So let’s talk about more reader questions – “But how do you find the balance between protecting your capital and not getting stopped out before a move in your favor is over?” Well, that comes from back testing. You can see how that would work. So once you start backtesting, you can look and see how the instruments that you’re trading move. Again. I’m not talking about one instrument, I got better things to do. And, then you could adjust your stops accordingly. It sounds as if here the person at first was dealing not wanting to deal with uncertainty, and now they’re trying to avoid the frustration. But I think I spoke to that yesterday in that you actually love frustration because it’s a better rate of return than having to deal with despondency.
At which point you have no capital or low capital and whatever nerve or sense of confidence that you had or excitement about the business. And so then what do you do? The whole fantasy is blown up. So that’s why I try to speak to the things that most people don’t want to speak to. So you have to deal with the frustration of getting stopped out. And then you’re talking about maybe trailing a stop. So now instead of buying $20 and having your your protective stop at $18, you could also have your buy stop in above the market. Say you get filled at $20 and then say the market starts to move in your favor.
The worst thing you can do is look at it because there’s nothing you can do to interpret the data. One tick by one tick. You know, it’s a curiosity, I get it. It’s infotainment, but it doesn’t help you make money. So at that moment in time, you could say, okay, well I’m going to leave my protective stop in until at least it moves one to $2 in my favor. So once you get filled, you put in your protective stop at $18, and then you set an alert for $21 or $22. And once that alert goes off, you can go back into, into your machine and you could do any number of things get it depends on how you’ve back tested things. If you are running a trailing stop, you could just have it always follow and be, say $2 below whatever that highest tick is. And if it does go back down, you get knocked out. If you’re a discretionary chart reader, which I think is a lot harder to do, it’s the cheaper way to go.
It’s what most, most rookies are doing because they can’t afford all the other stuff is, maybe sell half the position at $22 and then raise your stop to break even at $20, there’s a million variations on that, but that’s, again, something that you’re going to have to do, because you’re not going to know how it feels until you do it – after the fact.
Emmanuel Kant was a philosopher and he talked about a priori and a posteriori knowledge and I’ve always been speaking about a posteriori knowledge. Like what do you get after the fact. How do you feel after the fact. And that’s only something that you’re going to get by doing it. The simulation is good, because it gives you an idea. And if you test it over several decades, most of those models, aren’t going to turn on a dime…work for 20 years and then all of a sudden on the 20th year and one day it doesn’t work anymore.
So that’s just, what I would look at from that standpoint is use the technology in your favor and have the machine do the work for you. But I would definitely, especially if you start making money, I wouldn’t watch it all day because it’s going to induce you to do something that feels good, but is ultimately a bad financial decision and that’s cut your winners too soon.
This is a computer generated transcript.
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