my journal 2

[Yamato]

Won again, and I am tired. I guess this is the measure of a good system: it works even if you're tired and pissed off. Also, switching chart as soon as you've made a trade keeps you off "revenge trading", because once you lose or even win, you're changing chart so you don't hold a grudge towards the stock that made you lose (or win, which also keeps you from being neutral). Every time you change stock in some way you reboot your mind and prejudice about that stock.

 

[Yamato]

Yup, I think i've got it. I am getting there. First discretionary (or at least manual) system that I'm profitable with.



Let's sum it up one more time:

RULES FOR BOTH METHODS:
1) on the weekly chart of "chart game", one trade per stock on 5 stocks for a total of 5 trades (only LONG trades allowed)
2) if unprofitable after two weeks close trade
3) if profitable after two weeks, close after 6 weeks

DIVERSIFIED RULES:

BOUNCE ON SUPPORT TRADES:
1) Important support level
2) Confirmation candle, gap down (touching support), uncertainty candle with regards to downtrend
3) Extremely oversold

BREAK THROUGH RESISTANCE TRADES:
1) Not overbought
2) slightly above resistance
3) preceded by long term uptrend (you can't have 4 years of range or else a breakthrough is less likely)

 

[Yamato]

Lesson learned: I really have to let price reach support, without anticipating it, because in most cases it will get there. I have to really trust s/r levels in other words, because they get reached.

 

[Yamato]

I think I am learning something. The last two series were 100% wins. I am learning to read candlesticks, in other words, the way that price moves, which is nothing other than oversold/overbought levels, which I already mentioned. Yeah, because that's what we read in candlesticks. Overall I got about a 66% of wins, and a very large profit. It's working: more wins than losses and bigger wins than losses. I am now only worrying that I won't be able to repeat this in real trading, but this stuff definitely cannot hurt.

Also, I have to mention that most of the stress is gone, shown by the fact that I'm playing these charts dozens of times in a row.

 

[Yamato]

Ok... definitely learning. Learning the value of round numbers on stocks: 10, 30, 50, 100. Just like 0.0100s on GBP and EUR.

Got a bunch of positive results. Would feel like doing 20 trades at a time, but I am afraid that would get me started overtrading, and hanging on to losers, in order not to get an awful series of let's say 20 trades. If I fail on 5, so be it, because I can start all over again. But if I fail on 25, it's a mess, psychologically. On the other hand, the results, in terms of percentage of wins and profit, could be more constant. And I wouldn't have to upload all these images. I'll think about it.

Maybe I'll either play 20 trades or I'll copy paste the results instead of taking snapshots.

 

[Yamato]

I knew it! As soon as I started this feat of 20 trades in a row, it seemed immense and I started slacking off and working less hard in order to finish them faster. It is only natural: with 20 trades, each trade seems less important. Tomorrow or whenever I'll do more, I'll go back to 5 trades at a time.

 

[Yamato]

I guess we can say that I'm profitable.

These are a bunch of stocks I played, only LONG trades, and the only rule was that, pretty much, if I was wrong, I'd get out by my first or second unprofitable (weekly) candle. I've been allowing myself to stay in trades longer than 6 weeks if profitable (which was a requirement until yesterday, but I now use as a flexible principle). The other rules are the ones I mentioned before, plus some more instinctive stuff that I'll write down as much as possible as soon as I've got it all figured out. On the other hand even if I don't write it down, once I got it I got it. Once I have figured out a way to be profitable, on unknown stocks, I am not going to forget it. It's like playing risk. I keep on winning regardless of how many years I stop playing, or swimming or riding a bicycle.

I'll know that I really have figured it out once I'll get positive outcomes on every so many trades made and so many stocks played, in the dozens, like below. The longer I go on, the more reliable are these results. When I only play 5 stocks, those results are not as indicative of my understanding, because they could be influenced by luck. On the other hand, i had to do it this way in the previous days because after 5 trades I was very tired and stressed out, since every time it was a challenge, being so unsure about my skills. Now I have increasingly more confidence, and I choose more quickly, and with much less stress.

 

[Yamato]

Making only LONG trades allows your mind necessary rest

Awesome! Ten trades on 12 stocks... almost all wins, and profitable on all stocks. I am learning it just like a videogame. This chart game has got something that IB's paper trading account does not have: speed. Real trading sucks: the only exciting thing about it is money and the few volatile moments, around news time. That's why paper trading is so hard to do: because at that speed and without money, it becomes extremely boring. But this simulation game, with the ability to speed it up (in my setup with each click a week goes by), renders boring stock charts an entertaining game (also thanks to the idea that I'll make real money with the skills it teaches me). This enables me to learn trading as if it were a video game. I can make it go as fast as I want.



I think this is thanks to only limiting my trades to the LONG side (the most probable), which in turn enabled me to focus enough and not go crazy with all the ups and downs. The ups and downs drive you crazy, if you try to profit from both. But if you only focus on going LONG, you can rest your mind while it goes down and prepare for your trade. I think that was the #1 idea that made improvements possible, and kept me from going crazy and giving up. The second good idea was the stoploss, which everyone talks about (even without understanding it), but which is not a reality until you have fully digested it.

 

[Yamato]

The chart game took "waiting" out of the picture, and showed me I am profitable

Holy ****! This game is teaching me to have total faith in support and resistance levels, teaching me how to read them, and teaching me that they work very very well.

Furthermore, it's teaching me that if I am confident in a method trading is much less stressful, almost not at all. It's not because I am paper trading, as someone may object, because yesterday I remember how totally stressed out I was, when I was making those 5-trade series, and trying to make the right calls on the market. But now I have found out, gradually and increasingly, that I have an edge, and that profit happens. I can make profit happen. It's the most important thing. Until now I noticed that my automated trading systems could make profit happen but I didn't know exactly how they did it, nor how long it would last. They did it by waiting. Something I don't do when I trade, since I always overtrade. I guess we're all profitable from the start - the only problem is that we don't get rid of those trades we're not positive about. Anyone can see the good opportunities in the markets, but very few can wait until they see them. With this "accelerated" simulator the problem of waiting went away and I suddenly realized that I am capable of being profitable and having an edge.

At this point, i'm tempted to dare further and go SHORT as well as LONG but I will postpone it because first I want to get this right and never really fail (given a certain number of trades), which is being the case in the last few trades. Also I must not forget what I said two posts ago: going in the most probable direction not only gives you an edge, but also allows your mind to rest as necessary. I can't expect to bet on every single move of the market (on top of it with a worse edge), because this will just drive me crazy. I love how how I've been able to let some stocks go without being bothered by the idea that there might have been good opportunities. The problem is that these are weeks that are going by, one week goes by at each click, whereas in real trading I couldn't just let 1 year go by and do nothing for a whole year. Not even for one week.

The good thing is that it's teaching me to wait until the s/r level is actually reached and not anticipate it.



This above was like the fourth series of profitable trades in a row: I am getting used to making money with this method (see previous posts for method), and even beating the buy and hold approach. But I have to be careful now, because my psychology is changing, and i noticed that on two occasions I didn't respect a stoploss and started hoping because I didn't want to ruin a string of wins, and didn't really accept that I could be wrong.

Anyway, the chart game took "waiting" out of the picture, and showed me I am profitable: if I can wait. So I can be profitable with real money via discretionary trading, if I can allow myself to act as an automated system and trade only once a day, or rather at one moment of the day. Possibly at the reversal time near the US close. Best if by only going LONG on those futures I monitor. And better if I do so in an uptrend, which will be signalled by the fact that my automated systems will have made money the previous week.

The "one trade per day" part has been kicking in recently. After getting from 30k to 3k in six months, and staying at about 3k for the past month or two.

The ideal trading environment for me would be staying at work until 20 CET (13 CST), so I can't trade, and having access to charts so I can look and study what the best opportunities are. Then only get home at reversal time, which is about 14 CST, on pretty much all the futures I trade. But this situation is science fiction, since I get home at 16.00 CET, and then the time is not right to trade (for my bottom picking, I mean). So hopefully good habits will help me out. Because I have zero discipline.

 

[Yamato]

Only make as many trades you can keep calm with

As long as you're not trading compulsively, you are reasoning. And if you're reasoning, you can find a way to be profitable.

In order to avoid trading compulsively, you simply have to limit yourself to making one trade per day - or as many trades you can keep calm with, which in my case is one trade per day. Do I want to be profitable? Yes? Then one trade per day.

I should approach trading like net fishing. You set your nets and come back and see if you caught any fish. You set your limit buy orders during the day at oversold support levels. Then come back from work a few hours later and see if any of them got executed. If not, too bad. Then you still make your one trade per day, because you can always find one good opportunity every day. This way your capital grows and you stay calm. You want it the other way? Excitement, speed...? Your capital will decrease. It's up to you to decide what you want.

 

[Yamato]

The system according to which I should do net fishing, my one trade per day, or more if I have enough margin (making sure I don't pick correlated trades or I'll be increasing my risk without realizing it) and calm, is as follows:

1) around 3 AM or 3 PM CST
2) price overbought/oversold (after all, short trades are ok, especially on the currencies)
3) price near s/r level

This system is profitable on any future. To summarize it: at 3 AM/PM CST, overstretched price bounces on s/r.

 

[Yamato]

Oh yes... now no hubris



Ok, no hybris now, but I'd say that I have indeed found a way to be profitable on the chart game, which means being profitable on stocks minus the time constraint, because in reality I cannot make stocks move by one week with one click. But yes, this is indeed pretty good news.

Bringing 10k to 100k with a few stocks is pretty good: you cannot do that unless you have an edge, a profitable method. On one occasion however I did not use the stoploss and started praying, so that means I am not fully in control even when things go well.

But actually on a second occasion I didn't use it precisely because things did not go well, and i got stopped out 4 times until I said: **** it, now I am not getting out (and I got lucky). The reality is that my stoploss was simply too tight in those 4 occasions.

Now no hubris because on regular futures, with real money, I am still totally unprofitable. Precisely due to time constraints: I can't make a week go by with one click, and I can't wait around and do nothing for 2 months or more.

I know that I could play it on a different timeframe, and use hours instead of weeks, and it still would work, but the reality is that I cannot even wait hours for s/r to be reached. As soon as I'm in front of moving charts, I press the button within a few minutes. I am constantly feeling that we're at the bottom (or top) and that I can't wait any more time to enter. This problem needs to be addressed: compulsiveness or whatever it's called.

 

[Yamato]

This would be a perfect time to go LONG on CL. On weekly low, december's low, time is right, it's highly oversold... but I don't have the margin.

 

[Yamato]

See? What did I tell you... but hell no, I had to get long hours ago, on the EUR.



And now the EUR is not doing anything at all and my position will be unprofitable as usual, because I didn't wait for s/r levels to be reached, on any of the futures I am monitoring. And yet it is a daily event. Only I feel like I'm going to miss the action if I don't enter immediately, as soon as I get home from work. This doesn't happen on the chart, because time is on a different dimension there: I can stop it and I can make it go forward. So there's no anxiety, no feeling of potentially missing something, feeling that you have when the chart in front of you is moving on its own, and not just when you make it go one week ahead by clicking a button.

 

[Yamato]

If there's something, a lesson that I should retain from becoming profitable at the chart game, is that s/r levels, and I mean the exact s/r levels that you have plotted on the chart, will be reached. Not always, but often enough to make it worth waiting. And that is why I should wait. I should retain this lesson. And if I will, my trading will become profitable. I need to learn to wait. Not weeks like on that chart game, but hours. I need to be able to watch the chart and wait hours (or insert my limit orders as I wrote this morning).

 

[Yamato]

Market Wizards: Bruce Kovner

Here's a couple of interesting quotes from Market Wizards by Jack Schwager, which I've been reading, very slowly. Today I've read another two pages and I finished the second trader, Bruce Kovner.

The number one thing i noticed about him and the first trader interviewed by Schwager, Michael Marcus, is that they do both technical analysis and fundamental analysis. And since they're so successful, I was thinking that maybe I should do something about fundamental analysis as well. But in this field I believe that nothing is better than a little bit, because a little bit of news could totally screw up my sound technical analysis (poorly implemented but sound). So, since it's not easy to even start studying fundamental analysis without screwing up my trading, I will probably do nothing rather than study it superficially (since I don't have enough time and energy to do it seriously), but I've at least learned to check out this briefings page once a day:
http://www.dailyfx.com/calendar/

Not because I will understand any fundamental analysis from it, but because I'll know why and when the market will violently swerve up and down for a few minutes, or understand why the market is not moving (prior to some news). This does not screw up my technical analysis, and it adds some useful knowledge. Of course I will go nowhere near interpreting anything about the news being released at those times.

Anyway, here's the two quotes I appreciated by Kovner.

The first one, on the stoploss:

Don't you run into the problem that a lot of other people may be using the same stop point, and the market may be drawn to that stop level?
I never think about that, because the point about a technical barrier—and I've studied the technical aspects of the market for a long time—is that the market shouldn't go there if you are right. I try to avoid a point that floor traders can get at easily. Sometimes I may place my stop at an obvious point, if I believe that it is too far away or too difficult to reach easily.[...]

Kovner on stoplosses: the classical definition actually, nothing surprising. But it's good because it makes me trust the concept of stoploss more.

Kovner on false breakouts and technical vs. fundamental analysis:

Your trading style involves a synthesis of fundamental and technical analysis. But if I were to say to you, Bruce, we are going to put you in a room and you can have either all the fundamental information you want, or all the charts and technical input you want, but only one, which would you choose?
That is like asking a doctor whether he would prefer treating a patient with diagnostics or with a chart monitoring his condition. You need both. But, if anything, the fundamentals are more important now. In the 1970s, it was a lot easier to make money using technical analysis alone. There were far fewer false breakouts. Nowadays, everybody is a chartist, and there are a huge number of technical trading systems. I think that change has made it much harder for the technical trader.

It's a very dense book. I would say my favorite and most useful even trading-related book. On the other hand, the most useful trading resource to date still is.. the chart game.

 

[blancspa]

Hi Travis
Have a nice one.

 

[Yamato]

Yeah, thanks, I hope I'll have a good one. Thanks for stopping by.

Ok, now that I am pretty much profitable on the Chart Game, I will try the trade navigator by genesis, which is slightly different and closer to real trading.

1) I will trade the futures I trade for real
2) you can't make time go by with one click but have to wait for time to pass by itself (e.g.: you can't push a button and make it advance by one hour), whether fast or slow (you can set that part)

If I'll be able to succeed at my own futures, at a faster pace, but without being able to fully control the timing of each bar, I'll be even closer to being profitable at discretionary trading. Then I'd have to slow down what I'm doing, if that's possible. Eliminate my compulsiveness and so on.

 

[Yamato]

I tried the genesis software, for the second time, for half an hour, and I don't like it.

First, it doesn't allow me to see data from further than 15 days, and this is a problem because I remember what happened in the last 15 days.

Second, I don't think it's very well made. It's not good software. It's not awful, but it's definitely not excellent. IB's TWS is like the space shuttle compared to it. Chart are hard to configure... it's a mess.

The chart game, with much less pretense, achieves more and better. That guy is a genius and a perfectionist. And that web site is very understated. It's the best trading resource around, but doesn't get credit for it.

 

[Yamato]

Market Wizards: Richard Dennis

Here's a couple of interesting quotes from Market Wizards by Jack Schwager, which I've been reading, very slowly. Today I've read another two pages and I started the third trader, Richard Dennis.

On trading secrets:

Didn't you have any reluctance about giving away trade secrets?
Sure, but I don't think trading strategies are as vulnerable to not working if people know about them, as most traders believe. If what you are doing is right, it will work even if people have a general idea about it. I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught our people. What they couldn't do is give them the confidence to stick to those rules even when things are going bad.

On luck and probability:

How much of a role does luck play in trading?
In the long run, zero. Absolutely zero. I don't think anybody winds up making money in this business because they started out lucky.
But on individual trades, obviously, it makes a difference?
That is where the confusion lies. On any individual trade it is almost all luck. It is just a matter of statistics. If you take something that has a 53 percent chance of working each time, over the long run there is a 100 percent chance of it working.