Sunday, April 13, 2014

what i read today: How to Deal With the Uncertainty of Trading (13 apr 2014)

Every forecast of a statistical model can be wrong.  Every trading judgment is fallible.  If you have a 50% hit rate on your trades and you trade once a day, on average you're going to have an occasion in which you lose every day for a week during a trading year.  That doesn't mean you're in a slump; it doesn't mean you should change what you do.  It's going to happen and you can mentally prepare yourself--and size yourself in such a way that five consecutive losing days won't take you out of the game.

The goal is not to eliminate losses--that would require omniscience.  Rather, the goal is to  anticipate losses so that you're never surprised, never overwhelmed, never thrown onto the back foot.  True confidence comes, not from believing that you must be right, but from knowing that you can survive and even thrive if you're dead wrong.

How to Deal With the Uncertainty of Trading