There is a significant edge hidden in being the opposite of an angry or a frustrated trader.
When people trade with fear, anger or whatever other negative emotion, their PnL ALWAYS goes down. Does not matter the market direction, volatility, drivers, instrument, anything- it always goes down. Every trader knows this.
The question is- by doing the exact opposite of what an angry person does, could one consistently win?
So, how does an angry person trade? Let’s start with an assumption, that an angry trader has already lost money. He wants to get his money back!
⚙ During range, angry person expects the market to breakout and then earn big, since he lost money on the trend that happened before the range. He will always enter long at the top of the range wait out till the market drops to the bottom of the range and will expect the market to breakout to the bottom. The angry trader will then sell and consequently- short the market! Only to discover… Market has rebounced. Cycle then continues, stacking losses up.
⚙ Finally, when market exist the range and begins the trend, angry person always exits too soon, on fear of losing profits. Yes, he is still in loss today but at least he re-couped some of it! By trading correctly for the rest of the day he will jump into profit in no time! No need to be greedy and ride this trend which will soon finish! – Thinks such trader. -Which is when market continues to go. Trader becomes again angry at himself for exiting too soon and begins ‘revenging’ the market for his mistake of exiting too soon. He goes against the market when it is trending! A losing strategy!
Result is atrocious. Day is ruined.
An angry trader traded trend and breakouts during range yet he traded range during trend! He did exactly the opposite of what a smart trader does.
We generated the chart below by making around 70 paper trades on a random time/day to illustrate an angry person trading. We used MT5 trading software with historical 1 minute data, demo account and no future-know bias. We were able to achieve a perfectly sloping PnL balance downwards.
And it was easy to generate such a chart.
💡 You may not know how a rational trader behaves, but if you know how an angry person does, then by doing the exact opposite you “synthesize” rationality.
To become a good trader, one does not need to know complex mathematics- one needs to know what not to do!
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” – Charlie Munger
Let’s try the Charlie Munger approach.
Let’s categorize the market into 2 environments: ranging vs trending
When I think that environment is ranging, I wait for a some minutely candles to go in one direction and then I go the other. If I see that range trading stops working for a couple of trades, I begin going in the direction of a trend.
Results are absolutely ridiculous. A perfect backtest. but lets try more!
Good results. The backtests were conducted on a demo account with real but historical data, going at the market speed and me not knowing the next candle.
While the data is not sufficient, and rules are not quantified- this may provid
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