Mistakes...I've made a few!

Discussions about personal psychology for the individual trader.
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rs

Mistakes...I've made a few!

Post by rs » Sat Jan 03, 2004 9:18 am

Hi guys,

I thought this topic would be useful to people out there reading this forum so decided to put it out there.

I trade on a long term trend following basis but not completely systematically. I take trades based on a set of criteria but not in a totally systematic way. The amount risked per trade however is always the same.

Anyway, after having a pretty successful 2003 I decided (in my infinite wisdom...NOT!) to double my percentage of equity risked. I figured at the time that this made sense and I was feeling somewhat confident given my past performance.

It turned out that this was the worst thing I could possibly have done. I was uncomfortable with the level of risk so took losses too quickly without giving the trade time to breathe thus missing out on trades which would have been very profitable for me and if I had been trading in the same fashion as before I would have definitely been in.

This led to a near 50% drawdown. I think I discovered alot about my stomach lining and the amount of pain I was willing to take. So, quite close to my 50% drawdown point I decided I would go back to my old style of trading and risk the % of equity I was risking before.

Of course, just as I decided to do that I hit 3 great (at least so far) trends.

I have learnt a few things from this - don't risk more than you think you can handle. A systematic, back-tested approach would have helped me to be better mentally prepared for the drawdown which I had. Don't get overconfident or lose confidence for that matter. Try and maintain a level of risk that gives you emotional balance and allows you to make correct trading decisions. The last year has given me a lot to think about and made me realize that you don't always know as much as you think!

I hope my experience may help others to avoid the mistakes I made or to maybe empathize or maybe just gloat!

Thanks for giving me the opportunity to share this with you.

rs

William
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Discretionary flare...

Post by William » Sat Jan 03, 2004 1:27 pm

Thanks for the post and thread, hopefully others will share.

The discretionary flare to your system, are you able to historically test that.

I was given some good advice not too long ago, start small, experience a 30% drawdown, before you draw any conclusions about 50% drawdowns and your ability to handle them...

ronjing
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Post by ronjing » Sat Jan 03, 2004 8:16 pm

I read this one somewhere. I like it. It makes intuitive sense to me. Here goes...

=Most of the traders are smart, well-educated, mostly logical people. Most people seek non-painful solutions.

Do I FIT THIS PROFILE ?

=Most of the traders lose longer-term


Therefore I need to take care at extremes because that's when the least painful solution is the wrong solution-the one that causes one to sell at the bottom when everything looks bad and buy at the top when there's nothing that can end the good things that keep on coming. And OUCH, how many times have I done that !!

rs

Post by rs » Mon Jan 05, 2004 1:50 pm

Thanks for the comments guys. It has been an interesting lesson to learn and one that I will not forget in a hurry. Still, in a strange way, I feel quite positive about the experience now as it takes me one step along the road to mastering trading and myself.

What does not kill you only makes you stronger, as they say.

rs

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Post by Forum Mgmnt » Mon Jan 05, 2004 2:19 pm

I heard some advice recently that I was reminded of when I read your post. I forget who I heard it from so I apologize to the originator.

The advice was never to reduce your trading size because of, or while you are in a drawdown. If you believe you are trading too large wait until you hit your old equity peak before reducing size.

This advice seems pretty sound to me, as it is especially hard to follow.

The advice assumes you are trading a well-tested profitable system so you can have confidence in the long-term viability of the system. If you don't have that, then stopping your trading until you get one may be the best advice of all.

- Forum Mgmnt

rs

Post by rs » Sun Feb 15, 2004 12:55 pm

Just call this the amazing disappearing thread!

I am sure there were some posts here at the end of this thread...they have been spirited away it seems...!

rs

Forum Mgmnt
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Post by Forum Mgmnt » Tue Feb 17, 2004 12:13 pm

rs,

I don't think there were any messages moved on purpose.

We haven't had any report before of messages getting lost. Can you let me know what the subject of the missing posts was, perhaps they were moved to a new topic and we forgot to post a link here.

- Forum Mgmnt

atima
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Post by atima » Tue May 04, 2004 6:49 pm

Forum Mgmnt wrote:...

The advice assumes you are trading a well-tested profitable system so you can have confidence in the long-term viability of the system. If you don't have that, then stopping your trading until you get one may be the best advice of all.

- Forum Mgmnt

Thanks again, c.f.
Words to be carved on the stone: the heart of the success in the trading: method and confidence

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