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Hi guys, hi from Andrea Unger! Who is my opponent when I trade? Against which enemy do I have to fight?
There Is No Opponent Who Punishes Us
The topic of this post derives from an email I received by a trader some time ago. She asked me some pieces of information about how she should behave in trading.
This trader was a newbie in the market and said that she understood that averaging down in an underlying is considered a bit outrageous and that it is therefore punished by the market.
This is obviously a crazy idea. There's nobody out there who watches us constantly and judges our behaviour on the markets.
Averaging down means increasing our exposure on a weak underlying. In so doing, we increase risk and do something that might hurt us very much.
Such behaviour is completely wrong because it exposes us to an increased risk, even though there is nobody out there who looks at our trading and says things like “Hey look at that, that's really a tremendous guy! Now I'll show you how to behave in the market!”
That would be crazy, as we aren't trading against the broker.
Why Do We Consider the Broker Our Opponent?
I think this idea derives from a wrong but common mindset that stems from Meta Trader. Since it works as a bridge to the OTC market, or CFD, or Forex, it makes us work in a sort of parallel market where there are the market makers and there is our broker, so we might feel as if the broker was watching us.
That might be true in some extreme cases, but only if we do something wrong, some dirty arbitrage and so on, playing tricks at the broker himself. However, generally speaking, the broker does not sit there – if he is a serious broker – looking at us as a signal trader and trying to take our money.
It's true that we fight in a parallel market and that the real market is there and this is a copy of that, but it's still a copy where we have to move in a proper way, if we want to make money.
Otherwise, we'll lose our money, but not because of the broker. So, there's no such thing as an enemy who sits there and makes us lose money.
Who is our real enemy? Is it the market itself? No, it is not the market.
Ok, we lose money in the market and against the market, but still the market is not our enemy.
I Am My Only Opponent
The only true opponent we need to fight against when we trade is in ourselves. And the only way to fight it is by building a trading plan, sticking to it and, from time to time, evaluating it to see how it is doing.
If we go and trade without a plan, what happens next is all our fault! We're putting our money at risk because we don't know what we're doing. If we did not stick to our plan, or did not devise a good plan, it is again our fault.
We prepare a plan because we don't trust ourselves, but if we don't follow it and its rules and act resting upon our feelings, if things go wrong, that is again our fault.
If we keep on losing money and we don't evaluate our plan, we don't revise it when it is necessary and we don't study to understand why it does not work properly, then it's all our fault, because we don't consider that we might have built a bad plan from the very start.
I'm an algo trader, so I build my plans and create my systems resting upon numbers. My plans tell me when I have to switch systems on and off, and I evaluate them from time to time. The reason is that I am aware that I can sometimes make mistakes when putting the rules together.
The averaging down method, of which I was talking about at the beginning of this post, has some mistakes in it. First of all, there is no real plan. In fact, the decision to average down is taken when certain situations occur, so it is not a plan that is devised from the very start as a trading method.
This means that I don't know what I'm doing. I'm trading on something that is weak, which is a great mistake. Indeed, I should be trading on what is strong.
Moreover, I don't recognize that I'm wrong, because I'm averaging down, and I'm not even accepting losses, because I'm not closing my position.
In such cases, it'd be better to close the position and try to recover what we lost somewhere else.
However, this is psychologically unacceptable most of the times, not because we're stubborn – okay, we are – but because once we have traded on a specific underlying for a certain time, we get some experience of it.
Then, that experience helps us - or rather we think it helps us - understand what our next moves should be, whereas if we traded on a different underlying, we would have started from scratch and wouldn't have the palest idea of what to do.
It's a bit like when your girlfriend quits you and you want to win her back. You don't accept that she left you and think you know her, so you want to recover your special relationship and don't look for anyone else.
Accept Your Mistakes
This behaviour is very common in trading as well. Although we've rules in our plans that tell us when and how a system that is broken should be stopped, cancelled and thrown away, we sometimes consider keeping those systems at work.
We generally take this decision when we think that these systems can recover. As they've been good for a long time, we think they'll continue being good. So, we keep on trading and lose our money.
Traders need to face the markets in an aware way, with the right mindset and a well-though plan. They need to stick to this plan and evaluate and revise it when necessary.
We all have to be sure about what we do and devise plans that make sense.
As a systematic trader, I draw up plans, rules and systems. I test and backtest them and stick to the rules, because my systems run automatically, so the machine does what I tell it to do.
From time to time, I evaluate my plans to see if something has changed or I made some mistakes.
When you're making a lot of money, you obviously don't see that something is going wrong, as faults become evident when there are losses. I make some mistakes myself, so I'm not the one who knows everything and you the guys who are here to learn. Everyone is here to learn.
I am my opponent. So, I'm not fighting against you or other traders, but against myself, my limits and my inability to understand which of my choices and plans are right and which ones are wrong.
We need an aware approach to the market, if we want to be good enough to make money.
I hope this helps, so see you next time.
Ciao from Andrea Unger.
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Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.