Thursday, November 8, 2012

General rule: don't talk shop with non-traders?

I generally spend 4+ hours per day doing something trade-related, whether it be research, backtesting, reading or setting up orders. So understandably it's something I enjoy talking about.
There's a peril with talking shop with non-traders, though. They usually have a different understanding of the market than you do.
When I put on a trade, I try to think in terms of profit factor. Every trade I put on, I win the amount I risk * profit factor, regardless of whether I actually win or lose. It's the long run that matters, and with a thoroughly tested system, your long-term result should be similar to your backtest result.
The peril lies when you speak about losses to non-traders. No-one likes losing, but traders (should) understand that a loss is nothing more than an overhead. As long as you're profitable overall, losses should be regarded as a cost of business.
Non-traders usually don't understand this, though. When you speak about losses, they may project their own beliefs onto you, e.g. "no-one can beat the market", "the market is rigged", "you'll never win" etc. This is toxic stuff.
There's a similar danger when you speak about winners. Non-traders may come to see you as some sort of "guru" who can't possibly fail. Their projection can feed your ego, and make the inevitable loss difficult to accept.
And then of course, you will meet individuals who disagree with capitalism, trading and speculation altogether.
When conversing with non-traders, it's probably best to be light on the details and protect yourself from outside projections.
(and yes, I suffered a loss on the GBPUSD today!)
Monday breakouts
Spent some time today backtesting the break the Monday's highs and lows. So far I've tested the EURUSD from 2001 to late 2002. Only 81 samples have been collected, but with a stop loss of 0.5 * ATR(14) and a reward-to-risk ratio of 2.5:1, profit factor is 1.32. It's enough to keep me interested in continuing my backtest.

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