Tuesday, 13 March 2012

Paper-trading Patience

WRONG SIDE OF THE BED

The above link is to my post from almost exactly a year ago. The thing that strikes me most about this post (aside from the truly awful mental state I was in!) was the fact that I had started paper-trading a new system. That system is the basis of what I do now, only it took me another 6 or 7 months until I actually implemented it fully. At the time, I wrote that I didn't feel happy with my strategy and was searching for something that would suit me more. The problem was, I didn't paper-trade the new ideas for long enough. I was trading so badly and with so much anxiety, that I decided I couldn't wait to trial it or I might lose my entire bank - so I switched strategy. School-boy error. You can guess what happened next!

The excellent results I was achieving on paper, turned to horse-manure as soon as real money entered the equation. Sometimes when we paper-trade, we fail to take into account things like whether we will actually get matched and most importantly, whether we will have the bottle or the discipline to execute everything properly. I exhibited neither of these qualities! Also, we have to think about variance. If your paper-trading is hitting loads of winners, the temptation is to start using real money whilst you are still hot. What often inevitably then happens, is that variance kicks in not long after and you end up cursing your bad luck as the wins dry up and results even out. That can then lead to you deciding to ditch the strategy completely, as you worry about the run of reds you now have with a system you've not fully tested for long enough. This is exactly what I did a year ago. I went back to the 'comfort blanket' of my old system (even though I had doubts about it) and ditched paper-trading the new ideas. If I'd just continued paper-trading, I would've saved myself several months because in the end, I returned to the new ideas and now I am making them work for me.

It's funny how things often come full circle when you are learning trading and so often it's because you don't have enough patience to properly test things out. A classic example is the 'Lay the Draw' strategy in football. I've lost count of the number of times I've seen people write that they gave up on LTD within a few weeks or even days, because they were losing too much. Yet months or years down the line, the same people come back to LTD with a new attitude and greater patience and understanding of variance and the discipline required and they have more success with it. We are all naturally looking for a quick short-cut to success but the fact is, for the vast majority of us, that just isn't going to happen. Patience and hard-work are dirty words in today's world for most people, I fear. But I've put in the hard work and now I'm getting to grips with the patience side of things, it's no coincidence that I'm finally getting somewhere.

OFF-COURT BEAUTY: World Number 30, Petra Cetkovska of the Czech Republic:


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