Losing while winning.

There's an excellent article over at Philip's blog which describes one of the trickiest occupational hazards we gambler's and traders face.  Namely, the ability to be losing money whilst executing our edge.  Losing runs, which have a positive expectancy, can be one of the hardest things to deal with mentally.  But only if you don't 100% believe;

1. That you have an edge.  You need to have done the analysis, the statistics, the maths, prove it.
2. That the results you are witnessing and going to witness are randomly distributed.  As Mark Douglas says, "there is a random distribution of wins and loses that defines an edge."

Granted these two aren't always easy to accept.  1) If we are trading, and trading in a fast moving market it's not straight forward sometimes to know we have that positive expectancy.  Buying and selling can be a messy affair if we let it get away from ourselves.  We have to keep what we are doing as clean as possible, quantify each trade.  Trading rapidly is fine, as long as our primary focus is to open and close at spots that offer a probablistic edge.

Point 2) We're all familiar with losing runs, you start to question what you are doing.  Again, quantify everything, manage your bank roll properly, and... see point 1.

Perhaps a follow up article might be "Winning while losing"...

Comments

[Nami Dalufin]

Actually, Mark Douglas has his point in saying "there is a random distribution of wins and loses that defines an edge." means you never know whether you will win or not because i believe every game has its own equivalent of chances and people who got the lucky spot will win. Play blackjack tables and control your luck in the game.