Questioning common beliefs

[Shakone]

Knowing how to trade but can't.

Inspired by another thread, how many people believe they are in this situation of 'knowing' how to trade, but not able to do it?


If you find that you believe you know how to trade, but can't, then rather than try to force control over emotions and stop them, which doesn't work, why not investigate why you are feeling the way you feel? These emotions are commonly viewed as destructive to trading. I would question this and argue that they are not.


Consider an example of a new trader who has been learning for 6 months to a year. He's found something after all his studies and he believes strongly that his system works. Unfortunately, it doesn't really work, he's deluding himself. His feelings tell him it doesn't work and make him uncomfortable when following it, which is very helpful in fact. However, the trader doesn't want to accept that it doesn't work, he strongly believes in it and all that work and study, so he will call these feelings bad and try to control them.


Now this may go on for a while, but given that the trader wants the system to work, and given the fact that the account doesn't seem to be going up, what is the solution here? One solution is that he throws in a few non-system trades, or obeys entry strategy but disobeys exit strategy or some other variation. This is wonderful, because then he can go on believing for a long time that his system works (hooray!) and complain about discipline problems and patience while beautifully explaining the account drawdown. Such an elegant solution to the problem.


Was the emotion or feeling the problem here?

 

[Shakone]

The second common belief I would like to question is:

The trend is your friend


Well is it? Quite a strong statement to make, especially when we have to define trend. And your definition is probably different to mine and different to the one who invented the phrase. But even once you take your specific definition, is it better or worse to trade with the trend? Have you checked or assumed it's true?


Is the trend your friend on all timeframes, on all instruments? Is it ever a good idea to trade against it?


All thoughts welcome on this or the previous post, and indeed any other common beliefs that you think are worth questioning.

 

[hungcable]

The second common belief I would like to question is:

The trend is your friend


Well is it? Quite a strong statement to make, especially when we have to define trend. And your definition is probably different to mine and different to the one who invented the phrase. But even once you take your specific definition, is it better or worse to trade with the trend? Have you checked or assumed it's true?


Is the trend your friend on all timeframes, on all instruments? Is it ever a good idea to trade against it?


All thoughts welcome on this or the previous post, and indeed any other common beliefs that you think are worth questioning.

Hello, shakone.

With all due respect, would it be possible to concentrate our efforts towards a certain type of speculator, specifically, chart only enthusiasts?


Regards.

 

[Shakone]

Hello, shakone.

With all due respect, would it be possible to concentrate our efforts towards a certain type of speculator, specifically, chart only enthusiasts?


Regards.

Sure, why not? This thread is open, just post your thoughts on any common belief that is worth questioning, even if it only applies to chart traders. No right or wrong. Just ideas, stupid ones from me, perhaps intelligent ones from others. You never know, we might get somewhere interesting.

 

[hungcable]

The second common belief I would like to question is:

The trend is your friend


Well is it? Quite a strong statement to make, especially when we have to define trend. And your definition is probably different to mine and different to the one who invented the phrase. But even once you take your specific definition, is it better or worse to trade with the trend? Have you checked or assumed it's true?


Is the trend your friend on all timeframes, on all instruments? Is it ever a good idea to trade against it?


All thoughts welcome on this or the previous post, and indeed any other common beliefs that you think are worth questioning.

What creates and influences a five year bull market? More importantly, is that something tangible?

There may be more questions than answers.

 

[hungcable]

diametrical opposition: Flight to quality? Is there an obvious existence between any given markets?

 

[timsk]

The trend is your friend
Well is it? Quite a strong statement to make, especially when we have to define trend.

Okay Shak', against my better judgement, I'll play. After the flack I received on the long and short thread earlier in the year, I'll probably regret this. Hey ho! Just for the record, this post is by me as an ordinary T2W member - i.e. not with my staff hat on.

An equally strong statement to make (as the one I've quoted) would be to question not just the common belief - but a dictat written in stone - that it's never a good idea for a trader to average down. If a trader knows for sure when the exact top or bottom of a move is, then there is no need to do it. However, given that nobody knows for sure when - or where - that might be, then averaging down might be worth considering. Make no mistake, it can be disastrous. In days gone by I've blown an account doing exactly this - so I'm all too aware of its dangers. Needless to say, it absolutely must be executed with the utmost care and within very specific risk and money management parameters.

I think this is one common belief well worth questioning - along with the two already mentioned by Shakone - as you'll arrive at your own conclusions based on your own research. Most traders will probably conclude that - for them - the dictat holds true and that averaging down is indeed a very bad idea. This is absolutely fine as any doubt will be removed from your mind and you'll have a better understanding of your own trading attitudes and beliefs than you would if you just accepted the status quo without ever questioning it.
Tim.

 

[malaguti]

The second common belief I would like to question is:

The trend is your friend


Well is it? Quite a strong statement to make, especially when we have to define trend. And your definition is probably different to mine and different to the one who invented the phrase. But even once you take your specific definition, is it better or worse to trade with the trend? Have you checked or assumed it's true?


Is the trend your friend on all timeframes, on all instruments? Is it ever a good idea to trade against it?


All thoughts welcome on this or the previous post, and indeed any other common beliefs that you think are worth questioning.

This in my opinion is without question, I don't believe its false at all but as you say the way I define the trend is probably going to be different to somebody else. is my way better, not necessarily and even that is open to interpretation but get it right and things begin to fall into place. i was recently playing around with backtest figures on a 15min timeframe and all my longs were profitable and shorts were dreadful. So were I to just apply those results and take only longs from now on, I would have been murdered as now my forward testing favoured the shorts...so was my strategy wrong..certainly not. quite simply because the trend had changed...The answer is in the trend..
like I say get it right and everything begins to make sense

 

[Forexmospherian]

Hi Shakone -

My thoughts on your first 2 common beliefs - ie Knowing how to trade but can't and the trend is your friend

You have hit the "nail on the head" with the first one. The industry as been very clever spinning yarns and false info to retail traders for decades.

All new traders know they will have to study charts and then discover a well respected method ( ie been around for decades) ie Fibs / EW / Harmonics / candle patterns etc etc and then test it in demo before going live.

If the "industry" can convince you to use 4 hr and daily charts - with a bit of luck it might be a year or two before you realise your are going 2 steps forward and 3 steps back - ie not really going anywhere - but hopefully still in the game ;-)

By then most traders are hooked - they love the "buzz" from wins - but know it will take time to handle these losses.

If they are really clever - they get out then ;-)

Unfortunately many carry on and then hit several different "walls or obstacles"

They have learnt more and understand the markets more - so they think "I am so near I will increase my account size and try harder" ( lol). They are told if they have a losing week or month - dont worry its all part of trading - well "rowlocks" - its all because of the way they are trading.

Ok they probably have a full or part time job and of course been told they only need to devote an hour a day to make a fortune - more rubbish from the "industry" ;-)

Nobody tells them retail trading is totally different to commercial trading - it really is chalk and cheese - different in so many ways

If they are lucky - the survive and carry on and eventually one day realise all that they have been taught as not been that helpful and nobody really told them much about advanced money management and having the correct mental psych to trade.

People dont like losing money normally and being told they are wrong - if you are a trader you have to accept it - in my case day in day out - I will always have small losses whilst scalping.

I reckon a part time swing trader on day charts will need 10+ years to really get there . A short term trader using proper charts all under one hour will or should hit the "eureka" moment within 3 -5 yrs - yes that much of a difference ;-)

With regards to the "trend is your friend"


Well it is for me - my trends i follow are all 5 to 30 pips normally and are all found on 1- 5 min charts

Traders just do not realise - because nobody as told them - that a new trend over a few hours - with just say 40 or 70 pips behind it - can have more strength then a 4 month trend with 1400 pips in the same direction.

With regards to 2 - 5 yrs trends with say 3000 - 5000 pips of same way movement etc- so what - one day they will change and reverse . It might be the day you commit heavy to the obvious direction ( you think ) ;-))

Try and always trade both ways - you will make more money - and remember you are a retail trader - not a long term investor - happy on 25% per year on your multi millions - different "ballgame"

Regards

F

 

[barjon]

Knowing how to trade but can't.

Mmm, have the same trouble with my golf

The trend is your friend

Momentum counts - you might find it with the trend or counter to it.

 

[counter_violent]

Momentum of note will only arrive at a single instrument when the whole market place is in agreement.

 

[Shakone]

The trend is your friend

I consider myself someone who trades with the trend. Having seen various definitions of trend, I think that some traders may find that the trend is not their friend yet are still persisting with it without even checking. I recommend they at least question it, because there are studies that show trading with the trend is not such a good idea. Depending on definition of course. If you find that you're entering short at what turns out to be near the lows, or long near the highs, hoping the trend will save you, perhaps have a rethink.

If the trend is always your friend, then that sort of implies that as long as you trade in the trend direction, it's more likely to go in your direction over the next x minutes/days than the opposite direction.

I suggest that without any qualifying statements, this isn't true.

Are the chances of a successful trade better when the entry is taken just as the trend has begun or when it has already been trending for some time? Same? Is the trend up your friend when it is just below resistance? Or when it has bounced strongly off that resistance? What about when Oil is $140 and Goldman Sachs says it's going to $200, or Apple is $700 and CNBC raves about predictions of Apple to $1000 :cheesy:? What about the 10-second trend, does that work? Aren't there exceptions to this or instruments that don't trend very well? For me there are, so I consider myself a trend trader, but question the statement.

Also from a logical perspective. Trader A sees a daily trend up and Trader B sees a 5 minute trend down (both have the same method of trend determination but different timeframes). Now if trend is your friend means over the next x minutes it's more likely to go one way or another, then Trader A and B can't both be right. So the resolution of this dilemma is...? I have seen it suggested that one should wait until both daily and 5 minute agree. But while that may resolve the dilemma on a personal level, it doesn't change the point, that most likely there will be some timeframe which is pointing the other direction and for which the trend is not your friend for someone.

 

[Shakone]

Timsk that is a great one! I don't see why a strategy can't be devised for averaging down, and I'm certain some large participants do just that. Must be worth questioning the never average down statement.

Barjon, define momentum for me please. Also are you suggesting that momentum trumps trend?

 

[cablemonster]

Knowing how to trade but can't.

Inspired by another thread, how many people believe they are in this situation of 'knowing' how to trade, but not able to do it?


If you find that you believe you know how to trade, but can't, then rather than try to force control over emotions and stop them, which doesn't work, why not investigate why you are feeling the way you feel? These emotions are commonly viewed as destructive to trading. I would question this and argue that they are not.


Consider an example of a new trader who has been learning for 6 months to a year. He's found something after all his studies and he believes strongly that his system works. Unfortunately, it doesn't really work, he's deluding himself. His feelings tell him it doesn't work and make him uncomfortable when following it, which is very helpful in fact. However, the trader doesn't want to accept that it doesn't work, he strongly believes in it and all that work and study, so he will call these feelings bad and try to control them.


Now this may go on for a while, but given that the trader wants the system to work, and given the fact that the account doesn't seem to be going up, what is the solution here? One solution is that he throws in a few non-system trades, or obeys entry strategy but disobeys exit strategy or some other variation. This is wonderful, because then he can go on believing for a long time that his system works (hooray!) and complain about discipline problems and patience while beautifully explaining the account drawdown. Such an elegant solution to the problem.


Was the emotion or feeling the problem here?

Good post. The transition from unconcious incompetence to concious incompetence (knowing when you are a 5hite trader) is an early learning stage that needs to be navigated.

 

[cablemonster]

Timsk that is a great one! I don't see why a strategy can't be devised for averaging down, and I'm certain some large participants do just that. Must be worth questioning the never average down statement.

Barjon, define momentum for me please. Also are you suggesting that momentum trumps trend?

I know of prop guys who trade the ES who absolutely average in or 'add'. They tell me the 'trick' is to know when to average in and when not to. Not something that suits me I prefer all in / out.

 

[Purple Brain]

Knowing how to trade but can't.

Inspired by another thread, how many people believe they are in this situation of 'knowing' how to trade, but not able to do it?

Oi!

 

[barjon]

...............Barjon, define momentum for me please. Also are you suggesting that momentum trumps trend?..............

Significant one directional movement usually associated with high volume. Yes, I'd suggest it trumps trend, particularly in day trading. Albeit that you could argue that it creates its own mini-trend whilst it's going on.

 

[malaguti]

The trend is your friend
Also from a logical perspective. Trader A sees a daily trend up and Trader B sees a 5 minute trend down (both have the same method of trend determination but different timeframes). Now if trend is your friend means over the next x minutes it's more likely to go one way or another, then Trader A and B can't both be right. So the resolution of this dilemma is...? I have seen it suggested that one should wait until both daily and 5 minute agree. But while that may resolve the dilemma on a personal level, it doesn't change the point, that most likely there will be some timeframe which is pointing the other direction and for which the trend is not your friend for someone.

You're right Shak, my earlier statement on trend would need to be qualified. The back and forward test results posted earlier were taken on a 15min timeframe. The results also indicate how long a trade is typically going to last for, in this example its averaging at around 8 bars..so just 2 hours. That's trader A
Trader B has his trades on a daily timeframe..defines the trend in exactly the same way as trader A. he's long, while A is short. Are they both correct?
Sure they are.
Trader A reckons the trend is down, but he's also aware that on a higher level its more than likely going to turn back up again but not for a good few hours yet. He wouldn't wait on the sidelines trading a 15min timeframe for it to wait to go back up again. My forward test results (its just an example) prove that. You could have gone short on a 15min timeframe as thats the short term direction and made a good few points..but trader B knows that in a much longer term, days, its going to turn back in his favour.
This has always been the allure of daytrading..taking all those minor swings up and down. Thats what Trader A is doing.
Of course he is going to have lots of little losing trades, specifically at that point when the trend (on his timeframe) down starts turning up, and back down again etc. This all comes down to the ability to define that trend. A good solid method is of course key.
This is just my opinion of course, doesn't mean its right!

You could always build into your strategy higher timeframes. Minimum stake size going against the higher timeframe, loading up when the trend starts going up again. As we know it will last longer and be stronger.
I'll play around with the test parameters and come up with something more solid, and also show you the charts so you have some context. Shouldn't be too difficult to do

 

[Shakone]

I know of prop guys who trade the ES who absolutely average in or 'add'. They tell me the 'trick' is to know when to average in and when not to. Not something that suits me I prefer all in / out.

Yeah I'm sure. In a sense a market maker will be averaging down some of the time, and they seem to do ok.

 

[Shakone]

You're right Shak, my earlier statement on trend would need to be qualified. The back and forward test results posted earlier were taken on a 15min timeframe. The results also indicate how long a trade is typically going to last for, in this example its averaging at around 8 bars..so just 2 hours. That's trader A
Trader B has his trades on a daily timeframe..defines the trend in exactly the same way as trader A. he's long, while A is short. Are they both correct?
Sure they are.
Trader A reckons the trend is down, but he's also aware that on a higher level its more than likely going to turn back up again but not for a good few hours yet. He wouldn't wait on the sidelines trading a 15min timeframe for it to wait to go back up again. My forward test results (its just an example) prove that. You could have gone short on a 15min timeframe as thats the short term direction and made a good few points..but trader B knows that in a much longer term, days, its going to turn back in his favour.
This has always been the allure of daytrading..taking all those minor swings up and down. Thats what Trader A is doing.
Of course he is going to have lots of little losing trades, specifically at that point when the trend (on his timeframe) down starts turning up, and back down again etc. This all comes down to the ability to define that trend. A good solid method is of course key.
This is just my opinion of course, doesn't mean its right!

You could always build into your strategy higher timeframes. Minimum stake size going against the higher timeframe, loading up when the trend starts going up again. As we know it will last longer and be stronger.
I'll play around with the test parameters and come up with something more solid, and also show you the charts so you have some context. Shouldn't be too difficult to do

It's a tricky one to resolve and I've tried quite a few things. I've considered that trend doesn't exist, but dismissed it because it's not helpful.

I've considered a hierarchy, weekly trumps daily, which trumps hourly and so on. This is sensible and works quite well (trend definition dependent). As a day trader you'll find days where you just sit on your hands as the trend is up and intraday it's down the whole day. But that's actually ok if you are patient enough.

I've tried what you suggested, half position against the longer term trend, full with it. Seems viable, but didn't fit with me in practice: I'd go with the longer term trend, lose 10 pips, go against it and win 15 pips and end up down. I don't have anything logical against it, I just didn't like the asymmetry for some reason.

Eventually I decided that rather than look for the trend, what I was really looking for was the line of least resistance, which most of the time is in line with the trend, but allows me to take the counter-trend position when we reach a support or resistance level and conditions are right. In another couple of years I may have a better idea or go back to the asymmetric idea.