SCOTT WELSH TRADING BLOG

A Champion’s Best Weapon

A Champion’s Best Weapon

April 26th, 2017

As you may already know, I’m a big Roger Federer fan, and not just because he can do this.

No, I’m a fan for many reasons, but mostly because things are more fun when he’s on top. Everything is better with a benevolent king.

There is one thing that bothers me about him, though. It’s how he loses.

Federer has had many, many incredible wins, but he’s also had some really bad beats (I still won’t watch that clip; you can’t make me).

And every time he loses a match like that he’s so darn…COMPOSED! And wise. And rational.

I can’t stand it.

When I watch him lose a heart-breaker, I want to throw myself into oncoming traffic. I want to set my lips on fire and put them out with a rake.

But not Federer. When he loses, he always says smart, calm things instead. After a wrenching defeat, invariably Roger will say things like:

  • “This was a positive tournament for me. I had a chance to win and I came really close. A break here or there might have done it for me.”
  • “My body feels good, my mind feels good. I’m excited about my chances for the rest of the season.”
  • “I plan on playing many more years. If I keep playing like this, hopefully I’ll have a lot more chances to win titles.”

Infuriating! Where are the tirades? Where are the insults? Where are the accusations of refs screwing up important calls?

They’re nowhere. Federer just handles it–and then happily goes on fighting. He loves playing. He loves being on tour. He can take the good with the bad. He can leave a loss behind and move on to the next one. He doesn’t carry it around with him like a rotten sack of potatoes.

In losing, Federer reveals his biggest weapons: an unfailingly positive attitude and an extremely short memory.

And it’s those weapons that make him so great.

_________________

Last Friday I was driving from Florida to South Carolina. While I was driving, my EURAUD robot took a Short trade like it’s supposed to. It didn’t know the French elections were coming up, and it didn’t care. It just did its job.

As you probably know, that didn’t turn out well.

On Sunday, the market gapped up in the wrong direction and my trade was stopped out–for way more than its stoploss. Ouch.

As with any big loss, there are a number of things we can do. We can put our heads in a microwave for 3-5 minutes, do somersaults backwards down a few flights of stairs, or do a little analysis.

I’ve already done the first two, so let’s try some analysis.

One, why was I in that trade? Am I an idiot? Don’t I look at the news? Because, maybe, and yes.

My robots have been tested over many market conditions over the past thirteen years. Sure, there have been losses, but there have also been wins. In fact, this particular system seems to do well when there’s chaos. So there was reason to believe that it would be okay.

Two, what’s the point in having an automated trading system if I turn it off all the time? I’ve committed to robots. Am I now going to still be a discretionary trader and run from every significant news event? If I do turn off my robot at every news event, wouldn’t that change my testing and throw off future expectations?

Three, wasn’t there at least a 50/50 chance that it could have gone in my favor? I was Short, which means that the short-term trend was down. Somebody big out there thought the EUR was going to do poorly after the election (thus the preceding downward movement). If it had continued that way, I would have had my biggest robot win ever. How would it have felt to have turned the robot off and missed a huge windfall? And isn’t there a chance the next opportunity will do exactly that?

The reality, however, is that I could have decided to stand aside on Friday and turned the robot off. That would have saved the equivalent of two full losses on my accounts. I would have felt like a genius, and instead I took a big loss. It’s going to take the EURAUD several trades to get out of that hole. That sucks.

So what should I do? Should I turn the EURAUD robot off forever? Should I never trade during news events again? Should I stop trading on Fridays so that I’m never open to a big gap going against me? Should I lock myself in a dark room with a wild boar?

What would a champion trader do? Or more specifically, what would Roger say?

He would say something like:

  • “The EURAUD is a positive robot for me. Over thousands of trades, it’s tested out to be very profitable. Over live trading, it’s had many long winning streaks. And not trading on Fridays would remove 30% of its overall profits. It’s been a really great robot to trade on Fridays over a huge sample size, and it’s been good for me in real life.”
  • “There was a big gap against me, yes, but the robot got out cleanly at the open. It was a big loss but all protocols held up. That’s a good thing. That means everything is operating smoothly (even under crazy conditions), and I have every reason to believe the chances of getting back all the lost money in the upcoming months is high. In fact, it just took a winning trade yesterday.”
  • “I plan on trading many more years. If I stick with it over the next hundred or thousand trades, I know I’m going to end up nicely profitable.”

And then Federer would forget it and move on happily to the next trade.

Hmm. Seems like pretty good advice.

After I’m done with the wild boar, I think I’ll do exactly that.

 

Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.