Gems

[wasp]

Over the 8/9 years of T2W there have been some timeless gems posted by varying members and I am going to try and make a thread of them.

A lot, I imagine, will be purple but if they get the point across, blunt and simple, so be it...

Feel free to add but make sure they really stand out!

 

[wasp]

Originally posted by Socrates and just re-posted by new_trader and I don't know the sauce (unless NT lets me know) so here it is in glorious copypasta....

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(Originally Posted by) SOCRATES


The single most important thing you have to concentrate on is limiting losses.

You do this by using stops.

As you become more proficient at picking winning moves you have to tighten your stop loss policy.

Limiting losses to the absolute minimum is the key. All else is peripheral.

Now that is a simple statement.

If everyone did this, everyone would survive long enough to eventually become proficient.

But very few have the self discipline to persist in this way.

I strongly suggest you follow the lead I have just given you.

Without going into deep details I explained that efficient traders use very tight stops because efficient traders get it right many many more times than they get it wrong, that is why they are efficient traders, OK ?

Therefore efficient traders are surprised and shocked when they get it wrong. The fact that they use very tight stops immediately limits losses.

Inefficient traders are apt to use wide stops and some blighters none at all !

They now begin to argue, yes argue, that to use a wide stop is the right thing to do because it allows a position to "breathe" and other nonsenses. When it is pointed out that wide stops used by inefficient traders who get it wrong often and really ought to fiercely control losses, they get abusive, or, begin to argue.

That is why I have so many posts under my belt. I have tried in the past to illustrate lots of ideas. These ideas are immediately recognised by a few who go on to use them beneficiallly which pleases me enoromously. The great majority see fit to argue and argue and do not progress.

One starts at the beginning and finishes at the end. You cannot start at these levels when you are a beginner. It is a matter of refining and reviewing and of self mastery through adversity by sheer dint of will. But anyone who aspires to eventually overcome can do it, it is a matter of determination and focus, and of a burning desire to succeed


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[arabianights]

So ****ing true and another example of why the intrepid sailor should be allowed back

 

[wasp]

One for those embarking and tempted by indicators... Its much simpler.

Having gained an appreciation of the strength of the trend, and its location within the support and resistance framework, ONLY THEN, finally, do I concern myself with the current price action to determine the bullish or bearish sentiment (or more particularly a potential change of sentiment) through candlestick analysis.

Lance Beggs

 

[wasp]

I did answer this poll (put down 1hr as my answer) even though I do in fact use may different time frames in my trading. I have a bunch of things that I have as 1 min charts, not because I would ever trade technically off such a short timeframe (people who know me know better than that) but simply because their very short term movements are often useful to spot. These instruments are (in no particular order, just what's on my bloomie;

Front month crude futures (CL1 <Comdty>)
Front Month S+P (SP1 <Index>)
USD/CHF spot (CHF <Curncy>)
USD cash Index (DXY <Index>)
Spot gold (GOLDS <Comdty>)

I also have all the major pairs up on hourly charts (8 are always up, a few others saved and ready) plus I dip into daily and weekly charts all the time, and usually have an idea of levels on these suckers.

Finally like most people in FX right now I'm increasingly having to look at my monthly charts from time to time.

In this respect I would say I'm pretty typical of the wholesale community in the way I approach charts.

GJ

Well... He does work in a bank so worth listening too!

 

[wallstreettrading]

sorry but how can that statement be true about stops? if you have designed a system that uses frequency?.

how can professionals like iraj use wide volatility stops that have risk management and money management built in be wrong when the performance and expectancy prove beyond doubt that wide stops work

 

[wasp]

Dave, a market stall owner sold fruit. He sold a lot of oranges. When he first started trading, he sold them for 5p each. They sold better than whisky at an alcoholics anonymous meeting. He put them up to 10p, still sold... 20p, 30p... Obviously good oranges.

At 30p the sales started slowing down, he dropped them to 25p and they were selling again. Dave, being a greedy bugger went to 35p and business was okay. Jumped up to 45p and only a few went here and there. Things started to peak. He dropped back down to 40p, then 35p... business was still slow... He went back down to 30p, things picked up and he saw all his old customers come back. He kept them there for a little while, then as things stayed constant, he started to push prices up again. The same thing happened at 45p as they were again, too expensive.

This time, a stall opened next to him with even juicier oranges. Dave had to drop prices to 30p again but still no good, he had a bit of interest.. but he had to go back to 25p...

Economists and bloomberg analysts said after the event that it was the new stall, the fact it started raining oranges and something else to do with America probably, technical analysts looked at the stats in a chart, saw key levels sat at 25p, 30p, an 45p.

Supply, demand, support, resistance. Call it what you will and view it through FA or TA, but at the end of the day, TA always works.

very clever chap this one!!

 

[wasp]

Journals

Thank you. There's more, if it will help:

A journal should be more than just a trading log – bought here, sold there, made this, lost that. It should be a record of your journey (that's why it's called a "journal"). If done correctly, a journal will reveal patterns. Patterns of what you're doing right and what you're doing wrong and when and how often and under what circumstances. Patterns of the behaviors of those who are trading your stock (bond, fund, option, whatever). Patterns of the market you're trading, of its cycles, of its stages, of what works at some stages and in some cycles and not in others. It will reveal much regarding your trading. It will also reveal much regarding your self.

Addressing the questions asked in Part One and defining and testing the setup are only the preliminaries. Eventually, one starts trading, if only on paper, and that is where the journal can make the difference between success and failure.

A journal is not just a record. It is also a plan. Before the first trade is ever made, even if only on paper, prepare for the day. Note any events that you should be aware of (reports, press releases, meetings, speeches, testimony, nuclear explosions, approaching meteors, etc). Write down reminders of any elements of the trading plan that you're having trouble with and what you intend to do about them, e.g., “don’t take any trades anywhere but at support or resistance” or “be wary of wide-range bars” (this may be necessary as early as the afternoon of the first day).

Above all, record your justification for each and every trade. Record your thoughts before, during, and after the trade, written in real time* (your perception of what looks to you like a potential setup will change substantially after the “setup” resolves itself, and when you ask, later, “what the hell was I thinking?”, your record of your thoughts -- your "self-talk" -- will tell you, so that the next time, in real time, you’ll have a deeper and more rational perspective). This is more than just the reason for the trade (“It looked like it was going to go up”). It is more than the rationalization (“It was time for it to go up”). It is more than the mystic prompt ("I felt it was going to go up"). It’s the justification for it, the explanation that one would provide to one’s boss or client if he were trading for someone else. If everyone wrote down the reasons behind and justifications for every trade, their learning curves would be accelerated dramatically.

*or recorded in real time orally; you can pick up an Olympus VN-240 Digital Voice Recorder on eBay for less than $10.

At the end of the day, review your decisions. Did you make good trading decisions, i.e., did you follow your rules or not? If you followed your rules but made one or more losing trades anyway, do any of your rules need to be re-examined? If you didn’t follow one or more rules, which do you most often fail to follow? What’s the problem? What did you say to yourself at the time? What do you need to work on the following day? Always, what could you have done differently to improve the outcome? Can it be tested to find out if it's only an occasional anomaly or worth incorporating into the system?

And then you write down your detailed plan for the next day . . .

.

 

[arabianights]

Never mind secret handshakes mate... through too much internet browsing reading the ******** from these conspiracy loons I've been taught to be cautious about believing they say... But then again I placed a great reliance upon the integrity of LIFFE and that was pretty stupid, so...

 

[wasp]

sorry but how can that statement be true about stops? if you have designed a system that uses frequency?.

how can professionals like iraj use wide volatility stops that have risk management and money management built in be wrong when the performance and expectancy prove beyond doubt that wide stops work

I do not want this thread to be about stops so will only post this one reply and if you so wish, I will continue elsewhere, but not here.

I have discussed in depth my differing ideas on stops with grey1 on a different thread and I still stand by what I and Socrates say above. Tighter the better and it would only improve peoples trading.

 

[wasp]

This is because if you have to ask to have it explained to you then you cannot be a battle hardened, really experienced trader.

The problem is that it is a chicken and egg situation.

In order to be able to understand and accept the concept you have to have evolved to become a battle hardened, really experienced trader.

By that time no explanation is necessary.

Therefore discussion of it is pointless, unless it takes the form of a discussion between equals.

Curiously, the stage at which a really experienced, battle hardened trader arrives at this plateau of proficiency is as a result of his or her individual effort.

This is because sharing the effort does not work, as sharing it does not teach the lesson that has to be learnt, realised and accepted.

Therefore you are wrong again, I am sorry to have to tell you.

There is no mysticism as such with regard to Merit, Ability and Conduct.

It is just that so few have the correct faculties in harmony that it is as if it were mystical, because it is not mainstream.

Therefore a permanent edge is not mainstream.

A minor edge (temporary) may or may not be.

The true edge is the one that is permanent, and for the reasons above, (which are some and not all) the holders are not willing to share. They are not transferable via the mainstream route.

This is another reason why sharing does not work.

The right to an edge is earned and not given.

I regret if this is frustrating to you, but it is a fact, and one of a cluster of facts.

.

 

[wasp]

thats pretty interesting.

confirms my view that if you draw enough lines on a chart, some of them are going to line up with something,

 

[wasp]

FWIW here is my 2cents....

Winning attitude. Thats it. (has anyone mentioned that one before - if so apologies for bringing it up again). On the floor there were people from all walks of life, every corner of the globe, every age, colour, etc. There was a peg for every shape of hole. The traits we had in common was the ability to work hard, determination to crack it, and above all come back fighting after a set back. Those that didnt cut it were the types who were always trying to impress others, know it alls etc...

Personally however I think honesty is key. Honesty with yourself, and the ability to think independently.

People from other walks of life have a tough time cracking it because they are used to moulding the world around them to achieve what they want - and they try this with the markets, and....(well, you all know what happens next) People tell me lawyers make the worst traders for some reason. Dont know why this is.

.

 

[wasp]

Ok let's start with the basics of Support, Resistance and Trendlines. This really is the core basics of trading, and in my view is the foundation of a trading strategy. We will move onto indicators in time, but first

How Candlesticks are constructed.

There are 3 types of bars that can be used for charting. A line chart (which connects the closing prices), a bar chart and a candlestick chart.

A bar or candlestick chart will show the high, low, open and close for a set period (so on a daily chart, one bar represents one day). The high and low data is very important, so a line chart is no good for that.

There is no real difference between a bar or candlestick chart – they both show the same data so it’s personal preference – but I prefer to use candlesticks.

Ok onto the technical stuff, Support, Resistance and Trendlines

Support:

Support is a level on a price chart, that price hits and finds a large amount of buyers, and hence the price starts to rise again

Resistance:

Resistance is the level at which a price chart struggles to break above. When price hits a resistance level, the number of sellers is strong (as they know that the next move is down), and it takes a lot of buying pressure to get it above this level.

Trendlines:

Trendlines are made by connecting 3 or more points along the same line. They either connect the tops of the highs together or the bottoms of the lows. Trendlines work because everyone sees them and know that the next time price hits that level, a reversal should happen, so they either rush to buy or sell depending if it is an uptrend or downtrend.

….and that’s pretty much the foundation to trading. I know it sounds simple (and many of you would all ready know this), but it works and that is the main thing.

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[wasp]

I'm pretty sure you're right that everyday traders don't spend too much time considering personal psychology etc, they shouldn't do if they are any good, BUT if the implication is that personal psychology is not important I'd say you are so far off base that the base is not even in sight and that is because of your viewpoint.
I might be wrong about that and if so I'd apologise ,but at this point I don't think I am.

Clocking in and out of a place of work everyday where you are shuffling relatively small amounts of personal capital ,or indeed trading large amounts of other people's capital is absolutely nothing like trying to consistently manage your entire personal net worth and of course as you get older what that means to you also changes. When you're younger, taking chances to me anyway, was a completely different fish from what it is now.

When I say personal psychology is important it doesn't mean you spend your life navel gazing . It does mean that you never lose sight or awareness of what you are doing and why you are doing it. If I had a pound for every guy I have met who didn't do that and lived to rue it I'd be even more comfortable than I am....don't think the point is valid ? please email Victor Niederhoffer or get a medium to have a chat with Livermore...they're just two extreme examples of the many less exagerated cases that are there to be found everyday of the year. Let's not even talk about them as individuals ,let's call then Hedgies with very 'smart' people at the helm...well if they are that smart why are so many so flucked ? ...if putting on weight is just the small indisciplines that people take everyday then losing your shirt pushing that bit too hard is no different.

Market psychology of course is only personal psychology collectivised and I doubt many good traders are not looking at that everyday ? I know I do ,it's part of the game trying to read the price action to second guess where the stops and limit orders are as we of course cannot see them without the order book....if we werre not doing this then of course we would not spend so much time looking for action at points of support and resistance...this is psychology ,but perhaps we don't always realise it ?

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[frugi]

I miss chump. A stalwart provider of uncomfortable, challenging, confrontational, yet invariably top shelf ****; at his best when one prickles with disagreement and is forced to think.

Incidentally, a parasite can survive at the expense of its host without having the barest understanding of the host's methods of survival. But when a parasite that is particularly deft at compromising one type of generous creature encounters the defences of another, and fails to gain a foothold, it often likes to pretend the latter offers no sustenance anyway, often loudly and in a thread-spoiling manner.

My actual contribution (a mere torch bulb in the face of previous floodlights): Don't obsess over a single price; do business in an appropriate zone.

Admirable trawling Señor Wasp, pray continue...

 

[Joey25]

I miss chump. A stalwart provider of uncomfortable, challenging, confrontational, yet invariably top shelf ****; at his best when one prickles with disagreement and is forced to think.

Incidentally, a parasite can survive at the expense of its host without having the barest understanding of the host's methods of survival. But when a parasite that is particularly deft at compromising one type of generous creature encounters the defences of another, and fails to gain a foothold, it often likes to pretend the latter offers no sustenance anyway, often loudly and in a thread-spoiling manner.

My actual contribution (a mere torch bulb in the face of previous floodlights): Don't obsess over a single price; do business in an appropriate zone.
Admirable trawling Señor Wasp, pray continue...

That's the best so far

 

[new_trader]

5 Star Gem

Yes exactly, and what happens is that it may be very difficult to detect the fog while it is enveloping and for this reason absolute pragmatism is required to avoid this very real danger. The other thing is there are two additional dilemmas. The first is to have the will to resist entering a scenario that is not clear and the second is to recognise it is not necessary to be in the market all the time, but only when the odds are clearly in the favour of succeeding without question. Now, it is a natural reaction to feel bored or even guilty at self imposed inactivity, but it is just as important and relevant as being in the market at the right time and in the right direction.

Very Important.

 

[Joey25]

Yes agreed. Tackle this problem by expanding the range of markets covered, and don't feel compelled to trade any individual market every day, hour etc.

For my style, this means avoiding the crap in the middle, entering at the extremes of the range.

That's my new favourite in this thread, new_trader

 

[new_trader]

This comes with experience. When you become familiar with the instrument you are trading, you begin to develop an affinity with it. It begins to "talk to you" and to indicate to you how far it is going to travel and how so on. As this skill is the result of experience, there is no subsitute for it. You just have to put in the hours to familiarise yourself fully before you are able to get the clues.

Again, I know that this is not what people would like to be told or to hear, but it is fact.

Quality, pure quality. It is a FACT.