The Money That Was Showing

The number nobody writes down

Every trading journal has an entry price and an exit price, because those are the two prices a broker prints. Between them the position had a life, and the highest price it saw in that life is not on any statement anywhere. It is, however, the price a trader can name months later, to the tick, about trades they have otherwise forgotten. That asymmetry is the subject of this lesson: the quantity with the strongest hold on a trader’s memory is the only one their record does not contain.

It is worth being clear that the quantity is real. This is not a story about imagining gains. Every price below is one of the sixty closes this course has used since lesson 32, it was printed while the position was open, and a market order at that moment would have got approximately it. The money genuinely appeared.

The column this lesson adds

Module 12’s sheet has the entries and the rule’s exits from lesson 86, the excursions from lesson 87 and the sizes from lesson 88. This is the last column: the best close inside each trade, what that was worth against the entry, and what the trade actually returned.

Four of the seven rows have a zero in the last column. Three of those four ran exactly one bar, so the best close inside them was the close they exited on, because there was only one; the fourth ran two bars and made its best close on the second. The whole of the 3.90 comes from the three trades that lasted four bars or more, and more than half of it from one of them.

What the two totals are worth

The realised total is 10.70 gross, 9.839 after the seven round trips, and 4.162 over buying and holding. The showing total is 14.60 gross. If a trader had left every trade at its best close — which is not a strategy, because it needs the future, but is exactly the counterfactual memory runs — the record would be 13.74 after costs and 8.06 over holding, against the rule’s own contribution of 4.16.

So the remembered version of this record is not slightly better than the real one. It is 93.7 per cent better over the benchmark, and every price in it is real. That is the whole difficulty. A trader comparing their statement against a fantasy would eventually notice. A trader comparing their statement against a set of prices that all genuinely printed has nothing obvious to correct.

Here is the arithmetic that makes the comparison useless anyway, and it is one line. To leave at the best close you must know, at that close, that nothing better is coming. Trade 3 peaks at bar 36 and the rule exits at bar 39. At bar 36 the position had already been open ten bars and had made a new best close eight times, most recently on each of the four bars before it; there was no property of bar 36 available at bar 36 that separated it from the seven earlier ones. The best close is the only column on this sheet that can be filled in exactly once, and only afterwards.

Almost nobody you trade against has this column. It costs an evening to build for a year of trades, because it needs the price series between each entry and each exit rather than the statement, and the reason to build it is not to feel worse. It is to find out whether your own 26.7 per cent is 26.7 per cent, or 5, or 60, because that number decides whether lesson 86’s finding applies to you at all.

Trade 3, remembered and recorded

The rule goes long at bar 26 at 98.8, the lowest entry of the seven. It exits at bar 39 at 101.3, for 2.50 a share, and that is what the statement says.

Between those two bars the position was open for thirteen bars, and it made a new best close on eight of them: bar 27 at 99.2, bar 28 at 99.6, bar 29 at 100.0, bar 32 at 100.3, bar 33 at 101.5, bar 34 at 102.1, bar 35 at 103.0 and bar 36 at 103.4, and nothing higher afterwards. The best close is 103.4, which is 4.60 above the entry and 2.979 of an R.

So the trade showed 4.60 and paid 2.50. It gave back 2.10, which is 45.7 per cent of what it showed, and 53.8 per cent of all the giving-back on the whole sheet.

Now put the two facts about this trade side by side. It is the largest realised winner of the seven, at 2.50, and it is also the largest disappointment of the seven, at 2.10. Both descriptions are exactly true of the same thirteen bars. And a trader who took lesson 86’s advice and left at the first profitable close would have left this trade at bar 27 with 0.40 — taking, from the trade that showed the most, the least it was ever worth.

The trade you remember is the trade with the longest life, and length is the only thing it takes to have something to regret.

That is the mechanism the rest of this module has been circling. Trades 1, 6 and 7 last one or two bars and give back nothing, and nobody thinks about them again. Trade 3 lasts thirteen bars, gives back 2.10, and is the one that gets discussed. The habit lesson 86 priced is not irrational given what a trader can actually recall; it is a rational response to a sample of memories that is selected by duration. The correction is not discipline. It is the column.

So build the column: for your last twenty trades, the best price while you held, beside what you actually got.

What this does not settle

That 26.7 per cent is a number about markets. It is a number about seven trades from one rule on sixty closes, and the three trades that produce all of it are the three that lasted longest. A rule holding for weeks would show a far larger share and a rule holding for one bar would show zero, which means the figure is mostly a fact about holding period. What generalises is the method rather than the magnitude.

That the best close is what the trader saw. It is not. A close is one price a bar; the high is higher, and a trader watching in real time sees the high and remembers that. Every figure on this page is therefore the conservative version, and a page built on highs rather than closes would report a larger gap. The reason this one uses closes is that closes are the series the whole course has been checkable on, and consistency is worth more here than severity.

That memory works the way this page assumes. Nothing here measured a trader. It measured prices, and then asserted, on the strength of the sources below rather than on any evidence of its own, that the peak of an experience has an outsized hold on how it is recalled. That assertion is doing real work in the closing argument and it is not this page’s finding. A reader who rejects it still has the column, which is worth having either way.

That the counterfactual is available. Leaving at the best close needs the future, and the page says so, but it is worth saying twice because the number is seductive: 13.739 after costs against 9.839 is not an improvement anyone can capture, at any level of discipline. It is the size of a comparison, not the size of an opportunity, and the reason to measure it is to know how big the thing pulling at you is.

And the concession that costs most: four of the seven habits this module has now measured were each measured alone, with the other three held still, and that is not how a trader runs. Lesson 90 puts all four on the sheet at once — the early exit, the tight stop, the outcome-keyed size and the remembered peak — and finds that they do not add. Separately the early exit costs 2.20 and the quarter-R stop costs 5.90, which would put the pair at 1.74; together they leave 4.44, because two exits compete and the earlier one wins. The rule that was worth 4.16 over holding ends the module worth minus 1.24.