"Win Some, Lose Some"                       (reference saw003) This article is the copyright of TradersCALM © 2000.     Right(s) to reference or republish this article will not be unreasonably refused.               I would like to use your copyright materials. Subtitled "I want to be Right", the sub-headings are:           · introduction           · cultural differences           · common language           · a different drummer           · percentage player           · beginning trader           · want to be a winner           · building self awareness Please take me back to the self-awareness archive menu. "Win Some, Lose Some"                                   ("I want to be Right") Introduction In common with many other traders starting out, I had a desire to find a trading system that:     · makes profits more than 50% of the time,     · gives me lots of big winners. After all, isn't that what being successful means - being a winner more often than being a loser and having a big win or two? After all "it works for me at my day-job and I am good at that ". It was so ingrained in me, this need to win - to be right more often than not - that I was not even consciously aware I had this near compulsion to be right. This lack of awareness made particularly difficult the task of discovering what was costing me real money. This article, through a real-life example of amusing behaviour, is designed to make you think. To laugh at others falling over banana skins is a good way to learn. Especially when, perhaps, it is what you already knew but 'could not quite vocalise'. Cultural Influences First things first - where does this idea of needing to be right come from? In many cultures there is a premium on being right. At school we often learn that many rewards go to those who are right.     Few teachers give much credit to hands that go up, have tried hard, but get the answer wrong.     Often most of the emotional rewards go to the girl or boy who has the right answer. When limits are probed, rules are broken, we may be told the previously unknown (by us) rules make us 'wrong'.     Being 'right' is what is good.     Being wrong seems to be bad. Perhaps also as children we learn, bad is evil, evil is bad, good is the right way.     By inference, being wrong has an association with badness, or has even a tinge of evil about it.     Later in life this can be reinforced with other concepts associated with being right. Coming first is seen as good, the rest, if not bad, is certainly not so good as coming first.    So the extreme position is the one to aim for.     The biggest bonus, the largest sale, the fastest car is what is remembered.     Never mind the cost.     After all, who remembers the runners up after the winner takes the prize? Common Language This need to be right can be insidious as it tends to be built into our language and culturally based assumptions. We have probably all heard, or even used ourselves, the expression "win some, lose some". The expression seems to fulfil a need to say "never mind" or "oh well" to either respond to an assumed emotion in another person or to cover some emotion in oneself. It is as if we all tacitly accept our inalienable human right (that word again), that "fair is fair" for us to be right at least 50% of the time. After all we "must be right some of the time". It is almost a mutual conspiracy we all engage in, to support each other's need to be right - "your turn will come".     There are so many alternative or similar expressions.     You probably have your favourites or have heard some such as 'swings and roundabouts' or 'what goes round comes around' or similar. The sheer variety of these expressions tells us about a frequently occurring experience held in common with many of our fellow human beings. A Different Drummer Not all of us have been overwhelmed by this need to be right. Probably one of the most famous historical person that is thought of as not having this need to be right is Thomas Alva Edison. And boy was he wrong - so wrong that at one time he was applying for patents at the rate of 400 a year. He would have been famous if the only thing he invented was the electric light.     But of course there was much more.     His Edison Electric Company was the predecessor of the General Electric Company in the U.S.. One of his many quotations is pertinent here: "Results! Why, man, I have gotten a lot of results. I know several thousand things that won't work." It was his acceptance of being "wrong" that made him so successful.     But are most of us are prepared to put in the effort that his approach implies? But we want to be right, now, on our terms, and by everything that is holy, more than half the time, it's our right! Percentage Player In talking about a professional gambler the term 'percentage player' comes to mind. What does it mean?     Well perhaps we could be thinking that the professional gambler only takes bets that are going to win more than 50% of the time. But professional gamblers do not think like that.     They weigh the rewards of winning together with the probability of winning.     It is the expected result that they like to be positive, not the probability of winning being higher than that of losing.     There is no ego attached to the outcome. An example might help.     If a professional backer of baseball games feels confident that the odds of one side winning are 25%, she will back that side if she can get much better than 4 to one odds. So she will be happy to take a bet on the team likely to win only 25% of the time if she can gets odds of say 9 to 1, where as a winner she gets her stake back.     This would give her a 25% chance of getting back 10 against a 75% chance of losing her stake of 1.     Her expected return would be 2.5 - 0.75 or an expected win of 1.75 on her stake of 1. Of course she will bet on the team she believes will win 75% of the time if she can get perhaps even odds or better.     At even odds she will get back 2 on 75% of the occasions and lose her stake of 1 on 25% of the outcomes.     Her expected return would be 2 times 75% less 25% of 1.     That is an expected win of 1.25 on her stake of 1 unit. So note four key points here:     · our professional has no bias in favour of any particular team,     · she tends to focus on the expected outcome, the probability of winning       being a consideration but not the sole consideration,     · she is not focussed on being right but only on winning in the long run -       in the examples above she would have a slight preference for the       gamble that tends to lose three times more frequently as the       expected profit is higher but might consider the second bet of       lesser or similar or even higher value because of the money       management considerations she utilises,     · to win in the long run she needs to have her money management such       that she can withstand a long losing streak and still be around       to capture her expected profit. In practice I expect our professional gambler might take both bets as they both have fairly good positive expected results.     But she will tend to take a smaller sized bet on the first bet compared with the bet size used for the second gamble.     The reasons for this are outside the scope of this article. Beginning Trader Now lets look at our beginning trader. All his cultural influences, reinforced by his 'day-job' experiences, tell him to go for the high probability of winning type of trade. By the laws of supply and demand, this tends to be the bets with low odds of winning. If he likes that trade, then so do many others, for similar reasons, and the odds tend to be the odds of the favourite, the odds of the high probability winner. But that is what he is after - the high frequency of wins.     Shame about the big win - that tends to be fairly rare with favourites - but he wants the win frequency to be high and this sometimes blinds him to all else. But let's have a bit of fun outside the commodity and stock and futures markets.     Let us go to the casino. Want to be a Winner All casinos love them - they can't lose.     By the way, we will see that this phrase "they can't lose" applies to both the casino and the gambler simultaneously. Our story starts with us as a stock-broker.     We have to entertain our more important clients from time to time and some of them want to go to the casino. This is not our preferred type of night-club - after all, we can visualise angry spouses and smaller commissions cheques in our future, but the client insists. Fuelled with normal human frailties of wanting to be right, and a little alcohol, our client decides that the roulette table is the place to be - where all the action is - where the herd are grazing. Wanting desperately to be right, our client gets lots of chips and places one chip on each of 20 numbers at each spin of the wheel. A losing strategy you say - a negative expected return you say - but our client is happy. After all he is given back 30 odd chips more than half the time.     A system that wins more than half the time - he thinks he has found the secret of roulette - why has no-one else thought of this? So of course, he tends to lose his money twenty times faster than if he had bet one chip on each spin. But he goes home happy.     After all he won 30 odd chips 17 times.     He is not too drunk to know that is about 500 and at $10 a time - he has won $5000.     Never mind it cost him $8,000 in stakes to get $5,000 back.     He is a winner. In his eyes he has:     · "won" $5,000 playing a game most lose at,     · found a system which wins over 50% of the time,     · beaten the casino. Of course we are relieved because our client is happy - he thinks he has won $5,000, and the casino is also happy - they know that he lost $3,000. Building Self Awareness Hold on a minute, is that not where I came in as a novice trader? Do I still not have some vestige of liking to be right more than I like winning? Do I still not have some trouble exiting - perhaps wanting to be extra right? Is my ego getting in the way? Am I still only taking the short odds with the herd because I am right more often that way?     Do I ignore the longer odds sometimes offered for going against the herd? Do I know what my expected result is? Do I adjust my stake to the expected result and the probability of winning? Do I use position sizing principles at all? ... Please take me back to the self-awareness archive menu.