'logical' conclusion of R:R will lead you to lose too if you're not careful. 'I'm risking 10and for +ve expectancy I need R:R of 2:1 so my target is 20', so the trader sits there, sees the trade hit +9 and then retrace to -ve territory eventually hitting that -10 stop. Is it not better after seeing the +9 and starting to see price fall to get out at +ve a couple of pips and wait for the next trade that turns into a runner?

BOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOM :clap:

Some sense spoken here indeed...

 

[Adamus]

It's a bit like asking whether the accelerator pedal or the brake pedal is more important on a car.

You can't have one without the other, so why the argument?

I guess the question could be rephrased: would you rather be in a car that won't move because it has no accelerator pedal, or in a car going really fast with no brakes?

Most people would say, I'd rather be in the stationary car, but that would make you a trader who can't trade.

 

[meanreversion]

Would you rather be in a Toyota with a stuck accelerator pedal, or one with a faulty brake? The car in front is a Toyota ... of course it is, it can't slow down!

 

[nunrgguy]

Class

 

[oildaytrader]

The traditional logic of triple screen is a great example of being delusional. Multi time frame strategies work - I use one but the traditional view of seeing something on 4hr, therefore something may happen on 1 hr then 15 min is delusion at it's best, if you see it on 4hr it already happend on 15 min and 1hr.

.

There is an exception where trades are place on retracement on the existing trendline on 4 hour charts.If a trend is established,trades will be placed when price retraces against the underlying trend , and loses momentum on retracement.

 

[nunrgguy]

There is an exception where trades are place on retracement on the existing trendline on 4 hour charts.If a trend is established,trades will be placed when price retraces against the underlying trend , and loses momentum on retracement.

Yes