Discipline

Trading is often about how to take the appropriate risk without exposing yourself to very human flaws.
User avatar
ShaunWhite
Posts: 9731
Joined: Sat Sep 03, 2016 3:42 am

cmuddle wrote:
Thu May 02, 2019 3:09 pm
Thanks a lot to everyone who contributed.

ShaunWhite I hope you are ok.
Yep, good thx. I'm enjoying all the tea and sympathy while it lasts. The words "you sit down and take it easy" are sweet sweet music ;)
It's got me out of mowing the lawn too so that's a bonus. I'm glad I just click a mouse rather than digging holes for a living though.
User avatar
Crazyskier
Posts: 1157
Joined: Sat Feb 06, 2016 6:36 pm

ruthlessimon wrote:
Tue Apr 30, 2019 4:04 pm
What massively helps me remain disciplined, is knowing roughly what I'm expected to lose; & this removes huge amounts of pressure.

Having knowledge that - If the edge performs as expected, I will be down -£XXXX.XX (at some point) - fact - unavoidable.

I know my number inside out; & I am mentally prepared to lose that amount of money (possibly a bit more) - before I start trading anything

Very recently, this allowed me to push through a pretty substantial drawdown (lost something like 10 trades in a row); but I was well inside the expected drawdown - I continue executing unchanged - & then I hit 10 winners in a row (one of the many pains of a 55% strike rate :roll: )

But having the drawdown stats, forces me to be disciplined.

Objective; none of this self-help shite!!
Excellent advice and preparation here.
User avatar
ruthlessimon
Posts: 2094
Joined: Wed Mar 23, 2016 3:54 pm

Crazyskier wrote:
Thu May 02, 2019 3:34 pm
Excellent advice and preparation here.
Here’s step 2 - & this is where we kinda merge into that nasty discretion territory.

Let’s say we have a yr’s worth of data.

Image

The strategy will pump out a max drawdown figure (assuming the strategy is +ve).

However, going into the future – intuitively - the max drawdown will not be the same again. Therefore, it makes sense to randomise the equity curve, & work out what the max drawdown could have been, in the last yr.

(btw, as caveat, to me, this is modelling – but I know this is far different to what Peter does – I’m still confused lol!!! – cos this is all backtesting!).

But do this process enough times, & we’ll get a histogram of potential max drawdowns. & this is where it gets challenging to interpret

Image

The real max drawdown was: -£11.99

But the potential max drawdown (given identical data) was between: -£25 & -£28

Meaning in theory, the strategy cannot be turned off until that -£30 is breached. It would be very unlucky, but the risk is there. Cos if that strategy gets turned off incorrectly – we lose all the recovery potential, & that’s what keeps me disciplined.

When I’m suffering; I have got to hold out – I’ve gotta keep executing through the pain, through the 20 losses in a row (all in the same vigour) – because the 20 wins in a row will come, & some.

Hopefully :roll: ;)

Lots of caveats, lots of assumptions there (i.e. having the ability to perform various backtests etc, have a love for spreadsheets etc) - & also, during any drawdown I’d be constantly trying to hack out/beg for objective improvements after market hours – reducing the max drawdown potential by finding new stuff
CallumPerry
Posts: 575
Joined: Wed Apr 19, 2017 5:12 pm
Location: Wolverhampton

Really nice explanation there Simon! I think I'm just one stage away from doing this kind of stuff so, as always, you've given me plenty to think about and add to my system.

What I'm thinking of doing next is creating Monte Carlo charts to visually see where I am. If I have a few months work of data so I have a decent size sample then there should be a decent amount of variance as my current strategy triggers quite frequently. I'm thinking of tracking my live results on top of the Monte Carlo line chart as some sort of confidence indicator for myself...

As Simon said a +ve strategy which is just over 50% ROI is expected at times to have a succession of losing trades that really hurts you mentally but my defence strategy is to plot my live results so I can visually see at any one time that I'm actually still within the expected parameters to make a profit longterm; I think it will be good for self reassurance for any manual trading I do as I try to transition my strategy into semi-automated and then fully-automated.
foxwood
Posts: 390
Joined: Mon Jul 23, 2012 2:54 pm

Monte Carlo always seems a bit wrong to me since, given your edge is not random, then randomizing multiple outcomes is not really reflecting the real world. Might be ok with small samples but not if you have enough data.

There is a simple well-known formula for longest sequences that I have found stacks up quite well - one usage is explained nicely at https://www.flatstats.co.uk/horseracing ... cle&id=154

I use it as one factor when gauging minimum bank size for a strategy so that it will accommodate worst case drawdowns and have headroom to recover. Helps identify level of risk better.

Mind you, if it ends up wiping that bank limit then you know you didn't have an edge after all :lol:
User avatar
ShaunWhite
Posts: 9731
Joined: Sat Sep 03, 2016 3:42 am

As well as the settled amount drawdown the temporary exposure can sometimes be a factor, especially if you're automating both the win and place markets and there's an overlap due to delayed races. You might just find yourself with a dozen open positions and although each might only win or lose a few pounds, you might have a buttock tightening exposure for a few mins if they all happen to be one one side of the book. Depending on your attitude to risk due to outages, you might find that uncomfortable. I guess that's all more applicable to staking rather than drawdowns but it's all part of working out if a particular strategy is doable and the risk you want to take to try it.
trader44
Posts: 236
Joined: Wed Oct 29, 2014 1:28 pm

" I think the only thing you can do is take yourself out of the situation after any losses that might trigger your chasing then come back when you've calmed down. Missing a few races isn't a big deal and you may find those 'time outs' start getting shorter each time."
Great advice spreadbetting .if you dont have the mouse in your hand you cant overstake and a little break/walk gives you space to reflect
trader44
Posts: 236
Joined: Wed Oct 29, 2014 1:28 pm

" Speaking of holidays, all that mophine was a response to a mini heart attack." hope your on the mend shaun :D
iambic_pentameter
Posts: 443
Joined: Wed May 18, 2016 1:24 pm

Shaun,

I'd missed bit earlier in the thread were you mentioned your current health scare.

Hope you are resting up and look after yourself.

Best wishes

Iambic
User avatar
ShaunWhite
Posts: 9731
Joined: Sat Sep 03, 2016 3:42 am

Cheers guys, yep I'm firing on all cylinders again. Almost like it hasn't happened. The more I think about it the more I've got my doubts that's what it was. I had something called pericarditis donkeys years ago and it felt exactly the same, like being crushed and suddendy no blood pressure (inflamed heart muscle, agony but not dangerous). Its quite rare especially that painful so the ambulance guys said heart attack, hospital trace saw nothing special. Worst part was waiting 50mins for an ambulance (although 1st repsonders where here in 20) and then a one hour drive to the hospital via diversions and pea soup fog. I was either going to be better, or dead. As it was I just arrived nicely toasted on A-grade pharmaceuticals 8-)

Anyways, that's all tmi but thanks for the concern. The BA family isn't bad bunch as workmates go. ;)
stueytrader
Posts: 863
Joined: Tue Dec 15, 2015 6:47 pm

ShaunWhite wrote:
Fri May 03, 2019 4:43 pm
Cheers guys, yep I'm firing on all cylinders again. Almost like it hasn't happened. The more I think about it the more I've got my doubts that's what it was. I had something called pericarditis donkeys years ago and it felt exactly the same, like being crushed and suddendy no blood pressure (inflamed heart muscle, agony but not dangerous). Its quite rare especially that painful so the ambulance guys said heart attack, hospital trace saw nothing special. Worst part was waiting 50mins for an ambulance (although 1st repsonders where here in 20) and then a one hour drive to the hospital via diversions and pea soup fog. I was either going to be better, or dead. As it was I just arrived nicely toasted on A-grade pharmaceuticals 8-)

Anyways, that's all tmi but thanks for the concern. The BA family isn't bad bunch as workmates go. ;)
All the best Shaun - I think your own recent situation also helps put trading 'discipline' somewhat into perspective. 8-)

I've been someone who could have benefited from perspective to help my discipline a few times over the years. Trading stress is worth considering in this area as a related issue, as I think discipline and stress are complementary issues for us traders.
User avatar
brimson25
Posts: 504
Joined: Sat Apr 08, 2017 11:42 am

Second all good wishes for Shaun. Get well.
eightbo
Posts: 2154
Joined: Sun May 17, 2015 8:19 pm
Location: Malta / Australia

stueytrader wrote:
Wed Jun 05, 2019 1:00 pm
I've been someone who could have benefited from perspective to help my discipline a few times over the years. Trading stress is worth considering in this area as a related issue, as I think discipline and stress are complementary issues for us traders.
Reducing stress is huge.

I've recently begun to frame each day around the idea of having a stress-free day first with profit becoming secondary. Often I'm not making as much as I could be but at the end of each day, my mood is consistently "normal", as opposed to commonly finishing on a high or a low which feels much more sustainable and conducive to long-term success. Generally, this is all reflected by less volatility in the P&L.

For myself, pushing the risk tolerance is my main source of stress so taking smaller positions also makes the discipline "easier" (for lack of a better word). Also, trading fewer markets provides extra breathing room to allow any stress which has built up more time to alleviate.

I encourage others struggling with discipline to start utilising stress as an indicator. One that will lead you to areas of your trading which may be beneficial for you to adjust. Start journalling instances where you feel stress if you're not already and seek to eradicate severe cases.
The concept being that by reducing our stress levels, we're putting ourselves in a position to make higher quality decisions when trading.

I'd add that some stress is healthy and is a part of growth so the goal shouldn't be to eradicate it completely but rather to find and remove unjustified instances / excess amounts.
User avatar
ShaunWhite
Posts: 9731
Joined: Sat Sep 03, 2016 3:42 am

eightbo wrote:
Wed Jun 05, 2019 7:52 pm
Reducing stress is huge.
The reason I prefer automation over doing hours and hours at the ladder is the reduced stress, and discipline is also never an issue.

Trading manually 8 hrs a day required me to become someone I'm not, so instead of changing me, I found it much easier to change how I worked. I'm not saying automation is easy, I still do 8 hrs a day and often more, but it's when I want and it's a different kind of stress that doesn't require snap decisions that impact on your bottom line.
User avatar
Derek27
Posts: 23469
Joined: Wed Aug 30, 2017 11:44 am
Location: UK

eightbo wrote:
Wed Jun 05, 2019 7:52 pm
I'd add that some stress is healthy and is a part of growth so the goal shouldn't be to eradicate it completely but rather to find and remove unjustified instances / excess amounts.
I'd agree with that, a stress-free life must be a pretty boring life. :)

Stress is technically a mental health problem but everybody endures stress to varying degrees and it only becomes a problem when it reaches a level that impacts on your daily life. Trading is pretty stressful, working in an A&E department substantially more so I'd imagine, but I think we're fairly lucky to have the flexibility that most people in stressful jobs wouldn't.

Not sure if I could cope with the stress of getting up at 8am every day, but I never did regularly get to work on time. :)
Post Reply

Return to “Trading Psychology”