What helped me a lot in simulation was to get in a rhythm. That may sound very ambiguous but let me explain. You're probably over trading. Cut out most of your trades and just cherry pick the best setups. Most setups happen in rhythms of time. Beginning Trading is very sneaky in that you think the more trades you take the more money you'll make, but in reality that usually includes more losses. So, Get into a rhythm of taking maybe one or two trades an hour. Wait for them to emerge and don't be discouraged that you missed some. Remember one or two good Trades a day is all you really need, no need to race to the finish line.
When I first started, I was totally fixated on win%.
I thought I needed to have a strategy that at LEAST won more trades than it lost.....with a preference being to strategies that won a lot more trades.
With a fixed profit/loss ratio, that's a very tall order. It'd VERY difficult to craft a strategy that wins 70% of the time and has a P/L ratio of more than 1:1 (that has fixed P/L).
Over time, I came to realize that was because that setup (fixed P/L) is almost entirely based upon statistical edges with respect to entry. In essence, if you had a good entry, you'll win, a bad entry, not so much.
With more research, learning, experience, you come to realize that you have to take advantage of what the trade is willing to give you. Sometimes, that's a little, sometimes, it's a lot.
This opens up a whole new world of money management where you use concepts like "break even", multi tiered stops, etc..... in order to take a chance on larger profits.
Like I said, it's possible...there are some guys who've done it (I'm not one of them) who can gain a statistical edge (entry) where you can win twice as much profit per trade as you lose (fixed).
It's easier to feature a strategy that has some really large wins, some small wins, but the losses are all limited.
Don't fear having a strategy that wins 40% of the time, but features a 2:1 P/L ratio.
"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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most books can be found online at 4shared.com, a few should be part of your permanent bookshelf and will deserve to be purchased...
the other thing, trade real money... take $100.. open an account with OANDA and then work out your emotions and technical analysis trading spot FX... you wont make $$$, but you are not after that... the most important thing is that you will get real fills and also you will be risking real money...
if you can be profitable trading $1 or $0.50, then you can be profitable trading $100K lots.
my advice, based on my own experience... take it for whatever might be worth...
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well my style is more of a scalping style...turning runners into longer term trades. I have looked at forex but not really spent time with it since i am trying to focus on one instrument and one thing and i have not noticed it works well with my style.
what i am investigating is backing off the implied leverage by trading 100 shares of etfs which accomplishes same goal...risking $15.00 vs. 150 with my strategy, etc. looking at IWR and SPY but have not found a decent etf that mirrors 6e/EC....anyone know of one?
if you scalp ETF's, you will need $25K min due to PDT... I will assume you are properly leveraged, which then would cause me to wonder why is $150 concerning you since that is less than 1% at risk per trade? ....
capital not an issue but just trying to follow advice posted earlier and elsewhere of slowing down the leverage and focusing on very small real $$$ vs. sim. Advice was to trade real $$ in small forex vs. sim.
yes, real is always better than sim... hands down... it just comes down to controlling the risks better... so starting out with IWM or SPY with 100 shares and just risking 15c per trade + $1.00 is not a bad way to learn... after all, you can scale size once you have it right...
i suggest oanda with $100 as a better idea mainly because it will protect you against overtrading and exposure... with 100 shares of SPY you will still need $25K in the account minimun.. which could lead to a false sense of security and taking unneeded risk if over confident for some reason... $100 trading 50c to 100c protects against blowing out the account... gthe discipline is mainly to set $100 and then realize that to fund it one has to wire more $$$ in and make that part as hard as possible.
Classic case. You have now heard from all the discretionary traders. Now, let me offer my perspective from the methodical mechanical side. You have realized that your head/psychology is getting in the way, as it does naturally and instinctively for every human being. There are a few (5%), out of those who try trading, who are able to get over the psychological hurdle and develop into profitable traders. If you believe you have what it takes to be part of that 5%, then all you need is to follow the advice previously given. That is the standard advice you will get everywhere on every forum, yet still only 5% succeed despite that advice, trust yourself, read this book, get in tune, work on your psychology, very generic thoughts that one has no concrete way to put in action.
My advice is, perhaps you might want to investigate the mechanical approach to trading, so you may have a more thorough view of all approaches available to you. Take 1 or 2 of the setups that you trade, and write out a bulleted list of each of these setups, of exactly what should happen in the market in order for you to enter a trade, and exactly what should happen to exit each trade. Now, go back through as much historical data as you can and determine how successful those setups have been. If they have proven to be successful historically, now, internalize the bulleted lists representing those setups, and practice recognizing them just by looking at the chart, so that they become 2nd nature.
Now, go forward in sim and trade those setups each and every time they occur. Do not deviate from the definition of the setup, do not try to cherry pick, do not add any spontaneous rules based other (normal) market events that are not part of your rules, you did not backtest those events. Do not skip trades because you think, or feel the market will not do what you want, these spontaneous decisions are the result of the cycle of fear and greed, and this is the psychological quandary which prevents the majority of traders from being profitable. Your mind will play tricks on you, it will keep you from entering good trades, force you to get out too early on profitable trades, convince you to enter bad trades for the wrong reasons, and will torment you with regret after each of these decisions.
When you eliminate that fear/greed/psychological cycle, and allow your trades to be defined objectively with a strict set of historically proven rules, you eliminate your psychological barriers that sabotage the majority of traders. It will not be easy to trade a set of rules like a robot, because of the very reasons we are talking about, our natural psychological tendencies, but if you rely on the historical statistical data, the numbers will work themselves out according to the historical probabilities you worked out. You will no longer be afraid of taking 10 losers, if you know your system historically looses 20 out of every 100 trades, therefore you most likely have another 80 coming to get you green. If you can work through this process with a half decent trading method, I guarantee you, you will be part of that elite 5%
Last edited by monpere; July 9th, 2011 at 02:08 PM.
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I can agree with that... specially if the stop is clearly defined... I just still say be careful, given that no mechanical system lasts for long.. they are IMO, very short lived because not all rules can be expressed in machine language.
A mechanical system is just a well defined set of rules, it does not have to be machine language. It is a list of 5 bulleted english phrases in word document. Everyone says mechanical systems don't works forever, why not? Part of your defined rules set says, if the market is in uptrend, and the market has this type of volatility, and this type of double top appears in this way, the to this. You define the market environment that the method is designed for. The moment the market is no longer in that state, you are not trading. When the market goes back in the defined environment, then your setups start triggering again.
If you backtested for the past 5 years, and the numbers held up, then ask yourself is that long enough. I you backtested for 3 months, is that long enough? Depends on the trader. Unlike discretionary traders who are trying to be right every time they pull trigger, as a mechanical trader you are not trying to have perfect rules that work all the time, you are trying to have a set of rules that works the majority of the time, knowing full well, that x% of the time, those rules are going to fail. Now if your mechanical system is trading double tops, and all of a sudden all double tops, stop working in the markets period, then all traders mechanical and discretionary are in serious trouble.
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