Once a month I check the analytics for this site. The last time I checked on January 22, we had hit an all time high for visitors. But since then, the numbers have been moving directionally down in a big way!
I couldn’t understand why until I checked the topics. I found that the peak was hit when I was writing on the S&P, basically I was ‘tipping’ the market. Once the series ended, the numbers started to drop and picked up only when I started writing “S&P Intraday”.
So it seems that the majority want a tipping sheet.
Sorry folks, that’s not the reason I write. My outcome is to provide a resource to improve trading results. I don’t see tipping doing that. In fact, in its success, tipping sows the seeds of trader destruction. The reason is tipping focuses on the plan and ignores risk management and winning psychology – elements that are so necessary for investing/trading success. Now I may end up tipping when seeking to illustrate an idea but in that case, the tipping is incidental to the main purpose which is to share my ideas.
I could tell you countless horror stories about the ills of tipping. One will have to suffice.
The latest occurred about two years ago when I was asked to mentor a group of pit traders. The Singapore Exchange had made it clear that the pits would close. This group of very successful order-fillers and a few friends formed a group to trade from their former employer’s home.
Initially they found it tough going but then they came across a spread ‘tipper’ who appeared to ‘be the goods’. He racked up four out of four winners! I am told the room was abuzz with excitement – “the good time would roll again; perhaps bigger and better than ever!” We are talking 6-figure numbers here so you can understand the euphoria. The feeling was: “If only we had really loaded up!”
The next recommendation, they did exactly that. This time the trade hit the stop loss and instead of exiting they added to the losing position. I am told that the market went in their favour after that, so they added even more positions. Well, you can guess the sorry end. By the end of this trade, the group lost all of the profits and some had to quit trading altogether.
Success is a function of having a positive expectancy: (avg%win x win rate) – (avg%loss x loss rate) where:
- avg%win = (profitable results (on a one contract basis)/price initiating the trade)/all winning trades
- win rate = winning trades/all trades.
- avg%loss = (losing results (on a one contract basis)/price initiating the trade)/all losing trades
- loss rate = losing trades/all trades.
By normalizing the result as % of the price initiating a trade, we are able to compare across results, setups, traders etc i.e. by any metric benchmark you’d like to use.
The positive expectancy is a function of a written plan with an edge x effective money management x winning psychology. A trader with a plan but without the other two skills will not survive unless he quits as soon as he hits a hot streak – and that is unlikely. Can you imagine what my room would have said if I had told them to quit after the third win? What would they have said after the fourth? They may have listened after the fifth trade but by then it would have been too late.
Hence the emphasis on this blog is to provide information that will be of long-term benefit to the readers rather than focus on producing short-term gains. And speaking of results….
Results of last night’s trade: I sold S&P March 1321 and covered 1323.5. There was volume at 1321 but after the market poked below 1321, volume dried up, suggesting a rally was to come. I did not go long because my trading timeframe trend is down and I am looking for spots to add to my shorts.