The Pitfalls of Winning… Too Much?

Is this what trading is all about? Do I really want to be this precise?
Is this what trading is all about? Do I really want to be this precise?

I’m back for a minute. I got an itch to write something. I just can’t quit this I guess…

“Too much winning” sounds very counter-intuitive right? I would have thought the more I win, the more I expect to win, and the more that expectation plays out. We talk often about momentum or pushing on the flywheel as Jim Collins refers to it in “Good to Great”. Push more. Fight harder. Don’t take no for an answer.

But what if no is actually a good thing?

I was at my sons wrestling match earlier this week and I was talking to the coach after the match about winning and losing and he said something that really struck me. He said he’s had a couple of kids over the years, first graders like my son, that were very good wrestlers. Basically they won all of there matches through the first couple of years and so I asked him which kids. What do you think the next thing I’m going to say is? They were on the mat working hard and trying to get better and become better at what they like to do as they get older? Exactly the opposite. He explained to me that they quit and haven’t wrestled again because they are afraid of losing.

Whoa…

What is it in our heads that puts that much pressure on never being wrong and never losing. 

I am not sure if it is a function of our human nature or our society but I believe this comes back to something I have spoke of before: False Precision or Over precision. Fear of losing is equal to false precision in my opinion.  Maybe its ego? Maybe admitting we are wrong is the hardest thing we can do? I don’t know.

So the wrestlers, and even my own experiences lately, made me ask the question: why try to be precise at something that requires wiggle room? There are two kinds of activities: ones that need wiggle room, and ones that don’t. (I love the term wiggle room today I guess. It’s very technical) Now, if you are framing a house, wiggle room should be kept to a minimum. I think we could all agree on that. There are certain things that we want to be precise. But wins and losses in a sport? Should we really desire to be 470 and O? We can but most likely we will be disappointed and that will lead to an unwillingness to proceed down the path. I’m not saying that good streaks don’t happen and winning shouldn’t be the goal but it can paralyze a person if its the only goal.

What about currency trading? Should I always try to be precise at a game that fattens itself on the false precision of the masses? Let me just say this: I attempted that for 3 years and failed miserably at every turn. I had to literally put down everything I thought I knew and start over. Indicators, ma crosses, stochastics. I tried to use them to be precise. I spent hours trying to find the perfect way to get these to work. But here is the fundamental problem that Matt and I talk about quite often: all of these indicators are lagging!! If a moving average crosses, that because price did that move at some point in the past. It’s over. That is not the time to trade.

Let me show you on a chart how I view false precision.

This is a 1 min chart of GBPJPY. I placed my trades on this chart using the 1 hr below for structure. All 4 red lines were buy trades.

2014-03-20_12-12-39

Snagit screen capture
http://screencast.com/t/Ep3gzQ5T4

(Click to enlarge the above version to see the chart better)

And just for reference, here is the 1 hr chart that made me want to be a buyer here. I put this on twitter earlier this am.

2014-03-20_12-22-45

So in this case I knew where I wanted to be a buyer and I waited for blood in the street on the 1 and 5 minute chart to take me to my level. And then I bought 4 times on the 1 m chart as shown above. Smaller pieces of what I wanted my desired eventual trade. If I was trying to be “precise” I would have gotten stopped out a couple of times at the red X’s. (Those stop outs would have come on 5m charts as well.) But I didn’t. I wasn’t trying to be precise. I know now after this many years that nothing about the way price moves on these charts is precise. And if I know that, how in the world can I make a decision to place a trade and expect it to be precisely right the first time every time!? I can’t, so I don’t try anymore.

(I unloaded all of my inventory at the green check mark. And don’t think this is an isolated event either. I have not picked the one trade this week that worked. I have repeated this process for an amount of pips this month I never thought possible.)

As traders we do two major things wrong with these kinds of trades.

1. We put way to big of position on at one time. We leverage ONE SPOT and ask that one spot on the chart to be completely right immediately

2. We want a falsely precise stop loss to save us (I haven’t used a stop loss in over a month)

Having to be right on the first trade would make me very hesitant to take the next three, especially if I put all of the margin I wanted to use at work right away. Doing that three times in a row takes steel huevos. If I had to be right and never see this work against me, I would miss trades like this that happen every day. Sometimes I have to hold my inventory overnight but most days I pick my spots and then unload later in the session. I have yet to find an indicator that can tell me what price action and higher time frames can’t, and these tell me in real time.

So, in closing, maybe the greatest thing being a trader has taught me is to stop trying to be so “in control”. I remember writing in the experiment about perfection and all these things. I knew they were wrong, but I didn’t know how to combat them. For me at least, I’ve figured out how to fight it for the most part. Maybe part of it is to just let go. Stop focusing so squarely on make money right now and just figure out how to make pips. I always go back to my favorite example of this: Jiro dreams of Sushi. To be an apprentice in Jiro’s kitchen, a person must first learn to “wring out a hot towel” properly. How long does this take? SOMETIMES UP TO A YEAR!! If that person wanted to go in immediately and be a pro sushi chef, they would never make it past the first week.

I treat trading like that now. Make the pips. Never ever leverage my acct to the point where I can’t stop thinking about it, and then add pips which in turns adds money. Maybe not as much as I would like today, but the process tells me a year from now, I will never have to worry about it again.

Good trading everyone.

Shonn

TradingLife:DoWhateverYouHaveToToJustMakePips

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One thought on “The Pitfalls of Winning… Too Much?

  1. Found the bit about being afraid to lose most interesting. For me being afraid to lose is about ego. It’s about the feeling of shame I will have, if I don’t succeed. This is compounded if you put your results out for all to see and make your self accountable on the net. I find it hard not to publish out results when am successful. I want to shout it from the roof. Then when I come back to trade, suddenly I’m afraid to lose, in case my ego is destroyed. I think I have to learn to lose properly and become hardened to it, so I become immune, or otherwise blank it from my mind.
    As for your method. I’m not sure I could trade that way. At the moment I’m still trying to be precise 😦 It’s only testing mind you, so I won’t ask to see any of your charts just yet. I need to stick at what I’m doing for a good while yet, otherwise I will fall into the trap of system hopping and not persisting, as I’ve done in the past. Cheers and glad you’re writing again, and Matt too, both in one week. More visits to the cigar shop will keep your ideas flowing.
    Simon

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