Yamato
Legendary member
- Messages
- 9,840
- Likes
- 246
psychology...
Interesting event, or rather usual event and interesting analysis that I thought of today.
A couple of days ago I felt the EUR was due for a rise and I went long on it (discretionary trade) but I only held it for a few dozens ticks, and a couple of days. Yes, I made money, but I also expected the rise to last longer than 2 days.
Yes I didn't hold it. Why did I close the position?
I remember thinking when I closed it that it might have fallen back down. I thought to myself: is it worth it to risk losing these few hundred dollars of gain in order to try to make another few hundreds? And I thought it wasn't worth it.
But I wouldn't call the closing of the position a mistake. You can't just say "yes, i would have made more" and then, afterwards, decide you made a mistake, because back then you didn't know it would have made more.
The problem is if when you entered the trade you were hoping for 100 ticks and then exited with only 40 ticks. It all depends on what your plan was and what the odds for that plan were.
The problem is that with discretionary trading first of all you don't know the odds, and therefore you often don't have a plan based on odds, and therefore you cannot have a plan at all, but your trade evolves according to whichever wins between your fear to lose what you made or lose more than you're losing and the hope to make more than you are making or lose less than you're losing.
So, recapitulating, here's the problem with discretionary trading:
1) no knowledge of odds
2) no plans
3) obviously no sticking to plan, because there's no plan (and there shouldn't be)
4) exiting based on feelings
But then the question arises as to why you should enter a trade when you don't know the odds of your entry and therefore do not have an exit plan. That is why this kind of trading is often called gambling.
But then why are there discretionary traders who make money and who cannot be called gamblers? Because, unlike me, they're good at guessing, roughly, the odds in their favor and in picking only the trades where the odds are in their favor. I am too insecure about the odds in my favor, and when I enter a trade, I rarely know if the odds are in my favor.
By odds basically I am referring to being able to answer questions like these:
1) is this trade more likely to go up 100 ticks than down 100 ticks?
2) am In a position where I can lose 100 ticks (so to trade more afterwards even if I lose)?
If I answer yes to both, then I can make the trade and stick to it, but usually when I enter my trade I am unable to answer this type of questions, and so I should not enter the trade.
For other people it's different, but I would guess that for most people it's like me. And yet this is not going to be the last time I make a discretionary trade based on hope and fear and a rough estimate of my odds, rather than a clear plan, with questions asked and answered before entering a trade. This is all in my nature of a compulsive gambler, whereby I will be more likely to enter the trade if today I am frustrated and I need a reward from the market to compensate some frustration from work. This is in my nature, and my account until something changes is not safe from this nature.
Interesting event, or rather usual event and interesting analysis that I thought of today.
A couple of days ago I felt the EUR was due for a rise and I went long on it (discretionary trade) but I only held it for a few dozens ticks, and a couple of days. Yes, I made money, but I also expected the rise to last longer than 2 days.
Yes I didn't hold it. Why did I close the position?
I remember thinking when I closed it that it might have fallen back down. I thought to myself: is it worth it to risk losing these few hundred dollars of gain in order to try to make another few hundreds? And I thought it wasn't worth it.
But I wouldn't call the closing of the position a mistake. You can't just say "yes, i would have made more" and then, afterwards, decide you made a mistake, because back then you didn't know it would have made more.
The problem is if when you entered the trade you were hoping for 100 ticks and then exited with only 40 ticks. It all depends on what your plan was and what the odds for that plan were.
The problem is that with discretionary trading first of all you don't know the odds, and therefore you often don't have a plan based on odds, and therefore you cannot have a plan at all, but your trade evolves according to whichever wins between your fear to lose what you made or lose more than you're losing and the hope to make more than you are making or lose less than you're losing.
So, recapitulating, here's the problem with discretionary trading:
1) no knowledge of odds
2) no plans
3) obviously no sticking to plan, because there's no plan (and there shouldn't be)
4) exiting based on feelings
But then the question arises as to why you should enter a trade when you don't know the odds of your entry and therefore do not have an exit plan. That is why this kind of trading is often called gambling.
But then why are there discretionary traders who make money and who cannot be called gamblers? Because, unlike me, they're good at guessing, roughly, the odds in their favor and in picking only the trades where the odds are in their favor. I am too insecure about the odds in my favor, and when I enter a trade, I rarely know if the odds are in my favor.
By odds basically I am referring to being able to answer questions like these:
1) is this trade more likely to go up 100 ticks than down 100 ticks?
2) am In a position where I can lose 100 ticks (so to trade more afterwards even if I lose)?
If I answer yes to both, then I can make the trade and stick to it, but usually when I enter my trade I am unable to answer this type of questions, and so I should not enter the trade.
For other people it's different, but I would guess that for most people it's like me. And yet this is not going to be the last time I make a discretionary trade based on hope and fear and a rough estimate of my odds, rather than a clear plan, with questions asked and answered before entering a trade. This is all in my nature of a compulsive gambler, whereby I will be more likely to enter the trade if today I am frustrated and I need a reward from the market to compensate some frustration from work. This is in my nature, and my account until something changes is not safe from this nature.
