Logics Of Trading

D has a BSc in Computer Engineering and a Masters degree in Electrical Engineering and has another major in Accounting.

He's the kind that should totally stay away from trading.

But today, D nets a 1 to 2 point profit on a daily basis trading the TF. His losses are so small it makes me mad. His stop-loss is 7 TICKS. On choppy days, if he chooses to trade, he will lift his stops and use a mental stop instead but he's never lost more than 1 point per trade.

Which makes me wonder, how does a person so logical and controlling manage to win consistently in trading?

When D started trading the eminis, he knew next to nothing about them. Everything he knew about trading the ES and TF, he had learned it from me. D doesn't like to read (again, makes me really mad that he aced all his examinations in university). He doesn't even bother listening to tapes that teach one how to trade. He can put up with a 2-hour session with me once in 3 months where I share with him some of my trading methods, and a 15-min session every evening before the US market opens where I tell him what to watch out for. And that's about it. He paper traded for a few days and has gone live since.

In the first 9 months that he began trading the eminis, he would constantly ask me where market's heading. And I would tell him I think price should be aiming for this and that level. And D will watch. After a few minutes, he would ask again if price was really getting there, and I would tell him that it should unless it doesn't.

Sometimes he would enter a trade based on what I said, and in the middle of a trade he would ask if price's going to hit his target. I would tell him there's a possibility it would, but I really don't know for sure. That's my standard reply to his questions. And he would be totally flabbergasted. "I thought you've done all your analysis??"

Blaming. Hmmm...

And I would ask him instead what his exit plan is.

"What exit plan???!"

I would then stare at him in disbelief and then give him a "you're so DEAD" look that would make him so mad he would exit his trade immediately and storm out for a smoke to cool down.

Once I asked him how much he's willing to give away for the bet he's taking. He looked at me as if I was crazy. He's trading to make money, not to lose money, so I could understand his reaction. I told him that he should take trades based on how much he wants to lose, and not based on how much he wants to win. How much he loses is entirely his choice. How much he wins is not, assuming that he's gone in on a high probability setup (validating his decision to enter).

It took him months to digest what I said. The controlling and logical part of him just couldn't grasp a concept that focuses on "losing" rather than "winning". Every time I hit my 2 to 3 point profit in one trade or via a few scalps, he would ask why I hadn't sounded him out that there were opportunities. And I would tell him that the risk is more than what he would be willing to take.

"But you were sure that price is going there right???"

"Absolutely not. Which is why I had entered on a relatively tiny candle that allows me to use a smaller stop. But that tiny candle is still too huge for you (D can't stand giving away more than 1 point on any trade, while I WAS comfortable with a 2 to 7 point stop in ER2/TF)."

"But you were fairly confident about the trade right, after all your research and studies???"

"I'm never sure of anything, honey, and I don't want you to blame me when the trade goes awry, so, no, I'm not giving you any tips. Go take a cold shower."

And D would storm out to get a smoke.

There were occasions where I have taken over trades he simply couldn't manage (it's hard for me to see D nervous, coz D's almost always COOL) and helped him make profits that he would never let run had he traded on his own. But as much as I can help it, I encourage/force him to make his own trading decisions.

After 1 year of lousy coaching from me, D's now as independent as my cats. On that few occasions that I had wanted to interfere, he had told me nicely to leave him alone and that he's on top of things. I'm impressed.

D's losing days are few, and his losses are in ticks. He takes an average of 1.5 points from the market each day, and he trades EVERY DAY. I took a look at his chart that day out of curiosity, and was shocked to see that nothing on them had changed. Absolutely NOTHING. He has been using the very same charts with the same indicators that I gave him on them (which he doesn't use at all coz I never taught him how to use them), the same methods that I taught him before (he hasn't learned anything else on his own - coz, well, D DOESN'T LIKE TO READ) - mainly bull and bear TRAP setups, failed breakouts, failed flags, failed everything - checks with me about the trend for the day everyday before the session begins, watches for traps, and goes for TINY signal candles (the fact that candles on the eminis have been tiny these days has been a blessing for him).

What makes D an outstanding engineering student (D's NOT an engineer today. He's a slave-driving banker) had made him a consistent trader. He has used logics in a way that helps him in his trading. Yes, it's logical to listen to me coz I'm usually, if not always, RIGHT. Muahahahaha!!!!

Ok, seriously, I think the reason that D is a much better trader than me today (I'm not even trading, and he's been trading daily) is coz D is ok with being BORED. He's not interested in trying out new things as long as what he's doing is making him money. He has been determined in the right way. Despite the many times that I had played pranks on him, and my not answering his questions directly, he had pressed on, believing that he would get consistent one day. Now, he doesn't even recall the silly questions he asked me before (eg. why price hadn't gone where I said it would go). He looks at how much he stands to lose if he's wrong, before he considers anything else.

And yes, I nearly fell out of my chair when I noticed his standard 7-tick stop-loss for the TF. "You mean you can make money with that kind of stop???"

"Yes, honey, you can"

And then he went about doing his own thing, never offering any tips on how he did it.

UNGRATEFUL CREATURE.

D trades on IB mainly, and sometimes on AT platform. IB's DOM is acceptable to him. He looks at just one chart, while I look at too many charts now. I have 3 screens, he has 1. I read too many books, he reads none. I spend too much time watching charts, he spends 2 hours per day - 15 mins before market open and then for about 2 hours when he's trading. I have almost halted all trading, and he is trading daily and has had no losing weeks for 3 MONTHS now.

Something's very wrong with the picture.

Either that, or something's very wrong with me.

JIMMY,
See? Engineers can be very good traders :-)

I've turned comments back on. The community's getting too quiet...