Tag: Strategy

Marble Jar

Posted on by Anatoliy Schneider

In the example with 60 white/40 black marbles in a jar, most traders will agree that it does not make any sense to hesitate pulling the marbles out (provided, the bet on each trade/marble is small enough). Each time there is a signal, it must be taken, being excited that it slowly but surely increases one’s profits.

In “marble jar” trading system the signal is very simple:

  1. See the jar – take the marble
  2. Replace the marble, mix the jar
  3. Repeat

Very high frequency trading – as fast as can be done manually.

In any real trading system the signals are understandably complex. However, anyone trading a system is assumed to know that it has an edge. It is assumed that the system has been tested and proved to be working.

No matter how complex the signal is, it must be defined clearly enough to be identified consistently, without question. After it is identified, it must be taken.

Why would anyone want to dismiss the trading signal? The reason is very simple – not having any idea if the system has any edge.

We know that the marble jar has a clear edge – we know exactly how many black and white marbles there are. But in your real system you might not have done your homework well enough in order to identify your edge.

Now imagine that you are given a non-transparent jar with marbles. There is no way for you to know how many black and white marbles there are in the jar. In addition, you’ve no idea what is the profit upon grabbing white marble or the cost upon choosing the black one.

Would you trade this system with the same amount of confidence? Probably not. One could go as far as saying that it would be stupid even approach such literal “black box”. What if all the marbles are black? What if the cost of taking a black marble is all your life savings?

And yet, in essence it is exactly what majority of traders are doing every single day. They have no idea where the next trade is coming from, what odds are attached to it and what is their worst case scenario.

No wonder they hesitate to reach out for a marble!

“I cannot find a good trading system”

Posted on by Anatoliy Schneider

I cannot find a good trading system. The signals my system is giving me are really poor.

How do you act, what do you feel when you believe this?

  1. Frustrated – “No matter how hard I try, I cannot be successful with such a poor trading system”
  2. Depressed – “I don’t even want to trade anymore, I have tried so many systems and all them don’t work! The Market must be purely random after all.”
  3. Apathetic – “It’s not worth it, there is no point to continue. I must be a complete failure!”
  4. Lost – “What do I do now? No matter how many systems I try, the signals are still poor!”
  5. Disorganized – “I might as well just take random trades”
  6. (after a couple random losses) Hesitant – “I am not sure I should take this next trade…”

While it is true that a trading method is still necessary in order to be successful on the market, it will be of no use while you have so many conflicting beliefs about trading. After all, how many trading methods have you tested properly? By that, I mean taking 30-50 trades, without hesitation, in real account (demo just doesn’t cut it – better open cent account and risk $0.50 per trade), precisely following one method, not adjust any rules whatsoever?

In my experience, we are often impatient to get the positive results and so we cannot even stand a couple losses in a row, thinking that something must be wrong with our trading method. Of course, this is interrelated with our refusal to believe in uncertainty – we want to know what the outcome will be before we place the trade.

So let’s try and turn this around and see what happens:

The trading system I have right now is good enough for all practical purposes. I will not judge it until I collect live track record of at least 50 trades following this method.

How do you feel now?

  1. Liberated – “I can concentrate on the Market instead of constantly reading forums in the search of the next Holy Grail”
  2. Calm – “All I have to do is take the next opportunity, as defined by my trading method”
  3. Confident – “I know that the next trading opportunity will be provided by the Market. I know that whatever its outcome might be, it will take me a step further on my path towards trading success”
  4. Interested – “I wonder what the next trading opportunity will be? What lesson will it teach me?”

As was already mentioned before, when you have a proper trading mindset you might not become profitable in an instant. But you will be open to progress in your endeavors freely, without any internal resistant. The Market will teach you how to trade, it will become your friend, not an enemy – but you must take the first step.