Does it really matter?

[ThingyMajiggy]

Hey guys

I have been wondering lately, what the more experienced traders have to say, and that is, does it really matter WHEN you buy/sell, do you think there is a more than 50% chance of being right or do you think its all just a 50/50 opportunity that boils down to how you manage the trade, position sizing, MM etc?

The more I fiddle around with my practise account, the more it feels to me like all the indicators, strategies etc are a waste of time and that what is most important is the stuff that gets skipped over when you start reading the many many books in the beginning, the money management, phsychology and position sizing, even though I am still very new, it has come to the stage where I just watch price, no indicators, nothing.

I have been far more successful using this method and concentrating on the more important side of things than I have when I was hunting around for the "get me rich" method, thinking the more technical it was the more richer it was going to make me right??! No. All it did for me was confuse me and got to the point where I had that many different ways of trading and looking at it that I really didn't know what to do, so I made decisions based off lagging indicators.

Interested to hear what your thoughts are, do you believe that all the fancy methods are of any use or does it just come down to have good MM, psychology, Risk management, position sizing etc?

It is funny, when I first starting getting interested in all this, bear in mind I am still very much a learner, just venting my thoughts thus far, but when I was first beginning, the entry was everything, how am I going to get into the trade, what signals should I look for, the exit was something I worried about after right??? Now its the other way around, the exit, managing the loss is far far more important than anything IMO, it doesn't matter how good my entry is, if I have useless management, it's like a lift, I get in at the bottom, but the most important thing is to get out at the top where I'm supposed to otherwise I'll find myself exactly where I left off. I think the most important thing is what I do on the way up.

Please correct me if I have the wrong thinking, but thats just what I have come to at this stage of the ride.

Cheers,
Sam.

 

[disarray]

when you buy and sell is still important, you obviously don't want to go long when the price is crashing through the floor. indicators and patterns are still important to determine entries and exits, but you are 100% right that money management, position sizing and the like is the most important factor for a small trader.

read adaptive analysis by nick radge, it will make a lot of sense to you at your stage of the journey.

 

[Timmy]

Sam, one thing to be careful of is a "one-size-fits-all" approach. While deciding that the entry is of no great consequence and a 50/50 win/loss rate or thereabouts is adequate, there are going to be plenty of traders and investors for which this does not work.

For example, take Marty Schwartz (he was interviewed in the first Market Wizards book). In his own book, Pit Bull, he says:

"Your trading methodology has to fit your personality. You have to understand your strengths and weaknesses... My weaknesses are insecurity, fear of losing, and a need for constant reinforcement and frequent gratification. A trader, like a chain, is only as strong as his weakest link, and its your weaknesses that must dictate your trading style.

I'm a scalper. By that I mean I'm in and out quickly, always, always, ALWAYS!...as I became more successful I discovered that short-term trading was what gave me the most reinforcement and gratification...

Most books on trading say that you only have to be right three or four times out of ten if you cut your losses quickly and let your profits ride. That doesn't work for me. I cut my losses quickly, but I take my winners just as quickly. I need to be right seven or eight times out of ten.

In and out, a point here, a point there. I'm not going for the knockout, but at the same time, I'm making damn sure that I don't get knocked out. That's my style, and I tailored my technical analysis and my methodology to fit it" (pp.265-266, emphasis his own).

While you may not agree with what he says, he certainly seems to have himself figured out and trades accordingly. Good food for thought; well was for me anyway.

 

[Mike Of Hobart]

I think you're on the right track. I've made the same realisation just a few days ago.

Before I started reading here (a few weeks ago!) I knew that all that boring stuff (MM, psych, position sizing) was important. After a few weeks (and a few more books), I think you are pretty much right - the boring is stuff is actually THE most important thing.

Obviously having a system (and a market) that you are comfortable trading helps alot but it seems to me the main thing is getting the money management side of it right. Like Nick's example shows, 43% is a pretty good win/loss ratio if you MM is right.

 

[tech/a]

Scratching the surface.
M/M will determine your R/R.
You can succeed having both Timmy's and Nicks type of win rates.

The bottom line is how well your money works for you.
You get it working most efficiently by cutting your Portfolio Risk (As opposed to initial position sizing risk) as low as you can.

Personally I have currently about 7.5:1 R/R on portfolio.
If I ran each trade to its Initial Position size risk it would be much less.

Get your trade to break even as quick as you can.
Then bleed the trade for all the market will give you.

THIS IS WHERE your skill as an analyst (Particularly technical) will come into play.
Recognising that the market will give you X in a stock early enough not to give back too much of your profit and late enough to allow a stock that's running to keep going without being taken out prematurely.

Once your risk is reduced to ZERO (Break even) the profits there to be maximised.

Now when you get expert at that you can confidently add Leverage AND Compounding.

There ain't much more to know---only as Timmy says developing your own way of replicating the above.

 

[tech/a]

Looking forward to it.(Being both the more and the seminar.)

 

[nizar]

you are 100% right that money management, position sizing and the like is the most important factor for a small trader.

I think these are still the most important factors, even if you are bigtime.

 

[wayneL]

Since Jan this year, so 5 months.

I'm surprised you haven't been set upon by the compounding argument Nazis.

Do you realize that you'll be richer than Buffett in no time at that rate.

BTW, I was reliably and eruditely informed that short term technical trading cannot work the other day.

Did you also know, that bumble bees cannot fly?

 

[kenny]

I'm surprised you haven't been set upon by the compounding argument Nazis.

Do you realize that you'll be richer than Buffett in no time at that rate.

BTW, I was reliably and eruditely informed that short term technical trading cannot work the other day.

Did you also know, that bumble bees cannot fly?

Enjoying this thread. Thanks to contributors.

WayneL, how did you respond to the erudite? Were they trying to get you to iinvest in their managed fund instead?

Cheers,

Kenny

 

[tcoates]

Obviously unrelated...

Did you also know, that bumble bees cannot fly?

but my son (grade 2) had been learning about bees and was going to do a presentation on the same. Of course, Mum and Dad had to get the facts (Dad uses google!) and Dad found out some interesting facts on the above

http://www.twis.org/cgi-bin/yabb/YaBB.pl?board=Life_sci;action=display;num=1025055940

and (see myths under)...

http://en.wikipedia.org/wiki/Bumblebee

then found out that cause he was doing bees in class, should not do it for his presentation.

I guess it is one area where bees make the seemingly impossible, possible. Something to learn from the humble bee?!?

Tim

PS. Dad find out something new each week also

 

[wayneL]

Enjoying this thread. Thanks to contributors.

WayneL, how did you respond to the erudite? Were they trying to get you to iinvest in their managed fund instead?

Cheers,

Kenny

Arguing with the erudite is often an exercise in futility. I put up stiff resistance of course, but in the end, just decided to be a bumblebee.

 

[wayneL]

Obviously unrelated...

but my son (grade 2) had been learning about bees and was going to do a presentation on the same. Of course, Mum and Dad had to get the facts (Dad uses google!) and Dad found out some interesting facts on the above

http://www.twis.org/cgi-bin/yabb/YaBB.pl?board=Life_sci;action=display;num=1025055940

and (see myths under)...

http://en.wikipedia.org/wiki/Bumblebee

then found out that cause he was doing bees in class, should not do it for his presentation.

I guess it is one area where bees make the seemingly impossible, possible. Something to learn from the humble bee?!?

Tim

PS. Dad find out something new each week also

Which is why the allegory of the bumblebee is so apt:

It is believed that the calculations which purported to show that bumblebees cannot fly are based upon a simplified linear treatment of oscillating aerofoils. The method assumes small amplitude oscillations without flow separation. This ignores the effect of dynamic stall, an airflow separation inducing a large vortex above the wing, which briefly produces several times the lift of the aerofoil in regular flight. More sophisticated aerodynamic analysis shows that the bumblebee can fly because its wings encounter dynamic stall in every oscillation cycle.

Likewise, the erudite often misunderstand the purpose of TA. Dynamic stall?

 

[Nick Radge]

I'm surprised you haven't been set upon by the compounding argument Nazis.

You'll not that these 5-months haven't been compounded either.

 

[theasxgorilla]

While you may not agree with what he says, he certainly seems to have himself figured out and trades accordingly. Good food for thought; well was for me anyway.

Wonderfully insightful Timmy.

 

[Mike Trader]

Hey guys

I have been wondering lately, what the more experienced traders have to say, and that is, does it really matter WHEN you buy/sell, do you think there is a more than 50% chance of being right or do you think its all just a 50/50 opportunity that boils down to how you manage the trade, position sizing, MM etc?

The more I fiddle around with my practise account, the more it feels to me like all the indicators, strategies etc are a waste of time and that what is most important is the stuff that gets skipped over when you start reading the many many books in the beginning, the money management, phsychology and position sizing, even though I am still very new, it has come to the stage where I just watch price, no indicators, nothing.

I have been far more successful using this method and concentrating on the more important side of things than I have when I was hunting around for the "get me rich" method, thinking the more technical it was the more richer it was going to make me right??! No. All it did for me was confuse me and got to the point where I had that many different ways of trading and looking at it that I really didn't know what to do, so I made decisions based off lagging indicators.

Interested to hear what your thoughts are, do you believe that all the fancy methods are of any use or does it just come down to have good MM, psychology, Risk management, position sizing etc?

It is funny, when I first starting getting interested in all this, bear in mind I am still very much a learner, just venting my thoughts thus far, but when I was first beginning, the entry was everything, how am I going to get into the trade, what signals should I look for, the exit was something I worried about after right??? Now its the other way around, the exit, managing the loss is far far more important than anything IMO, it doesn't matter how good my entry is, if I have useless management, it's like a lift, I get in at the bottom, but the most important thing is to get out at the top where I'm supposed to otherwise I'll find myself exactly where I left off. I think the most important thing is what I do on the way up.

Please correct me if I have the wrong thinking, but thats just what I have come to at this stage of the ride.

Cheers,
Sam.

Hi Sam ,heres something you may be interested in Re 50/50 chance:

"Suppose that you flip a coin ten times and get the following result:H,T,H,T,T,T,T,T,T,H. People who see your recorded outcome may think that you made up the results,because "you don't get six tails in a row".Observers may think your outcome just doesn't look random enough.Their intuition fuels their doubts,but their intuition is wrong.In fact you are very likely to have runs of heads or tails amongst a data set.
If you flip a coin ten times ,with 2 possible outcomes ,on each flip you have 2*2*2*2*2*2*2*2*2*2 =1024 possible outcomes each one being equally likely.Your outcome with the coin is just as likely as one that may look to be more random:H,T,H,T,H,T,H,T,H,T."(courtesy of Probability for Dummies)

Cheers,Mike

 

[ThingyMajiggy]

Thanks for that Mike, handy to read.

So the main thing is to find the best possible opportunities, using whichever method you wish? wait for the trade to come to you and then its all down to MM/PS and exit? I had something else I was going to ask but it has completely gone all of a sudden, damn it. Might come back to me soon.

Cheers,
Sam.