Suggestions for mastering speculation

[Jaydee]

Have to disagree on each of your arguments. I'm not trying to pick a fight, but I'm under the impression that a lot of your comments are based on personal experiences. Which I'm sure are valid in your opinion, but there are no reason to make general assumptions about how price-discovery takes place.

No problem, I'm glad we're having the debate. Yes, much is based on my own experiences but I don't know what else to go with. The price discovery assumptions are more observations which make sense to me. Both price and quantity discovery are very pseudo-academic/scientific areas and people have argued over them for years - they are incredibly subjective and, therefore, I agree what I see may not be what another person sees. Therefore, in many parts of this debate, I'm not saying you are wrong, I'm just saying that there is another side.

There is absolutely no reason to believe that more volatility implies more randomness. As for 'less obvious', that depends on what one is looking for. Price action has been very straightforward for the last month. As for "a great deal of noise", support, resistance, demand, supply, cause, effect,... nothing has changed and I don't see any reason to believe there is such a thing as noise. On any timeframe.

By noise, I mean random behaviours such as spikes - these occur a great deal in markets like the DAX. The DAX is a less liquid market than something like the Eurostoxx and, therefore, can have moments where traders unwind a position in a large block taking several price levels with it.

Markets which increase in volatility become thinner. This in turn creates more noise and random behaviours become more common place - it isn't possible to foresee that a hedgefund is about to take half offers with it at a given moment. Looking at equities, compare Rio Tinto to its peer BHP Billiton - the former stock is maniacal.

I think you fail to see the point... there is no such thing as 'entering too soon'. If you enter based on a setup, a signal, a pattern, etc. and the trade doesn't go your way, no one is saying you should stay in and let your stop be taken out. Getting out breakeven and re-entering when the odds are more in your favour is a perfectly fine option. On the other hand, if you enter before any such setup/signal/... shows up, you've got no one else to blame but yourself.

This wasn't my point. Assuming you do get that signal to open a trade but there is so much volume going through at that moment, it goes straight through the bid you wanted to hit by several ticks, for example. You have the choice to enter at a now lower price and risk getting stopped on a retracement (if you continue with the idea of a tight stop), or wait for a retracement to go back to the price you want to be filled at which may not happen. I was suggesting, if you made the decision to hit the lower bid, you could open the stop a little to compensate for a POSSIBLE retracement.

Whether you are a swing trader or not, is irrelevant. Suppose the market moves on average 100 points in 15 minutes and you are trading off the 15 min interval, are you going to place stops 100 points or more away from your entry? If you are, than I suggest you find yourself a better method, because there's absolutely no need to risk. Also, if you trade over a period of weeks, won't you be looking at what happened on the hourly or daily timeframe?

I agree that the 100 pts could be improved on here.

I would trade off the daily timeframe if I wanted to trade over a period of weeks but I wouldn't be able to put on a trade with a 5 tick stoploss, for example. As the trading range has increased the margin for error has increased. Is it realistic to look for 500 ticks over 2 weeks and only have a 5 tick stop and at another time look for an intraday 50 tick move with a 5 tick stop? The latter sounds plausible but the former seems almost impossible. I do think I'm right here - I just can't see how you can have as tight a stop in a long term trade as you would for a short-term intraday trade.

A lot of traders are returning a higher win% then during the two months before September. I have no general statistics, but hearing that from guys who've been in this business for 10 years, I'm sure that means something.

Still keeping the same stop levels? I hear people are making more money but a lot of traders have reduced their size to compensate for larger swings and reduced liquidity. I guess it depends on how the trader trades though.

 

[trader_dante]

Well I'm surprised to hear this coming from you... I thought your trading approach had high win%, but anyhow... There are only two explanations for what you are describing: you're either using too wide stops (most likely) or you're cutting your profits short.

Actually neither, it's rather:

The more I win, the more confident I get.

The more confident I get, the more aggressive I become.

The more aggressive I become, the more risk I take.

The more risk I take, the more attached I am to the results.

The more attached I am to the results, the further I regress.

 

[rols]

Actually neither, it's rather:

The more I win, the more confident I get.

The more confident I get, the more aggressive I become.

The more aggressive I become, the more risk I take.

The more risk I take, the more attached I am to the results.

The more attached I am to the results, the further I regress.

I never understood this problem until I read this. I blew 2 accounts after being substantially up in both of them. Now I remove profits frequently and keep a smaller account size to prevent the unthinkable happening again.

Perhaps it may be of value. The document is called Trading on Adrenaline and perhaps many of us do it without knowing.

..:: DO NOT TRADE ON ADRENALINE © ::..

 

[MrGecko]

Suggestions for Mastering Speculation

I'll do them in numerals 'cos I cant remember what number we are up to....

i) Have a Plan
Not only for your trades, but for your progression up to bigger trade size - e.g. 10 day moving average Sum of net profits > 500 pips -> "up one level". Don't let yourself become complacent, keep pushing for bigger and better things.

ii) Don't place too much emphasis on any single trade
Well, obviously you should pay it careful attention, but understand and accept that the result of the next trade isn't important - it's the aggregate of individual trades over days, weeks, months, and years that is important, where your "edge" will reward you.

iii) Have an understanding of what you think is more likely than the other and why
(Don't know how revevant this is to mechanical or indicator based traders)
You should be able to exlain the "fundamentals" of your trade to a novice - for example, I aim to follow the footprint of "other timeframe" participants - Hedge Funds, Banks, Mulinational Corporations, etc..., in order that I can build a trade based on their next steps, and hop along for the ride. I can explain my interpretation of this, in words, to anyone that asks (XYZ Candle formation with a rising EMA doesn't cut it IMO).

iv) Protect your Capital
You are f*cked without it. Implement "watermark" levels of losses that, if breached, cause you to take a break / move down trade size and so on.

v) Don't create glass ceilings
Fixed profit targets cause you to stop trading when you are at your best. Set loss limits (see iv) above), but when everything is working and you are trading well, keep going!

vi) Know when you are wrong...
... and act fast. Losses are inevitable; be sure you identify the earliest signs of what you thought to be true breaking down.

vii) Don't get married to a position, or a broker
THEY work for YOU, not vice versa.

 

[trader_dante]

Just had another thought about the point I was trying to make above.

Consider these two scenarios and imagine each trader makes money OVER ALL.

Trader A: Win:Loss ratio is 90%.

Whether or not you perceive what I am about to say as a sign of arrogance: I am not used to losing. This is what having a strategy that regularly delivers winners does for you. I have my technique down to an extent now that I can get scores of winning trades back to back (and not talking about 20 tick gains either). The problem is, because you are not used to losing and it comes as a surprise - it is hard not to get confident and decide to take that extra risk (either over leveraging or running stops) when you get a good setup you believe in. This is why as most of the big traders e.g. Livermore, Niederhoffer, the Market Wizards lot et al, say that you are at your most vulnerable when you are doing your best. Confidence leads to aggression. Aggression leads to risk taking. Risk taking leads to attachment to results. And that leads to a regression to the mean (or far, far worse) in your P&L.

Now take Trader B: With a win loss ratio of 40%

Well, this trader is aware that his profits come from those trades that run but he is also very aware from his rather dismal win/loss ratio that he has no idea what trades are going to be winners and the probability is high that the next trade will be a loser. This trader doesn't get confident - his ratio won't allow him this luxury and as a result he doesn't overleverage or run stops because his expectation is that he will lose. So this traders account grows consistently.

When I first came to work as a professional, a big trader looked at my results and my trades and said to me "the problem with what you are doing is that it works too well - you need to watch yourself". I had no idea what on earth he was talking about - how can something work too well?? It's what we all want right??!

Well, as I said, it is my opinion that traders with lower win/loss ratios will do better. Looking over my history which is getting fairly decent and statistically reliable now, the periods in which I am taking more losers, always leads to a gentle, steady increase in account over time. The periods where I am winning left, right and centre, leads to a parabolic increase followed by a parabolic drop and creates an equity chart that looks like the Wheat market

Many people advise positive visualisation and confidence in trading. This might work well for Trader B but I think that it's a disaster for Trader A. Trader A needs to try and convince himself that he is always a recovering loser. Alexander Elder says something very similar in "Trading for a Living" by drawing a comparison to recovering alcoholics. A recovering Alcoholic must never think they are normal again - this gets them in the mindset that having a drink which normal people do, is fine and gets them back on the slippery slope. They must always remember what they were. I think that is sound advice.

 

[wasp]

http://www.trade2win.com/boards/tra...rol-your-emotion-high-low-during-trading.html

Its not win/lose ratios. It's emotion and ego and until eradicated, it will hinder.

 

[Paul71]

http://www.trade2win.com/boards/tra...rol-your-emotion-high-low-during-trading.html

Its not win/lose ratios. It's emotion and ego and until eradicated, it will hinder.

The correct mindset.

 

[Bladerunner]

super thread, you boys are determined to keep me the right side this time

appreciated mucho

thanks for the link rols

not enough reppppy points to go round

have a good week

Andy