Welcome to the 2nd edition of “Thursdays Trading Thought”.
I’d just like to start by saying thank you to everyone who responded to last week’s episode, it was great to hear insights other people received from watching the movie Sully, especially from Scott who raised some really interesting points about back testing and curve fitting so thanks for sharing those Scott.
Those comments are available on bettersystemtrader.com/66 if you want to check them out.
Spoiler alert though, if you plan to see the movie but haven’t yet, you might want to do so first before checking out the comments.
Let’s start with quitting
This week I want to talk about quitting.
And I want to start by sharing a story from one of the very few TV shows I watch regularly.
The show is called Gold Rush, which is a reality TV series that follows 3 groups of gold miners.
One of the main characters in the show is a guy called Todd, who before the series started had very little or perhaps even no goldmining experience but decided to give it a go anyway.
Understandably, Todd’s results over that period have been pretty inconsistent, however he had a pretty good season last year, and so this year he’s made a big move to a completely new mining location.
… It’s a very different environment to where he’s mined before.
… It’s a risky move.
… But confidence is high.
… Expectations are huge.
… And he’s set some pretty lofty goals to achieve.
So how did it work out?
Unfortunately, so far, this has been his most disastrous season ever.
Pretty much everything that could go wrong has gone wrong.
He’s been mining like crazy but hasn’t even made enough to cover a fraction of his operating costs.
Every week, he has more challenges.
More money lost.
But he continues to push through.
He’s in so deep now, he’s not thinking clearly.
He doesn’t know what else to do and even though his approach obviously isn’t working, and slowly ruining him too, he still keeps trying in the hope that he’ll get a lucky break.
The TV doesn’t listen
The last few weeks as I’ve been watching the show I found myself saying to Todd (yes, sometimes out loud… to the TV!)
Call it quits man.
This isn’t working.
You’re going to ruin yourself.
Cut your losses.
It’s admirable that he has the persistence, the courage and the strength to continue, but at some point don’t you have to call it quits?
Where is that point?
It’s very easy for me as a casual observer, to sit back in my leather couch, drinking a cold beer and telling the TV what to do, but when you’re in the thick of it, so emotionally invested in the outcome that you can’t think straight, it can be very challenging to find your way out again.
So what does this have to do with trading?
Well I think at some stage in all of our trading careers there is a point where we become a little bit like Todd.
For me personally, and I know other traders that have experienced this too, this can happen in the strategy development process.
We could be testing a trading idea, or trying to create a strategy and we become a little too emotionally invested in the outcome.
Now I think there are a number of reasons why this could happen:
… Perhaps we started with a pre-conceived idea that this idea should work.
… Perhaps we’re looking for some kind of validation that our hunch was correct.
… Perhaps we’re just so desperate to make it work we won’t/can’t accept that maybe it doesn’t.
So we put more and more time and effort into it, and then we find it difficult to stop because then all the previous work “will be wasted”.
Does any of this sound familiar?
Has this ever happened to you?
Or have you seen it happen to someone else?
Is it time to move on?
At what point do we say enough is enough?
When is it time to move on?
I think the answer to this is different for each individual, but here are a few ideas we may want to consider adding to our strategy development process.
Firstly, a tip I got from Kevin Davey, is that when he starts testing a trading idea he puts a time limit on it.
So, if that idea or strategy does not perform to a specific level after a certain amount of time, he abandons it and moves on to the next idea.
An extension of that could be putting a limit on the number of permutations of an idea you test, so if you like to take a central idea and try it out in different ways, perhaps adding different types of filters, then maybe putting a limit on the number of variations you try could be a worthy approach.
Or perhaps you could also try reframing the process –
That time that you’re spending trying to get an average idea to work could actually be stopping you from working on a strategy that is totally awesome.
This could be much easier too if you have a huge data bank of ideas to test, so make sure you save all your trading ideas to a central location, like in Evernote or a word or excel doc.
What do you do?
Now, I’m sure there are other techniques we can use to determine when to stop developing a system, what do you use?
How do you know when it’s time to stop and move on?
Let us know in the comment section below – I’m interested to hear your thoughts.
Anyway, that’s it for this week’s Thursday trading thought. Next week we have a special guest joining us so look out for that one.
Enjoy the rest of your week, catch you later,
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12 January 2017