Thursday, January 31, 2008

Realistic Expectations of your Trading Results

Comment by Bill aka NO DooDahs!
Posted on the 24th of January, 2008 at 11:30 pm.

He admitted he had a problem, that it was emotional, and that it was related to risk. Good. He introduced a crutch that he thinks will help him handle it (smaller size, apparently a common step per Dr. Brett). It'll be interesting to see how it works.

The fascinating connections between all of these blowups? Disregard for the risks, failure to codify and follow rules, and unrealistic expectations of performance. They're willing to borrow against the entire value of their homes (with a risky strategy! with some strategies and a good credit score/low rate, a small HELOC might actually make a little sense). They're willing to swing 10-20 times their account balance overnight. All of them blow off their rules, based on emotional input. They even SAY IT, so it's not a knowledge problem. All of them think it's easy money. "I made $40K last year and $10K in a day, I'll make it back!" Not a one of them thinks in terms like, "hey, if I can make 25% a year slow and steady, I can save money on my job and throw my savings into this thing, and by the time I'm ___, I'll be swinging enough account to retire and live off of this easy!" Nah, these f*ckers are all about $10K to $2 mil in two years. Unrealistic? Hell yeah. Destined to blow up? Definitely.

It's an attitudinal problem. It's an emotional problem.

@ Prospectus: it’s all about fear and drama. Fear of losing “self”-esteem (in ” because it’s usually about how OTHERS perceive us), money, not meeting our ambitions, or losing relationships - these four fears usually trigger bad behavior. The “drama queen” aspect is about fulfilling some positive emotional need with the activity.

You ever do something really f*cked up because you thought it would make you look like “the man?” Get in a fight because someone dis’ed you? That’s fear of losing “self”-esteem.

You ever start a fight with a girlfriend or do something else stupid and destructive to the relationship, because in your heart of hearts you wanted to end the relationship but didn’t want the conversation; so arranging a “drama” could let you have an excuse to leave?

Now … how might someone act this out in trading????

The “not meeting ambitions” could arguably be related to a loss of “self”-esteem, but it’s a little different, in that these bozos all have unrealistic expectations about what they can do in the markets. When something goes against them, they don’t want to admit the f*ckup because that would conflict with their expectations of greatness, so they rationalize it into something that allows them to stay in the trade. Same thing with minimizing their losses, i.e., “I’ll make it back.”

There’s also the “drama” of f*cking up in order to get reassurance that you’re liked/loved/accepted, which you see in all the “there, there” messages that these guys get in their comments.

I think the first step is admitting the “why” of it. In Seykota-speak, they need to internalize the message that their results (and actions) are the best evidence of their intentions. If they intend to find an edge, design rules around it, stick to the rules, apply the edge repeatedly, etc., then they need to ACT their way into a new way of thinking, through repetition. When the feelings come up, admit to themselves “hey that’s my ego talking. I’m not godd*m Soros here, let me drop this dollar/pound trade now” instead of rationalizing reasons for staying in it. It’s a lot easier to do when you know why you were f*cking up in the first place.

I think they also need to find whatever emotional satisfaction they were looking for in trading, in some other place. That’s why I suggested, among other things, skydiving, hang gliding, and shooting slingshots at lions in the zoo at night. That oughtta give ‘em some drama!


newequity on 12:31 PM said...


How can you still trade futures with less than 25k in your IB account? Does IB not lock your account up?

Bill aka NO DooDahs! on 2:54 PM said...

I voted 25%. I think the answer is probably somewhere between 20-45%.

You might want to see this.
And this.

AgeKay on 7:49 AM said...

I think you're doing something wrong as a day trader if your return is less than 100% a year on your money (up to a certain point of course). Many people think that 20+% per year is great because they compare it with stock market index returns, mutual fonds and hedge funds. It is great for the kind of time frames that these guys target, but if you're a day trader your trading (almost) every day and you should be making more than 10% per month if you're a professional trader. Think about it: You need less than 0.5% per day for that and you will make 120% per year (not compounded). How do you make 0.5% per day? It depends on your strategy, of course, but assuming you win 50% of the time with an average gain 2 times the average loss, you'll make 0.5% per day if you risk 0.5% per trade(2 x 0.5% - 0.5%). The beauty is that this is the minimum. For example, you could risk 1% per trade and have more than 2 trades per day and thus make a multiple of that. Day traders need to focus on return per day and the spectacular return per year will take care of itself. Concluding, I would like to make the statement, that you're not a professional day trader if you can't make 100% per year every year, unless you're trading with so much money that your trades seriosly affect the market. And if that is the case, you should look at another market or split up your trades for different markets. You'll need to trade at least 500 contracts at a time to move markets like the U.S. Treasuries (ZB, ZN, ZF and ZT on CBOT), the German government bonds (FGBL, FGBM and FGBS on Eurex) and the Dow Jones Euro Stoxx 50 (FESX on Eurex) by 1 tick and you could alternatively also use limit orders. I hope all of this makes sense and if not, I'd like to hear.

P.S.: Look at traders like Paul Rotter. He started out small and grew to the largest trader on the Eurex. After leaving the bank he worked for, he founded a trading firm with a few friends and started with $1.3 million in seed capital. By the end of the first day trading, he was up $526,000. Within three months the firm had made $6.5 million. So that's like 50% per day and 600% in 3 months.

detective on 8:50 AM said...

wanna see my demo account for future trading, i made 100,00 into 250,000 in 7 days, my stratigy is diffrent , always safe hand play for daily 10% gain in future markets :)

you mistake to show your google adsense earnings, its against gogole TOS, pls remove it immdiatly and also dont show and try to dont talk on it, other you will get disable account

the finance ninja on 6:13 PM said...

I'm one of these emotional traders he is currently blogging about. I know I've got the knowledge yet I've been unable to tame the emotional beast in hardcore disciplined trading.

I voted 25% if you are trading just stocks and 100% a year if trading options. Yes you can take $100k into $250k but are you trading the full $100k? Before I'd think the same way now I'm think small amounts building it up. Sure you can and you can also loose it ALL on a single trade without discipline.

-finance ninja

detective on 11:04 AM said...

" Yes you can take $100k into $250k but are you trading the full $100k? Before I'd think the same way now I'm think small amounts building it up. Sure you can and you can also loose it ALL on a single trade without discipline"

i did not use full 100k, i use one contract per trade for every tick, mean i take profit from every tick from x.00 tox.25 in fast moving market, and in slow x.00 to x.50
and when any one contract stuck, i did not make it stop loss, i set an other contract for countinuse play to defence 1st contract, and if u found 5000$ per contract margin you have 20 contract to play, mean play 1 contract till stuck in market reverse, and you have 19 balance contract, over all you can trade in this way 10,000 contract per day, and 10000 x 7$ = 70000$ you can generate +/- 50,000$ could be generate

hows it ? :)

i played demo from last 3 months, each session 15 days, always found my this stratigy top best
can be show you by my demo login /pass, where u can see your self acount reports and history :)

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