10/03/2011

The Art of Doing Nothing

I once famously (haha) penned that the number one issue in becoming a successful trader was a complete understanding and acceptance of risk management.

While that is true you could also argue that a close second may be the fine art of doing nothing.



You could also argue that the fine art of doing nothing is part of risk management. But then I would have nothing to write about.

Why is the fine art of doing nothing so important?

Because we don't like to do nothing.

If you are married to a man that may be debatable, but when it come to trading we want to trade.

We are traders.

We trade.

We all know that there is no 100% trading system. No single indicator that is 100% accurate, nor any combination of indicators will have a 100% success rate.

In fact you may argue (and I am) that the more indicators or requirements to trade in your system the more time you will spend flat.

And the more time you spend flat means the more hindsight moves you will have missed.

Every trading requirement in your system should add something to your positive expectancy, but it won't be a 100% expectancy. So the more you add the greater the chance that one of those requirements will not be met and you will miss a nice move.

So.... what do we do?

What we do is curve fit, we go back and change parameters so that the moves we missed become moves we would have taken. This of course screws up hundreds or thousands of stats and we usually do not bother to look at all the failed moves our newly renovated system would have taken.
So.... what should we do?

Make sure each single requirement is net positive to your system of course. Then be prepared to miss moves.

Prepare to be wrong. If you include missed moves with losing trades we are wrong quite often.

Are you prepared to be wrong?

Am I?

We don't like to be wrong, we like to be right. Being wrong makes us angry, or if you're a man it assaults our ego. Ohhhhhh we don't like that, we want to draw pistols at dawn.

We have to be prepared to be wrong. Wrong like a casino.

You will sit and watch price run without you. You have to. If you're not then you really don't have a system and you are just chasing price. Maybe that works for some. Not me.

So the question is can you just sit there and do nothing.

Sometimes I can, sometimes I can't.

Sometimes patience can also make you angry.

8 comments:

Sandy said...

I want to say something smart, but you have said it all and nothing original or witty comes to mind right now. Bah!

Solfest said...

You could have said I never get angry because my system is 100% right and I just spend the day drinking fine whiskey.

Or something like that. :)

Sandy said...

Too late, I turned on CNBC and killed a few brain cells already. Now I am fuming at the gibberish from these monkeys.

Where's that bottle now?

Long and Wrong said...

>and we usually do not bother to look at >all the failed moves our newly renovated >system would have taken.

Great advice throughout but especially the bit above.

On the basis of this post you would be my hero but then you went and spoilt it by including a cute animal photo in an attempt to increase readership. If I had a blog I would never stoop so low (cute Bloomberg presenters yes, but animals, never).

Solfest said...

Your name is LW.

You are a trader.

You live on a little green island.

You talk funny.

And.......

YOU HAVE A BLOG!!

Jules said...

Great. Now we'll all have to help to keep a lookout for plagiarizers for you AGAIN. :-)

LW has a blog?? You don't say!

DT233 said...

moo.

Solfest said...

Jules, LW will blog again once his rudbeckia subtomentosas stop blooming.

DT, my lawyers will be in contact with you soon.