Whipsawed by waiting

Discussions about personal psychology for the individual trader.
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zoopy12
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Whipsawed by waiting

Post by zoopy12 » Thu Dec 06, 2018 12:37 pm

Hello Bloxites, I am facing a little bit of a tricky issue that might be resolved by hearing some input from the forum. the issue is this: I have a system that I feel confident in, and as I wait on the sidelines deciding that I am going to be begin live trading "soon" I keep seeing monster profit moves that the system would have taken except I didn't take them, because of waiting for the system to give up some of the last big profit so that I don't start the system after a recent big equity run -up, with the idea of reducing the 'give back" that sometimes occurs after big profit runs. How do I puncture this dangerous "illusion"??
The answers I have come up with are: 1. Just jump in, to hell with it, the system is winning why wouldn't I want to be trading a winning system?
2. Switch to a different symbol that I don't know the recent history of profits and losses of. ( "blind to past equity curve")
Feel free to inflict some "tough love" here, if needed. Thanks, Zoop

Louis Crowder
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Re: Whipsawed by waiting

Post by Louis Crowder » Sat Dec 08, 2018 12:33 pm

Zoopy12,

What you’re feeling is not an illusion. The reality is, you simply don’t know what your system will do next. It doesn’t matter what its recent performance was.

If you jump in with both feet, you’re likely to regret it. If you take a large loss at the beginning of your trading before you have a cushion of profits, it can take a long time to recover. And it's pretty hard to stomach.

Going all in with a random symbol is a worse idea. If you believe testing is valuable, then why would you trade a symbol you haven’t tested?

I’ve found that the best strategy is to ease in intelligently. Start with 50% of your equity. Add another 10% after each day your account is up. Just as in “a journey of a thousand miles,” a major loss begins with a single down day. If you experience a streak of down days right after you begin, this strategy can save you up to half of that loss. I’ve tested it, traded it, and it works.

Louis Crowder
Tradingautomation.com

zoopy12
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Re: Whipsawed by waiting

Post by zoopy12 » Sun Dec 09, 2018 2:04 pm

Louis, Thank you for breaking these ideas down and sharing your insights here, they help me understand the current situation and a possible way forward. I went to the trading automation website and at some point, I will be exploring the idea of automation so I'll keep it as a reference. Your help is greatly appreciated by me. Thanks, Zoop

Louis Crowder
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Re: Whipsawed by waiting

Post by Louis Crowder » Sun Dec 09, 2018 3:35 pm

Thank you, Zoop.

Louis Crowder
Tradingautomation.com

Chuck B
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Re: Whipsawed by waiting

Post by Chuck B » Tue Dec 11, 2018 7:20 am

Zoopy12,

Before you put a system into production, you should have already created a map of expectation ranges for various aspects of the system results (i.e. R-multiples to expect, frequency of trades, average and median length and R-multiple of losing trades, same for winning trades, etc, etc,etc). In addition, you should have experienced the equity curves created in simulation, from start to finish, as part of creating a solid basis for future success implementing the system - emotionally experienced them and worked on any issues (excitement, despair, boredom, etc) that surface.

You can never know the future of the equity curve nor the future of an open trade.

Once you are ready to put a system into production, all the emotional feelings should be neutral. It's not your job to experience the emotions related to the system performance. Get that out of yourself. Your job is to execute your trading business plan as designed. The plan needs to be complete with all future ranges of contingencies accounted for and planned paths for each. Mental rehearsal of the plan is key. If this is a long term system, in order to be able to faithfully execute the exit rules and risk management rules for a monster R-multiple trade, mental rehearsal is mandatory. The ability to manage a 25R, 35R monster that will come along is not something that most people naturally possess...especially since the closeout of such a trade will result in a significant giveback of equity.

Similarly, being able to faithfully execute the entry rules when you've reached the 12th losing trade in a row (when the average trader has long ago quit) since it's an expected part of the system (if it is, of course), is something else that requires a lot of mental rehearsal and emotional planning.

Everyone is different in the preparation regard. I had my first major long term system completed in early 1994 and spent the next 15 months preparing to put it into production trading. All that preparation was essential (for me) in order to make it through some tough future times like the summer of 1998, its biggest drawdown, when I felt like my job had turned into simply putting in entry orders for more losses. That 20+% DD was gone in a flash by October of 98 as the system screamed to new all time equity highs after a very long period of drawdown.

Know your system inside/out. Know yourself inside/out and how you respond to what the system/markets will present to you. As part of that planning, you might want to consider creating the "begin production trading" subroutine with all that entails. Decide how you want to do that subroutine (equity curve performance status, open positions quantity status (open portfolio risk), etc,etc), and then simply execute the plan.

zoopy12
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Re: Whipsawed by waiting

Post by zoopy12 » Tue Dec 18, 2018 10:59 pm

Hello Chuck, Sorry for the late reply to an outstanding package of real world wisdom. There are so many strong points in your post and you can believe that I have lived through many of them over the years in both short and long term trading. This concept of when the "sh-t" hits the fan you BETTER be ready is a KEY focus point for me. My method is a futures daytrading approach that trades only 1 symbol and the % heat has been carefully funded at 1% but it has the Oh so desirable feature of about a 23% win rate, so when you mentioned the "35R" monster yeah it's real they show up alright, but you only get paid if YOU are there, trade in hand. Very much like the outfielder waiting waiting waiting and having to be ALWAYS ready because the game hangs on a few specific plays. I have dispensed with all the myths, So I am working very hard on the mental conditioning as well as the operational readiness parts physical, tech, data streams etc. This method can go weeks in drawdown. I know when I start that I must consider the funds marked for battle. Thanks for your wisdom and insights here, i'll put them to use.

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