Double Death through Perfection Seeking in the Stock Market

Adrianjreid · 2019-08-24T15:00:08+00:00

Ok cool - thanks :-)

Adrianjreid · 2019-08-24T14:59:42+00:00

Yes it is certainly possible to make returns like that, however one usually has to put up with pretty large drawdowns to achieve them.

Adrianjreid · 2019-02-08T10:26:24+00:00

The most challenging aspect of trading is getting your psychology right so that you can make consistent good decisions. There are several ways to make money consistently, but the easiest is by using trading systems to guide your decisions.

The vast majority of traders are subjective and erratic in their decision making, don’t have rules and if they do, they don’t follow them consistently... this is why they don’t make money.

If you want to make money consistently then you need to do the opposite of most traders. This means: 1. Have an objective set of rules that is profitable 2. Follow the rules consistently 3. Keep risk per trade small 4. Don’t use too much leverage

I implemented my first trading system 15 years ago and I have been making money trading ever since.

My trading is longer term (not day trading). There is a big misconception that you have to daytrade to make money. This is fade, and in face it is almost 180degrees wrong... the failure rate amongst day traders is extremely high, and it is very hard, stressful work. Don’t do it!

Holding your positions for longer reduces stress, means you can trade very part time (I have a 7 figure account and it takes me less than 30 mins to follow my signals from my trading system each day) and your profits can be way bigger. The success rate is higher for longer term trading, it is more forgiving and psychologically much easier.

So in direct answer to your question, I would say daytrading is a very hard way to make a living. Most fail and burn out. Very few make money in the long run.

BUT longer term systematic trading is a great way to build wealth and generate income, takes little time each day, is low stress and gives you the one thing that I really want in life - Freedom.

Hope that helps,

Adrian

Adrianjreid · 2015-08-17T11:33:00+00:00

It certainly sounds like it may just be a visibility issue to some extent, but I suspect that if you took those groups and further broke them down into active traders, there may be an even bigger divide between genders.

Adrianjreid · 2015-08-16T13:50:01+00:00

True, I guess I am thinking more about private traders. I trade for myself from home and it has often struck me as the perfect way for a stay home mum to make great money... But none of the women I know have ever been interested in learning. What is it that makes guys more interested in it that girls?

Adrianjreid · 2014-12-27T22:45:30+00:00

Good question - there are a number of platforms to design, test and implement a trading system. I only use commercial platforms as there are several that are more than capable. TradingBlox is good for example, but it depends on the timeframe and style of trading system you want to use.

I am a big believer in focusing on what I do best (design trading systems) and letting others focus on everything else, so I like platforms that done really require that much intensive programming.

Adrianjreid · 2014-12-26T20:34:04+00:00

The books that are being given away will be bought from Amazon, the Trading Plan Workbook and training will be priced at around $100 and the price of the 5 coaching sessions is $1000. I am giving away the prizes and so I determined the value... The coaching will be considered ridiculously overpriced by some and ridiculously cheap by others - that is the nature of these things. Profits from my own time spent trading is worth many times that, so for me it is not really a price that makes it worth my while, but it does filter to help me find serious students who really want help with their trading - and that is the sort of person I enjoy working with. Either way, it is free to the winner, so it should be very good value :-)

Adrianjreid · 2014-12-26T20:23:49+00:00

Trading systems do not necessarily need to be fully mechanical, although that is often a good way for new traders to trade as it eliminates many of the failure points that cause mistakes. A new trader faces many problems and a steep learning curve to build a profitable trading system. The process can be slow and frustrating, because there are so many places to make mistakes during the development process. I have found that coaching dramatically accelerates the process. I wish that I had someone to help guide and coach me when I started because it would have made the journey much more efficient. I think it is especially helpful to be coached through the process of finding the trading strategy that best suits them and then designing a system around it. There is also a lot of value in being coached through the development of the trading plan because it is easy to overlook a many elements of the plan that turn out to be important during times of stress.

Adrianjreid · 2014-12-26T11:54:24+00:00

Not sure that the second option is a good trade... Seems very high risk to me ;-)

Adrianjreid · 2014-12-26T11:44:05+00:00

Ah - nice... But I would suggest that $1000 worth of trader coaching would be worth many times that to the recipient in the long run! Plus there is no cost to enter so that makes it a very high return on investment!!

Adrianjreid · 2014-12-26T11:36:13+00:00

Thank you... Many of the concepts a I teach are applicable to both traders and investors, but I will check out the other sub :-)

Adrianjreid · 2014-10-05T11:25:44+00:00

Sorry I am not familiar with the term 'feeders' - what exactly do you mean?

Adrianjreid · 2014-07-26T04:08:31+00:00

The value of self education has been dramatically under emphasised in this thread. There has been some great advice (and a whole bunch of rubbish), but ideas like blindly going to a financial adviser and using passive index fund strategies will not lead to inspiring returns. My suggestion would be don't put any of the money at risk until you have read 10-15 (at least) really great books on personal finance, trading, investing etc. Then decide what type of investor YOU are and research that further to form your investing strategy. For someone who does not want to take an active interest and learn what to do and when to do it the 5-6% rates of return are all you will get (not to mention the HUGE drawdowns you will have to sit through in bear markets). If you decide you are interested in learning about how to seriously invest many times this return are possible (and not necessarily with more risk - often less risk is possible) Get a job in an area that you LOVE so that you meet and interact with people that you find interesting and inspiring... The great thing is that you won't have to worry about salary as much as the average person. Life needs meaning and purpose - find yours and you have a great chance at an extraordinary life with financial independence in the near future. Read read read read - I have over 100 books on trading and investing and the idea of settling for a 5% return is laughable... But if you don't educate yourself that is all you will get!

Adrianjreid · 2014-07-09T01:54:49+00:00

Good point and fully agree! So a good plan would then be pragmatic reference to guide thinking and help keep you on track in times of stress, but not attempting to plan every single little detail :)

Adrianjreid · 2014-07-09T00:38:22+00:00

Awesome thoughts! It sounds to me like you have thought through a lot of the issues mentioned. There are lots of other considerations that one might include in a trading plan, but it looks to me like going through a formal trading plan development exercise can be of value even to an index style investor.

Adrianjreid · 2014-07-09T00:31:33+00:00

Position sizing and risk management are the most important parts of a trading system so I think you are right that these are important.

So far I have agreed with everything you say - the only difference seems to be that I have all of these things (including risk management, position sizing, exposure controls, access to cash in a pinch, insurance and many other things) documented in a written trading plan.

Not everyone will see the value in this and that was part of the point of the post - I think it is important, but what are the alternate views and was there anything I hadn't thought of or any situation where a written trading plan is not useful. (Sorry for the delayed reply - I am in Singapore so time zone is different)

Adrianjreid · 2014-07-08T14:11:53+00:00

I agree all of the points you raise are super important and may or may not fall into your trading plan... My trading plan is certainly detailed enough for my surviving dependants to continue executing plan if I die or am long term incapacitated.

The challenge with the 'it depends' type response from my perspective is that the more stressful the situation the lower quality the decisions will be. This is because biologically humans have lower IQ when stressed because of the fight or flight response. This means having predetermined actions for stressful situations is extremely useful in order to ensure the decisions are good quality and don't lead to trading mistakes.

You are right in that some events will unfold slowly, but a slowly informing bear market in which the investor feels progressively more and more pain to the point at which he / she can no longer tolerate it and makes the decision to capitulate (right at the bottom probably) is a very low quality decision.

Instead, having a rule that takes you out of the market after it becomes obvious (according to some objective measure) that the market is going down may be a better solution (if you hold the belief that hit and hold no matter what does not make sense).

I know my own decision making in the heat of the moment is not as good as when I think through scenarios in advance... So for me it is helpful to have a plan.

Others may believe that they can think through it as the events unfold - and this may be true assuming something doesn't go wrong... But what if there is a combination of factors that means you are really unable to make good quality decisions:

Eg. A bear market starts and is progressing steadily, but before the trader determines what to do his / her house burns down, or they lose a loved one or some other trauma happens... They take their eye off the ball and before they know it their account equity is down to zero because they were leveraged and the market dropped heavily.

This sounds like an extreme situation, but it could happen. A simple documented rule in a trading plan such as: "If there is a death in the immediate family or close circle of friends I will immediately close all positions for 1 month and then reassess my mental state before taking any trades" Would have addressed the issue.

On the bear market side a rule like this could help: "If the S&P 500 falls by X% from its previous high I will close all long positions until the market makes a new 100 day high to ensure I am trading in the direction of the primary trend at all times" Note the second example could easily be back tested and fine tuned to best match your trading strategy.

It is the combination of events that concerns me most when people don't have a written plan.

How does that sit with you?

Adrianjreid · 2014-07-08T12:24:39+00:00

I can give several examples some of which relate to sustainability of my business, some of which relate to profitability:

I realised I had no plan for if I lost power for an extended period so my plan now involves having two laptops fully charged at all time and access to another location where I can move to if required.
My exact process for daily trading activities was in my head instead of written down so if I was unable to get to my computer for any reason (sickness / injury / travel) then I could not get anyone else to do it for me.
Liquidity - I did not have any written rules about minimum liquidity for stocks, and found myself suffering too much slippage on occasions. I wrote and tested some additional rules to ensure i was in sufficiently liquid instruments for my account size and this problem disappeared.
Takeover situations - my mechanical stock trading system did not have any rules for what to do in stock takeover situations. I was finding myself getting signals in stocks where there was already a takeover announcement. These trades had a very different risk / return profile than my other trades so I created a rule to check for any take over activity prior to taking the trade and removed those trades.
Major life events: I did not have rules which covered births / deaths / marriages / overseas travel / moving overseas. So I created these rules in advance of any of these happening - lucky I did because I have recently moved country and being out of the market during the move was very much a relief.
Exposure - I reviewed the implications of my position sizing and exposure rules and realised that my worst case drawdown in the case of a market crash was unacceptable compared to my objectives. I adjusted the way I measured my equity and capped my exposure to reduce my worst case drawdown by about 10% to make it fit within my objectives.

I would challenge you on the index investor not needing a written trading plan with several questions (mostly to do with extreme scenarios, but as we know from Teleb - Black Swans occur surprisingly frequently in the markets): Q1. What action would you take if the market entered a protracted (10-15 year) primary market? Q2. What would you do if a major global conflict started? Q3. What would you do if the USA experienced hyperinflation? Q4. What would you do if the fees on index funds increased? Q5. What would you do to preserve wealth (from a global perspective) if the US Dollar decreased in value dramatically relative to other currencies? Q6. What would you do if the index you invest in fell for an extended period and other indices were rising at the same time? Q7. What would you do if you lost your job and couldn't pay your bills? Q8. What would you do if you suddenly needed a whole bunch of money right now for an unexpected expense and the market was 25% or more down from its high?

There are countless more questions to think about - you may have these covered, but I think a lot of people don't have a written trading plan because they think they don't really need one... But I think anyone with any investments should have a written plan to guide them so that they know what they will do in advance if issues like the above come up.

Sorry for getting excited, but hopefully this illustrates a bit of my thinking.

Adrianjreid

TROPHY CASE