You have to figure out if you’re trading to win or trading not to lose. You need to trade to win. A bird in the hand is not worth two in the bush. You don’t have an edge. Every trade is a coin flip. Your only edge is trade management: cutting losses short and letting winners run. Don’t double down. “… quite a few participants felt that some sort of doubling down, or Martingale betting strategy, was optimal, wherein the gambler increases the size of his wagers after losses “ Keep your bet size consistent and in line with your bankroll. You have to be able to lose and lose and lose and lose and lose and keep your bet size consistent. You want to bet bigger to “make it back,” and you want to get revenge, that’s only human nature. Recognize the urge and resist it. Hide your P&L to conceal both your losses (which are known, but cumulative) and gains (which are unknown).
When I was a kid I worked as a photocopy boy in an H&R Block office. They offered something to customers called the “Rapid Refund,” which was a high interest loan on a tax refund. People would pay the $20, $30 whatever fee to get their $100 tax refund a month earlier than normal. This struck me and the lesson it taught is forever in my mind as I trade.
“… individuals’ usual tendency to attribute winning performance internally and losing performance externally“
I have no idea why the academics call it the “disposition effect,” but it’s natural for human beings to cut their profits short and let their losses run … it’s also human to attempt to add to a loser to dig yourself out of a hole. The struggle against your own natural tendencies is real and all-important.
Trying to find something that works, you’re going to go down a thousand dead-end roads. Be willing to give up on your cherished ideas when they prove to be worthless. Every one of your brilliant ideas has already been tested and discarded by somebody who is smarter, richer, and faster than you. Don’t be naive. You might think for years that VWAP or Fibonacci or Elliott Wave or whatever is the end all be all, so you won’t be able to drop the idea even when you find no value in it You have to be able to cut your losses in the idea realm too. Sunk cost fallacy is real.
(I’ll add more when inspired.)