wait, so to you mechanical just means something a human follows to the letter, without automation? then you will still face the psychology of the human ... and the "mechanical system" will eventually fail the moment emotions get involved again.. and to me you are still describing discretionary to some extent.
I see mechnical as automated, and not all rules can be coded... so we just had a different definition...
as a discretionary trader, I dont trade to be right every time.. I try to have a high probability of being successful on a trade, that can change immediately following a trade entry if what I though does not take place, at which point I bail and accept being wrong.. I am not doing anything just because I see a DT/B... not really following lagging indicators to be honest.
Yup, mechanical is different then automated. I am a manual trader who trades a mechanical set of rules. If rules 1 through 7 are met, I pull the trigger regardless of what the market is doing. If even one of those rules are not met, I do nothing. Nothing in the market will entice me to enter the market, unless what is happening on the screen is an exact copy of what is on my sheet of paper. No emotions, no analysis, no gut feelings, no psychology... methodical, mechanical.
Many traders liken trading to an art, for me it is color by numbers, colors that have been strategically chosen, sky always blue, trees always green, no blue crayon, then don't use aqua instead. I think the successful 5% include the Rodin's and the Picasso's, and I know for sure I am no Picasso.
The following user says Thank You to monpere for this post:
I understand now... I follow a mechanical system as well given your definition, but with layers that determine the amount of risk($$$) that I will bet... if all conditions align, I bet heavy... if only 3-4, then I bet smaller... so the conditions allow me to determine position size... difference between trading 3 contracts or going in with full size at 25 contracts..which does not happen often but it did take place this past thursday..
Sounds like it. My only problem with the variable trade sizing approach is, what if you are wrong on the 25 contract trade? How many 3 contract trades will it take to make it up? You may be 95% sure it will be a winner, but the market does not care what you think. I am a big believer in fixed risk, same stop size, same target size, same share size (I am a scalper) on every trade, whether I feel this is an ugly trade, or a super model beautiful trade, because the reality is, I don't know the future, the market will do what it will do, I cannot predict it, I just know that with my setup, out of every 10 trades the market gives me 7 and it takes 3, but which 3 it will take, I just don't know. So if my method has been very consistent in the past 6 months, and I am now ready to double my income, I double my contract size, that becomes my new constant share size, and I leave everything else the same.
the assumption you seem to be making is that I would be over leveraging or basically using $500 margin... which I dont.. my own personal margin is $5K per contract regardless of what I get from my FCM...and I only like to risk 1%-2% of the account overall. I could always trade my full size, but I dont. Basically, if the trade goes against me, I only risk 1-2% at most, which wont hurt me... specially since whenver that happens I am usually in for the whole day since those are done with greater conviction and also with a smaller stop depending on the setup overall.
I do not disagree... as a trader, I think we need to be flexible... there are the days that I am only doing 3 contracts that I just decide to scalp when I just dont see much trending or lasting momentum...
I have built lots of different money management spreadsheet models that address just what you state in terms of when to add more contracts given an account size.. via those models is that I came to find myself in my comfort zone with trading max 25 contracts with my current account size... specially since my stops are not really fixed but determined by the market action from the prior day...
as an FYI, I subscribe to the LogicalTrader method... with my own personal twists...
You seem to have a pretty good handle on your method. You are probably part of the 5%. To new traders though, I think they should keep it simple. I only trade 2 setups, one with the trend, one against the trend, and I trade them the same way every time. I can afford to do that because I get 30 to 50 signals on the CL from those 2 setups every trading day, so if a setup does not meet my criteria to the letter, pass!, I know there's plenty more coming. How do I know that? it's all in the historical stats. I don't need to pray for a trend and hopefully catch a runner to make my quota for the month. I am not requiring the market to do something extra-ordinary in order to get paid. I chose an approach that gets me paid no matter what the market is doing cause I scalp with the trend, against the trend, and inside ranges.
So, I don't need to trade large contact size (and the emotions associated with that). I spread my risk over a large number of trades using small contract size, so I can afford to be wrong a lot, and still not be negatively impacted. Al Brooks says he trades what he calls "Don't care size", he trades a contract size that is small enough that doesn't affect his emotion or psychology when he looses. My trading is all about controlled risk and part of that is also trading with a favorable reward/risk, for me it is also fixed 2:1. So, if I take 20 trades during the day, I don't need to get worried until I get 9 or 10 losing trades in a row (that itself would be pretty bad, and it has never happened). To get back to the original thought of the original poster, this mechanical approach makes my trading very controlled, very predictable, and pretty much, emotion free, worry free, and psychology lite.
To op, you probably heard of Al Brook's book and brook's fan website. I originally migrated here from Al's site after watching futures.io (formerly BMT)'s hosted presentation of Al Brooks on June 29th.
If you haven't read his book, or seen his materials, I think it would help. It's very hard to get to the point of trading like Al does. But after have read Al's book and watching how PA unfolds and corresponds to a lot of what Al teaches, one gets more comfortable with the chart.
Like a fundamental course how to read a chart and recognize what's going on by the price bars themselves rather than because a few momentum indicators say so (and they often reverse right after entering a trade to psych you out, haha). I've found learning Al's methods has helped to lessen the anxiety and uncertainty of the markets overall. At least one can get a handle of when not to trade. For example a series of ugly doji's and small bars overalapping each other with spikes and tails , what Al calls "barb wire", is indicative of small tight trading ranges on the lower time frame and at this piont maybe only scalping on the 1 min chart may be possible, but best not to trade at all until more volume and volatility gets back into the instrument.
Just good fundamental trading knowledge , kind of like general ed at school except , no one cares out there about newbie trader's fundamentals, especially not the scamster trading education vendors.
wow thanks for all of the advice - for some reason the updated to the forum did not trigger email alerts so i had not checked back in and missed all of these other posts.
Here is what i have done:
Closed everything down for one week - break - much needed.
Worked a bit on my strategy to make it simpler (its not terribly simple but it looks like it - i built non disc triggers into code - leaving few discretionary stuff on the chart)
Dumbed it down to one instrument - was trying too much
Went back many days and calculated "theo profit" for each day for each setup - this built my confidence that it at least, when properly executed, was more profitable than not. This showed me the dynamic of having to take EVERY signal and follow every rule. it also showed that with my setup small winners pay for plus a bit of gravy for the small losers and the big winners (1-3/day) are necessary for bigger profits.
Re-wrote my rules
Every day I re-read my rules before trading. I also do some mental exercises (close of trade also) - just deep relaxation stuff.
Recognized technology issues were causing me problems (computer issues, crashes, etc.) which were shaking me mentally - working on resolving.
After close of trade i look at every signal that day and count a "theo" profit (again - how much i "should" have made) and compare my actual profit to theo profit for a "score" or grade. That score represents my ability to follow my plan.
My goals each day are based on improving that score/grade - not profit.
Profitable every day so far. Scores are improving. This is also helping me analyze potential tweaks to stop/exit strategies. Confidence improving.
Plan is to do this until my grades are consistently high (not sure how to measure that yet - i would think scores in the 90+ range might not be possible). If it turns out my strategy is consistently profitable - then great. If not, I will turn back to strategy tweaking/searching with the knowledge that i can at least succesfully execute a strategy on a consistent basis.
Another thing I do now is write in my journal as i make trades thoughts about changs to my strategy - such as "maybe looser stops would be better". At the end of the day I look at all the setups and "test" that tweak to see impact on total profit for the day.
Anyhow - that is what i am doing these days.
The following 2 users say Thank You to greenroomhoo for this post: