Bloodhound
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Nice end to the week 
Hope everyone has a great weekend!!
All the best
Rob
Hope everyone has a great weekend!!
All the best
Rob
Best Thread Trading Naked
- Thread starter Bloodhound
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Trading naked - a psychological perspective
Robert, I would like to make a small contribution to your excellent thread, and I hope that what follows will be up to your standards!
As you know, when it comes to business my main interest is psychology, because that is where I believe the real difficulties lie when it comes to trading. I find that people - especially beginners - find this hard to believe, but interestingly once they have been pitting their wits at the markets for a little while, most of them eventually come to the realisation that it is true. Some don't however, and what they do when they lose money is they invariably try out another trading system in the misplaced belief that it was their system that failed them, not their own approach. This is the road to wipe out.
In the light of this I would like to address a particularly interesting human trait, and one which has been responsible for enormous growth in one of the business areas related to trading, that of forecasting markets. It is also the reason for the existence of so many market indicators, such as Stochastics, RSIs, Bollinger Bands and others. Here we go…
The human brain is constructed of many parts, one of which is the neocortex. This is the reasoning part of the brain, and it happens to be a relatively new part in terms of our human evolution. Unfortunately, rather like a new piece of software, it is not always very good at what it is supposed to do. One of the things it tries to do, unfailingly, is find order - even when there is none.
Some years ago an experiment was carried out with rats, in which they were placed at the base of a T-shaped tunnel. Food was placed at one of the ends of the cross bar and the rats were released. If the rats turned the correct way, they got the food; if not, they went hungry. What the researchers did was to place the food either on the right or the left at random, but 60% of the time on the left. Eventually the rats learned this. Once they had done so, they without fail would run up to the junction and turn left, thus getting fed 60% of the time.
The interesting part is this: when the experiment was repeated with university students (although perhaps not with rat food this time!), the students spent a great deal of time analysing the pattern of the food drops in an effort to work out the system and optimize the success rate. Unfortunately, the food drops were, as before, completely random with, as before, a bias to the left of 60%. The students were convinced that they had found a pattern. They followed the imagined pattern and only got the food 52% of the time.
Outcome? Humans were outdone by rats! Read on…
Let us now think about this in the context of the markets. How accurate are market forecasters? How accurate are economists at predicting the state of the economy? How accurate are the press when it comes to share tips?
The best trading systems are those which allow for the possibility that the market can do anything! Once we accept that the market can truly do anything, we then cease to have an expectation – and this is absolutely fundamental. Trade management is where we should concentrate, and that includes risk management and money management. Identify trading setups which give an edge, cut the losses, run the profits. Identifying trade setups which give us an edge is not the same as forecasting the direction of the market; there is a subtle difference. This does not belong here however, but falls within the domain of crowd behavioural theory and that particular area of trading psychology.
The final point to mention is that the types of indicators and price studies I mentioned in the second paragraph of this article are a direct result of this human trait of wanting to find order out of chaos and thus be able to predict the future. Sadly however, they do not predict the future, but instead they give us an illusion that this is what they are doing for us, and that illusion serves as a comfort blanket. By their very construction, price studies can only provide a descriptive statistic. It is when we choose to use these as inferential statistics that we are bound to fail, like when we try to find a pattern for the food drop in the T-shaped maze. Price alone will tell us where the buyers and the sellers have won the day, and remains in my opinion one of the most effective ways of judging the likely direction of a market. Support and resistance are where we should concentrate, leave the indicators to those who are continuing their search for the perfect system. If any single indicator was really useful, it would be the only one!
Trade what you see, not what you think! Happy trading.
William Robinson
Robert, I would like to make a small contribution to your excellent thread, and I hope that what follows will be up to your standards!
As you know, when it comes to business my main interest is psychology, because that is where I believe the real difficulties lie when it comes to trading. I find that people - especially beginners - find this hard to believe, but interestingly once they have been pitting their wits at the markets for a little while, most of them eventually come to the realisation that it is true. Some don't however, and what they do when they lose money is they invariably try out another trading system in the misplaced belief that it was their system that failed them, not their own approach. This is the road to wipe out.
In the light of this I would like to address a particularly interesting human trait, and one which has been responsible for enormous growth in one of the business areas related to trading, that of forecasting markets. It is also the reason for the existence of so many market indicators, such as Stochastics, RSIs, Bollinger Bands and others. Here we go…
The human brain is constructed of many parts, one of which is the neocortex. This is the reasoning part of the brain, and it happens to be a relatively new part in terms of our human evolution. Unfortunately, rather like a new piece of software, it is not always very good at what it is supposed to do. One of the things it tries to do, unfailingly, is find order - even when there is none.
Some years ago an experiment was carried out with rats, in which they were placed at the base of a T-shaped tunnel. Food was placed at one of the ends of the cross bar and the rats were released. If the rats turned the correct way, they got the food; if not, they went hungry. What the researchers did was to place the food either on the right or the left at random, but 60% of the time on the left. Eventually the rats learned this. Once they had done so, they without fail would run up to the junction and turn left, thus getting fed 60% of the time.
The interesting part is this: when the experiment was repeated with university students (although perhaps not with rat food this time!), the students spent a great deal of time analysing the pattern of the food drops in an effort to work out the system and optimize the success rate. Unfortunately, the food drops were, as before, completely random with, as before, a bias to the left of 60%. The students were convinced that they had found a pattern. They followed the imagined pattern and only got the food 52% of the time.
Outcome? Humans were outdone by rats! Read on…
Let us now think about this in the context of the markets. How accurate are market forecasters? How accurate are economists at predicting the state of the economy? How accurate are the press when it comes to share tips?
The best trading systems are those which allow for the possibility that the market can do anything! Once we accept that the market can truly do anything, we then cease to have an expectation – and this is absolutely fundamental. Trade management is where we should concentrate, and that includes risk management and money management. Identify trading setups which give an edge, cut the losses, run the profits. Identifying trade setups which give us an edge is not the same as forecasting the direction of the market; there is a subtle difference. This does not belong here however, but falls within the domain of crowd behavioural theory and that particular area of trading psychology.
The final point to mention is that the types of indicators and price studies I mentioned in the second paragraph of this article are a direct result of this human trait of wanting to find order out of chaos and thus be able to predict the future. Sadly however, they do not predict the future, but instead they give us an illusion that this is what they are doing for us, and that illusion serves as a comfort blanket. By their very construction, price studies can only provide a descriptive statistic. It is when we choose to use these as inferential statistics that we are bound to fail, like when we try to find a pattern for the food drop in the T-shaped maze. Price alone will tell us where the buyers and the sellers have won the day, and remains in my opinion one of the most effective ways of judging the likely direction of a market. Support and resistance are where we should concentrate, leave the indicators to those who are continuing their search for the perfect system. If any single indicator was really useful, it would be the only one!
Trade what you see, not what you think! Happy trading.
William Robinson
Bloodhound
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Thank you William. As you know this way of thinking and 'The Rats' form the cornerstone of my own beliefs in the way markets work.
Someone the other day described the way I trade as 'anarchic' and, quite possibly they were right. That said, anarchy seems to mean I get fed - a bit like the rats ;-)
Someone the other day described the way I trade as 'anarchic' and, quite possibly they were right. That said, anarchy seems to mean I get fed - a bit like the rats ;-)
Bloodhound
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And finally........
Hello Everyone,
I've been hoping William would post the missive above as I think it is quite apt in offering an end to this thread. I've chatted to a few of you of late and you've been extremely kind it what you've had to say about this thread but also all suggested that it be kept short and sweet. I never set out for this to be in any way an educational thread, but just an opportunity for me to explain a bit about what I do, offer up some ideas, and also see what others do and see if all those 'no indicator' followers would come out of the woodwork. I owe an immense amount to T2W and I guess this has been my way of trying to give something back.
I learnt to see price action in the main through Feb's thread and it was / is a great place to start. The rest has been a case of trial and error, playing with different money management ideas and quite a bit of hard graft. The thing I like about this way of trading is that it is simple - extremely simple in fact, but never easy (LOL). It would / could / should work in most markets and timeframes - I trade cable M5 because that's what works for me, but there are, as always, an infinite number of ways to skin the proverbial cat. For anyone who reads this in the future - I did a lot of thinking to end up trading the way I do. If you want to understand my thought processes then think of it like a cocktail. Take William's post above, add the snippets from TheBramble and Fruji earlier in the thread, and throw in a slice of Pat Hearne. Ensure it's shaken and not stirred and that's it.
As ever I would like to caveat everything and anything I've written in this thread with the fact that I have been trading less than a year. I am a complete beginner / newbie / grommet / muppet, so please take anything I've said with a pinch of salt. All I know is it works for me, I am consistently profitable (although I am aware that this is over a very short period of time), and I am at peace with what I do. Having re-read the whole thread there is little in the way of formal direction to anything that has been written here but I do believe, with a bit application and intelligence, there are some ideas offered up on how to trade, or at least develop a methology - the entries etc. are as old as the hills and I doubt will ever disappear. As Barjon pointed out though, it's all about what happens next, and what one does next.
Thank you to everyone who has contributed. You would not believe how much I have learnt through starting this thread. I'm going to ask the mods to leave this open until Sunday evening in case anyone has any final questions etc. and then it will be closed.
I'm going to start another thread on Monday to expand on this one and I genuinely hope to see you all there - I hope you can understand my reasons behind closing this one.
Hope you all have a great weekend and good trading.
All the best
Rob
Hello Everyone,
I've been hoping William would post the missive above as I think it is quite apt in offering an end to this thread. I've chatted to a few of you of late and you've been extremely kind it what you've had to say about this thread but also all suggested that it be kept short and sweet. I never set out for this to be in any way an educational thread, but just an opportunity for me to explain a bit about what I do, offer up some ideas, and also see what others do and see if all those 'no indicator' followers would come out of the woodwork. I owe an immense amount to T2W and I guess this has been my way of trying to give something back.
I learnt to see price action in the main through Feb's thread and it was / is a great place to start. The rest has been a case of trial and error, playing with different money management ideas and quite a bit of hard graft. The thing I like about this way of trading is that it is simple - extremely simple in fact, but never easy (LOL). It would / could / should work in most markets and timeframes - I trade cable M5 because that's what works for me, but there are, as always, an infinite number of ways to skin the proverbial cat. For anyone who reads this in the future - I did a lot of thinking to end up trading the way I do. If you want to understand my thought processes then think of it like a cocktail. Take William's post above, add the snippets from TheBramble and Fruji earlier in the thread, and throw in a slice of Pat Hearne. Ensure it's shaken and not stirred and that's it.
As ever I would like to caveat everything and anything I've written in this thread with the fact that I have been trading less than a year. I am a complete beginner / newbie / grommet / muppet, so please take anything I've said with a pinch of salt. All I know is it works for me, I am consistently profitable (although I am aware that this is over a very short period of time), and I am at peace with what I do. Having re-read the whole thread there is little in the way of formal direction to anything that has been written here but I do believe, with a bit application and intelligence, there are some ideas offered up on how to trade, or at least develop a methology - the entries etc. are as old as the hills and I doubt will ever disappear. As Barjon pointed out though, it's all about what happens next, and what one does next.
Thank you to everyone who has contributed. You would not believe how much I have learnt through starting this thread. I'm going to ask the mods to leave this open until Sunday evening in case anyone has any final questions etc. and then it will be closed.
I'm going to start another thread on Monday to expand on this one and I genuinely hope to see you all there - I hope you can understand my reasons behind closing this one.
Hope you all have a great weekend and good trading.
All the best
Rob
HawkTrader
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Hi Rob,
As long as you keep the flow of thoughts and ideas about trading naked I don't mind.
I think I can see why you're closing this thread, while it's at it's peak (like your trading?!) and you're locking in the "profits" moving onto the next "trade" (thread).
Sorry I haven't been offering any ideas lately, but I'm back to trading full time on Monday so I'm sure we can start again in your new thread!!
Looking forward,
-Owain
As long as you keep the flow of thoughts and ideas about trading naked I don't mind.
I think I can see why you're closing this thread, while it's at it's peak (like your trading?!) and you're locking in the "profits" moving onto the next "trade" (thread).
Sorry I haven't been offering any ideas lately, but I'm back to trading full time on Monday so I'm sure we can start again in your new thread!!
Looking forward,
-Owain
Bloodhound
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and a quick P.S.
as for whether I continue to remain profitable and make a success of my trading. In the words of Feb....
Let's see what happens........
as for whether I continue to remain profitable and make a success of my trading. In the words of Feb....
Let's see what happens........
neil
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Shakone
FEB is at:
The System II (Yes with irony) - Page 647 @ Forex Factory
Now I must go for a pizza or two !
FEB is at:
The System II (Yes with irony) - Page 647 @ Forex Factory
Now I must go for a pizza or two !
tenbobtrader
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38 steps to becoming a trader
1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realise we may need more knowledge or information.
4. We accumulate more information.
5. We switch the instrumentswe are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch instrumentsagain.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.
15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realise that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account
continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.
Most traders will identify with this list and should be able to place themselves within these steps.
Keep in mind that very few people progress through these steps in an orderly fashion.
Developing your trading skills is an iterative process. For example, you may reach Step 13, find that although you were making money, your basic premise for trading was flawed (you might have been benefiting from the bull market, rather than your own trading prowess and then have been rudely awakened when the market entered a bear phase) and you may drop back to Step 4.
Start 'climbing' the steps again.
Having the proper mindset, attitude and psychological makeup becomes increasingly important as you progress through the steps. The focus of the earlier steps is on external issues, i.e. developing proficiency in the mechanics of trading while the focus of the latter steps (particularly from Step 30, on) is on internal issues, i.e. improving ourselves mentally and psychologically, maturing as traders.
1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realise we may need more knowledge or information.
4. We accumulate more information.
5. We switch the instrumentswe are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch instrumentsagain.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.
15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realise that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account
continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.
Most traders will identify with this list and should be able to place themselves within these steps.
Keep in mind that very few people progress through these steps in an orderly fashion.
Developing your trading skills is an iterative process. For example, you may reach Step 13, find that although you were making money, your basic premise for trading was flawed (you might have been benefiting from the bull market, rather than your own trading prowess and then have been rudely awakened when the market entered a bear phase) and you may drop back to Step 4.
Start 'climbing' the steps again.
Having the proper mindset, attitude and psychological makeup becomes increasingly important as you progress through the steps. The focus of the earlier steps is on external issues, i.e. developing proficiency in the mechanics of trading while the focus of the latter steps (particularly from Step 30, on) is on internal issues, i.e. improving ourselves mentally and psychologically, maturing as traders.
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