Trading Success

Putting Losses in Perspective - Do you have an Edge?

One of the fundamental reasons for losses in trading can be traced to lack of an “Edge”. But then you would ask me what is an Edge?

To me a trading edge is -

An ability to isolate a condition or a set of conditions among a market variable or a set of market variables - that has a non random way to evolve over a specific period of time.

I remember reading somewhere, but I cannot place it where - it said - “If you can’t explain your trading edge, you don’t have one” - Let me take it to the next level

If you do not know the statistical a) probability of the set of (prerequisite) condition/s that need to occur b) the probability distribution of the outcomes once the conditions (a) occur.

If you cannot articulate both then in my world you do not have an edge.

It’s quite possible that you are a veteran and even though you cannot articulate your edge, you have internalized it over a long period of time. But that according to me is a long winded route and I would personally prefer to be in the know of my edge.

So coming back to losses, the reason we need to be able to articulate our edge is - in the event of a loss, we need to know if its a part of our larger probabilistic framework or is it something which is beyond that. We need some objective reference. For example if you have a loss streak of 5 days, you need to know its statistically “normal” in your trading system or is it an anomaly.

In other words, your understanding of the variables of your edge helps you put your trading outcomes in a measurable context.

In the same breadth, it also helps us understand if the market regime itself is changing, and helps us adapt better.

So the next time you make a loss you know who to catch first?

The Dark Side of Being a Full-time Retail Trader

Most aspiring traders that I have met, seem to have a few things in common

  • They want to be independent i.e not to work for someone
  • They also want independence in terms of their time, they perhaps want to spend time doing several things and not just trading
  • They want to make some reasonably good amount of money by investing around a year or two worth of time

These are the sort of expectations that aspiring traders usually have. And as they say, reality is usually quite different from what we expect it to be. So let’s look at the other side, the reality, the darker side i.e.

  • The other side of Independence is responsibility – responsibility to succeed at something by oneself, all by oneself – the impact of this on one’s self-worth can be massive, much more than one can even imagine – Especially if you’ve had considerable success or acceptance in your previous career, the impact could be even more.
  • The other side of freedom to use one’s time could be either indifference or obsession, both the extremes won’t help usually, obsession is a shade better than indifference though
  • Long streaks of losses can psychologically break the strongest of the people, which can have further ramifications, from depression to suicide, yes I am serious.

While all that I described above could be two extremes and the reality would be somewhere in the middle, but I guess what matters is

a) Getting a better sense of reality before diving into this business, yes I call this a business because, like any business, this too requires you to risk your time and money.

b) Developing a plan which includes the possibility of a fairly long learning curve 

c) Viewing this as one of the ventures in your entrepreneurial journey

d) Viewing trading as a performance sport – which would mean hours and years of practice and focused effort and an understanding that you need to be at the top of your game and like anything which is performance oriented very few can be.

e) Viewing the effort towards the goal not just in a linear sense, but also in another sense, be open to the idea of landing on something else altogether, in a serendipitous sense, which could alter the course, perhaps all for your good.

f) Finding like minded people to work with, not falling into the lonewolf trap, there are limits to what one can do by oneself

So with all this said, you can imagine how your everyday life as a trader is going to be. In all probability, you may end up being unhappy, and fairly stressed more number of days than you ever imagined. Depending on your general constitution, it may also affect your health. Depending on the quality of your relationships and life context that too may suffer. All this happens not just in trading, this is the truth for any entrepreneurial venture.

Even after being aware of all this, it’s still different when it really hits you. Because in the beginning, you tend to think “maybe it may work out differently for me” and then it doesn't, you may delude yourself for some time but then, sooner or later it does it hit you. And when it does, you end up asking yourself questions like – Till when do I be in this venture? Should I just quit and take up something else?

Valid questions with no simple answers.

As clichéd as it may sound – as they say - Nothing great ever was that easy.  

 

Podcast | Dr Brett Steenbarger | Three Powerful Techniques for Changing Your Trading Psychology

Those of you who follow the blog would know that I am a big follower and fan of Dr. Steenbarger and his Traderfeed blog.

A few days back I came across this Podcast which highlights several things one needs to understand and be reminded of when developing one's trading skills. Do listen to the the full episode, he answers several relevant questions.

I particularly agree with the idea of "Pattern Recognition" and "Analytical Ability" that he stresses upon. Something that I have shared in the blog here and here.

 

Why 95% of traders fail? | Perspectives on that statistic

A few weeks back I had answered a question on Quora?

https://www.quora.com/If-only-5-traders-can-make-consistent-profits-in-the-share-market-what-qualities-and-skills-make-them-unique-to-achieve-these-types-of-results/answer/Sandeep-Rao-7

Incidentally came across another article on the same theme here - 

https://breakingoutbad.com/2017/09/03/bullshit-95-of-traders-fail-trading-is-gambling/

Good to see someone else endorsing the same ideas. I will leave you with a few excerpts.  

Something I said in the answer. In fact good traders have a very high demand in the industry, more so in India. I personally know people willing to hire mature/responsible traders with a proven track record.

Something I said in the answer. In fact good traders have a very high demand in the industry, more so in India. I personally know people willing to hire mature/responsible traders with a proven track record.

One thing that people need to understand is, growth in any business including trading can be exponential, which a 9 to 5 job can never provide. But getting to the point of inflection, could take time. That is the test, perhaps. Can you hold on till that point, or would you quit before that. Choice is always yours. 

One thing that people need to understand is, growth in any business including trading can be exponential, which a 9 to 5 job can never provide. But getting to the point of inflection, could take time. That is the test, perhaps. Can you hold on till that point, or would you quit before that. Choice is always yours.