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Thank You Sir May I Have Another?
36

Thank You Sir May I Have Another?

by The MoleJune 2, 2017

One tough lesson we all wind up learning during our time as traders, professional or otherwise, is that being right means nothing and being profitable means everything. Now that statement does not give you license to simply follow your whims as long as you wind up being profitable in the end. Instead the point I’m making is that you can be right but still wind up losing, especially when Ms. Market decides to turn into bitch mode. Did that sink in? It should because there are important implications:

Success Has Many Fathers But Failure Is An Orphan

The need to be right is a fairly prevalent trait among people of every single culture on this planet. We all want to do ‘the right thing’ or the ‘smart thing’. We want to get ahead in life and that by definition means that you’ve got to be better, faster, smarter, sexier, funnier, etc. than the next guy or gal. Admitting to failures certainly isn’t a favorite activity for most of us, especially if there are real life consequences. Thus in many cases we have a tendency to ignore failures or errors and just focus on ‘the positive aspects’ of whatever we are doing.

Cultural Acceptance of Mistakes

However if you never acknowledge your mistakes then you won’t be able to learn from them. Americans are actually pretty casual about making mistakes as the general culture does not linger on past failures and instead chooses to focus on the future. Over here in Europe entrepreneurs for example are a pretty rare breed mainly for cultural reasons: Make a mistake or fail once and you’ll never hear the end of it. Certainly nobody is every going to fund your venture if your previous endeavor failed. Which is maybe why pointing out personal shortcomings to the average European will often be met with rather vehement resistance and outright aggression, while doing the same in the U.S. may just earn you a sheepish smile. Despite being born in Europe I personally prefer the American approach as I believe in acknowledging mistakes but then moving on to bigger and better things.

Abandon All Ambition Yee Who Enter Here

Be this as it may it is therefore natural that we all avoid making mistakes and of course we always want to look good by being good. And of course we also want to be successful and thus turn ourselves into the best traders we can ever be. Which means we must learn as much as possible and avoid making mistakes, right? WRONG.

Manage Your Losses

A significant aspect of being a trader involves dealing with losses. Everyone loses and they key of trading in essence is winning more than you lose. Which it why it is essential that you don’t ignore mistakes and optimally try to learn from them. At the same time however it is crucial that you don’t linger on any feelings of anger or frustrations but simply acknowledge what has happened and then move on.

Now let’s look at a good example, courtesy of yours truly:

2017-06-02_spoos

Just looking at this chart makes my blood boil. Yes I read the chart properly and I expected a little shake out. But clearly I was way too optimistic with my ISL and thus got taken to the cleaners just before the market took off and probably robbed me of at least 3.5R.

But it happens and it will happen again. It will happen to you, to me, to everyone out there, no matter how hard we try to avoid it. It’s part of the game. Accept it. There is no hall pass for us traders – everyone gets some – all the time. That’s right, better get used it. Thank you sir may I have another?

The Market Is Smarter Than You

Now remember that I had anticipated almost all parameters: The BB was compressed and I knew that there would be a break-out, I had a good feeling that it’ll go up. The trend was on my side. But still I lost 1R instead of earning over 3R. Why? Because the market isn’t a linear entity and it follows a random walk. Anything can happen at any time for any reason. There are simply too many participants and variables for even the smartest statistician to know what comes next. At best you can develop a confidence interval based on the data available but depending on where you stand you may still end up being wrong.

Trading Is Hard

And this is exactly why trading is hard. Most people cannot accept that being right means very little. Sometimes you’re right and you win. Sometimes you’re right and you lose. At other times you may be wrong and you win anyway (due to some market event), and many many times you’re wrong and of course you lose. The only way to deal with it is to simply accept the losses with the winners and focus on your trading. After all when you’re driving down the freeway and you hit a pothole you don’t get out of the car and walk away. You simply keep on rolling because it’s the journey that matters.

 


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Ronebadger

    AMEN!

  • OJuice

    Nice post Mole. And a good follow up to all the great comments that were along the same vein yesterday.

    Not so long ago I was real bullish /ES from 2380. After getting stopped out at BE during the “Trump Dump” I was a bit pissed. Then to add insult to injury I had a real tight stop on a long entry @2361 and got nabbed overnight to the tick. Once it started running away I was a bit tilted. I even let the tilt push me towards looking at a short entry the other night in marginal conditions (which I never got into). In the past this would have been quite a frustrating experience that would have lingered, but, with the help of Mole and this place I have focused a lot of effort and become much better and spreading myself across a few different markets. The benefit being it is much easier to manage emotions when I commit to a handful of trades across a few markets, fully expecting to get punched in the dick at least once or twice.

    Also, and most importantly, its Friday!

  • ridingwaves

    Mole is a good writer in my opinion….I could be biased though…
    bio sectors are heating up and might break out of long term channel….

  • Ronebadger
  • OJuice

    I agree. Now you just need to convince him to write a book…

  • ridingwaves

    he’s making to much bank and he would have to deal with an editor, those folks whom change the story….

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Gold up, Dollar sinking..what’s not to love?

    Sometimes it’s good to be tied up in gold. {wink}

    https://uploads.disquscdn.com/images/a959371ddb7502d4645fdd93750223962299b80a777b2f7f4c9832e795d0bde2.png

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    as long as I’m written into the Preface, I’m good.
    😉

  • ridingwaves

    not the epilogue? I just want a short blurb about old ex-trader surfing some reef break in central america…

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • ridingwaves

    IBB and XBI showing a lot of signs of finally breaking higher….
    ASCO conference starts today, the big showcase for spec, small cap and larger biotech companies to present findings.

    CYTR is first up to bat today….
    if anyone wants I’ll build a list of some of the companies symbols presenting as their might be some break away gaps come next week…another reason for bio sector to finally warm up…

  • Mark Shinnick

    Yet, this larger gold consolidation pattern continues… Is it so clear that $ velocity has ceased its support of the $, permitting a gold reversal of its decade-long trend?
    https://fred.stlouisfed.org/series/M2V

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    +1 for using the velocity.

    and not the quantity. Of course, the more they print, the more worthless it is. (eventually)
    We can all be trillionaires, or quadrillionaires – but you won’t want to see the price of coffee.
    https://fred.stlouisfed.org/series/M2

  • Mark Shinnick

    Yes, so this question seems to be to what extent shall be the net offsetting asset destruction against that money creation. BTW, long miners.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    TLT Daily, heating up. move-to-safety.
    I suppose that gap will fill, eventually.

    http://stockcharts.com/h-sc/ui?s=TLT&p=D&yr=1&mn=0&dy=0&id=p00077507972
    -GG

  • ridingwaves
  • ZigZag

    Indices up, gold up, yen up, bonds up, grains up….

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • OzarkHillBilly

    This post reminds me of something Scott Adams posted a couple of days ago, so I’ll just blatantly steal it: “Creativity is allowing yourself to make mistakes. Art is knowing which ones to keep.”

    If I could go back in time 20 years and give my younger self one piece of trading/investing advice, it would be in regards to risk management. Nothing complicated. Maybe I’d just pop out of my time machine, bitch slap my younger self, and tell him he’s being an arrogant asshole by not following some simple guidelines ala William J. O’Neil or Jesse Livermore. As an added bonus, I’d tell him that EWT might be fun to contemplate while stoned or tripping, but it’s a shit way to try and make money, unless you’re selling a newsletter.

    Funny stuff with this post: http://blog.dilbert.com/post/161280001386/covfefe

  • http://evilspeculator.com Sir Mole III

    Nice one – thanks for the thoughts.

  • Mark Shinnick

    Flipped to short.

  • BobbyLow

    Great Post Mole!

    I think it would be a good idea to re-post these six vital points at least once a month. These things are not quantum theory and should be easily understood. Yet even though they appear to be very simple, we can still allow them to take a back seat to occasional random emotional impulses that can damage a trading account. BTW, when it comes to mistakes, I could probably write a book on what not to do. :)

    On another topic, I mentioned yesterday that I had taken a -.3R Loss on a trade because the technical reasons for being in the trade had deteriorated so badly that I would have to rely on luck to bail me out and I closed the trade. If I had held on to the position, I would have been stopped out this morning for a Full -1R Loss so (in a way) this was a net +.7R Gain. This trade might have gone the other way and luck could have prevailed. However, I found out the hard way that relying on luck in this game is for losers.

  • ridingwaves

    man is this getting good….gotta love when plans work out…
    somebody is scrambling to get out of AVXL shorts

  • Tomcat

    I wouldnt get too excited, even though we seem to be on the same trade $XBI, from my lens, $72 is still resistance ($300 on IBB). Need to breakthrough that before I get excited.

  • Tomcat

    Walmart is asking employees to deliver packages on their way home from work.

    AMZN is in trouble…NOT, what a big fckin joke. So not only pay your employees chit, but now have them deliver packages too. GTFOH

  • ridingwaves

    I bought all the weakness expecting this move….breakout is here….
    “This game’s in the refrigerator: the door is closed, the lights are out, the eggs are cooling, the butter’s getting hard, and the Jell-O’s jigglin’!
    Chick Hearn….RIP

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    a guaranteed cluster f*ck IMHO.
    NOW, if UPS delivery could work out of Walmart as a base, that would rock.

    http://winebarrel.com/cart/images/main/13002_2.jpg

  • http://evilspeculator.com Sir Mole III

    Thanks mate. I didn’t even advertise it today as I didn’t think it was that good. Glad you guys enjoyed it.

    Stops: They are immutable to me. Very very rarely do I exit a position prematurely. Either there are extraneous circumstances (a trip or a personal issue) or market conditions for some reason changed tremendously affecting the odds substantially. Which means 99% of the time I eat my stop – even if see it coming a day or two before.

  • sutluc

    Yes… I’ve taken a few whacks lately….

  • http://greenlander1.blogspot.com/ Greenlander

    Been in BIIB since last week, BLUE looks interesting too and open to hear new names. Also went long XOP only https://uploads.disquscdn.com/images/b9e4c1002a3af0636e33681014d9f8390fdd6638a10e938aec4e16c725925f85.png for bounce next week but don’t know when the bottom will happen.

  • http://www.captainboom.com/ captainboom

    So now their employees are all commercial drivers, which requires a commercial driver license and medical card. If they deliver any type of hazmat, they need TSA clearance, fingerprints, random urinalysis, and on and on.

    Sounds like a great idea… Welcome to my world Mr. Walton.

  • Scott Phillips

    People spend so much time thinking about trading psychology. But a huge amount of trading psychology problems are really procedure problems and discipline problems.

    For example If I have a tab on my spreadsheet for mistakes and I add an entry every time I make a mistake, then when I’m in drawdown and I do my regular monthly reviews I’m able to separate what is the system in drawdown (normal) from me fucking up (abnormal).

    If I was a discretionary trader trading random technical patterns I would want to be noting down the type of setup (head and shoulders, pullback, double top, triangle, wedge, etc), whether it was counter trend or with trend, and low or high volatility. I’d also want to note the eventual MFE of the trade to see how much money I left on the table.

    The more discretionary our trading is the more psychology is involved, the more records need to be kept, and the more diligent you have to be with reviews.

    But most of us don’t want to do that, we don’t want to face the facts. Like gamblers who throw away the losing tickets and brag about the winners, ALL of us have this tendency. Mole and I too.

    Have you noticed that Mole explicitly counters this psychological poison by owning his losing trades, and not sweeping them under the rug? So do I. So does Bobby. If you are an aspiring trader, struggling to improve, you can make huge gains in a single day, by simply owning and accepting your losses. If you want to be one of the better traders here, it is logical to simply do what the pros are doing.

    The last time my setups were not placed on a market open was March 2014. Every single trading day since that time. I have a procedure, I follow it like a pilot with a pre flight check. I do my shit, place my orders, fill out my spreadsheets and TURN THE CHARTS OFF until it’s time to look again.

    By having my trading day dumbed down to the point where any person on this blog could do it, I drastically reduce the opportunities to fuck myself.

  • BobbyLow

    Hi Scott, I’m glad that both you and Mole spoke up about owning up to losses. I stopped posting my trades awhile ago because I was one of the only people here who was acknowledging losses. After I stopped, it became one less thing for me to do because if I say I’m long xxxx, I feel a type of responsibilty to report how the trade turned out win, lose or draw. I probably shouldn’t feel this way because deep down, it really shouldn’t matter much to anyone else whether I win or lose on a trade. But OTOH, when someone only mentions that they went long or short without sharing the results, it means even less. At least it does to me.

    I only mentioned my last trade because of a change in my approach regarding stop losses. Most people are trading the type of set-ups that you mentioned above and there are different rules and approaches for all of them. I’ve been trading hourly momentum with OCO orders that have a Closing Limit Order based on just below an average percentage MFE along with a Stop Loss Market Order. If I leave for the day my maximum stop loss is in force. However, when I check on my trade and the hourly momentum appears to have stalled, along with an increase in volatility or large opposing candles or it looks like no man’s land with long skinny upper and lower wicks, it becomes a crap shoot and I’m going to terminate the trade before my stop loss triggers. This is because when the trade begins to shit the bed in ways I’ve just mentioned there’s more than a 50% chance that it’s going to follow through and hit my stop loss. When I add the probability of losing from my entry point together with the additional chance of losing after this type of momentum trade begins to break down, my odds for a better overall result over time favor termination of the trade before it hits my stop loss.

    You mentioned having a procedure before you begin to trade and I recently added a new procedure myself. I suffer from a condition that I call BIF (Built In Forgettor) :). So what I do now is every morning BEFORE I begin to look for an entry to my liking is re-back test my chart for the past month just as if I was back testing it for the first time. I then compare my new back test with what I actually did in real trades. This helps me with my consistency as in am I doing the same thing everytime? Is there anything I could have done better? And of course, what did I do wrong in real time? This is my practice before the game and it’s a new game every day I look for a new entry. Once I’ve completed this task – (which really doesn’t take long and I enjoy doing it), I’m ready to look at the current morning’s price action. Everything is fresh in my mind and I have far fewer “Oh Shit” moments. :)

  • Scott Phillips

    And the student becomes the master. I’m saving this :)

    There are a couple of key takeaways to digest here.

    By DEFINITION any stop is inefficient. A stop loss isn’t a suicide pact, you should run multiple soft stops (stops based on price action or indicators or whathaveyou) as well as your hard stop/target/trail.

    Conceptually when a trade is a coin flip in terms of risk/reward, you don’t want to be in, because that will increase the standard deviation of your results, meaning bigger drawdown periods. You don’t have to wait for it to hit the stop.

    One way I’ve seen of doing something similar is if you get incompatible price action within a few bars of entry, jump. Like you get long, and there is a trend day down the next day. No reason to hang around, the market clearly hates your idea.

    The idea of doing a quick recent backtest is great. It’s effectively structured focused practice.

    Exactly the same way a concert pianist warms up with a few scales before playing.

    There are a number of ways for the rats to do similar things, everyday. But I’m betting that most people are still jerking off about whether the stock market is going to be up or down tomorrow (answer – it is)

    Also, the idea of being in a constant feedback loop “what did I do better?” “how can I improve?” keeps you in beginners mindset. All the times I was facing a really harsh drawdown I lost that beginners mindset.

    One of the reasons I left the blog originally was I was getting too much praise for not being that good. Mole and I had a face to face discussion about being the one eyed king in the land of the blind. Incredibly harmful to progress.

    Truth is, even Mole and I and you still have a ways to go. But at least we are on the right path, heading in the right direction.

  • BobbyLow

    I’ll probably always have a ways to go Scott because I believe this business is a perpectual learning curve. It’s taken me years just to learn a lot of things of what not to do. :)

    One of these things is that if anyone has hemorrhaged their trading account like I have, or is experiencing hemorraging in their trading account right now, the first thing that has to be done is to stop the bleeding. For me, this meant that I had to stop doing what got me into such a mess in the first place.

    I thank you for helping me to remove my “Stinking Thinking” about the markets. This has been the key to creating a realistic opportunity for my trading account to be become healthy again one day at a time, and one trade at a time.

  • Scott Phillips

    Exactly. My first epiphany was when I was trading Ivan’s old system in 2009, bleeding money and unable to work out why.

    I stopped. Tested the system I was trading and found that version (it was an early version) wasn’t an edge. At all.

    That time not trading allowed me to develop a system that was an edge. And that experience of actually making money for once, paved the way for me to build better systems, with better edges.

    And then I met some people better than me, and realised I had a ways to go.

    The cycle has repeated a few more times since then, believe me!