My story - master the basics
|March 29th, 2012, 08:06 AM||#1 (permalink)|
Futures Experience: Advanced
Platform: Ninjatrader, Tradestation & TWS
Broker/Data: Optimus, Tradestation & IB
Favorite Futures: ES, EURUSD
Posts: 9 since Jun 2010
Thanks: 2 given, 131 received
My story - master the basics
This is my 1st post on a public trading forum, having been a full time day trader since April 2009. First of all, I want to thank Big Mike for giving traders a productive environment to share and discuss ideas. One of the reasons I never spent time on forums was due to general negativity of the participants - I think you have done a great job from what I have seen keeping the forum positive in that respect, so well done and keep up the good work.
I am writing this to share my experience as a trader so far and hopefully give others some guidance. I wanted to give you a little background, so you can appreciate where I am coming from. From a young age, I have always been into performance-oriented disciplines starting with playing piano to concert level, national squash, professional golf and now trading. The reason I mention this isn't to brag about what I have done, but merely to pass on valuable lessons I have learnt on my journey to becoming a profitable trader. There is significant overlap in all these endeavours and will discuss what I mean by this later in the thread.
Back in 2005, while I was playing professional golf I started to become aware of what separated the guys who were struggling to make it on the mini tours to those who were at the top of the game, consistently keeping their tour cards. Many of the guys had the ability to make it, but why weren't they? What was holding them back? To become a consistent tour player, you have to master a number of disciplines. In simple terms you have - 1) course management 2) technique and 3) psychology. Of these 3, which do you think most of the guys spent the majority of their time on? Which do you think would make the biggest difference at that level? Of course, most believed that is was their technique that was holding them back, so they spent all their time on the driving range and short game areas honing and trying to perfect their technical game, while giving much less consideration and appreciation for course management and psychology. What did the the guys at the top of the game do? They spent time working with a sports mind coach on mental preparation, pre-shot routine, state control, staying in the moment and eliminating negative thoughts while working out a game plan for each hole and weighing up the reward:risk of each shot. They had a deliberate set of actions that they followed with patience, discipline and focus.
These disciplines broadly translate in trading terms to 1) business planning, position sizing & trade management 2) technical analysis 3) psychology. What do the majority of traders spend their time on? What do you think professional traders focus on? Hopefully you are starting to notice some overlap here with trading & sports.
I become fascinated in understanding what drives human behaviour and causes people to take certain actions. I found myself a sports mind coach, and started working with him one-on-one, taking him to tournaments and including him as part of my team, along with my technical coach. Funnily enough during one of the sessions, we started talking about wealth & money along with possible ROI. He mentioned that he traded options and explained the concept to me - I became hooked. Little did I know what awaited me down this road...
I bought a trading course and like most new traders instantly became excited at how much money I could make. Plugging the numbers into compound calculators and doing projections years forward - it sounded so simple and a route to extreme wealth in a short period of time. As you can imagine, this wasn't the case, and I quickly realised that it wasn't quite as simple as it sounded! So I thought I need to understand options in more detail (as I have always been a detailed oriented person) and took an options course and read books on options - I now had a wealth of knowledge about options but did it help me become profitable - simple answer, no. So I understood the strategies, what I must be missing is the technical analysis. I found a company selling a technical trading system and jumped at the opportunity to learn and understand it. For some reason, even though it appeared profitable, I wasn't able to make consistent profits and couldn't figure out why. What I must need then is to customise the indicators - along came a technical guru with tons of technical indicators - this must be the answer. So I followed him for a few months and started to learn programming to customise my own indicators. I read books by Wells Wilder, Chuck Le Beau, Charlie Wright etc and started backtesting various strategies. After around 9 months of frustration, sleepless nights and 1000s of hours struggling to find strategies that had a demonstrable edge across a broad range of markets in different conditions taking into account trend and volatility, I began my path to simplicity! I'm sure many of you have been here and know exactly what I mean, and if you haven't I'm sure one day you will
Although at the time, I couldn't believe how much time I had wasted, I now respect that it was necessary to lead me on a journey to where I am today. From doing all the backtesting it gave me an appreciation for simplicity - as I discovered the more variables that were introduced the more the system broke down when trading live - this was an AHA moment for me!!
Around mid 2010, I began to get an appreciation for discretionary price action trading. I read the classic technical analysis books by Edwards & McGee, Richard Schabacker & John Murphy as well as material from Pristine, Linda Raschke, Al Brooks and Bob Volman. I took all the indicators off my charts apart from a couple of moving averages and volume. I started to learn about multiple TF analysis, identifying trends, TRs, BOs, fBOs, TLs etc. This was a huge leap for me and I felt naked without the indicators but I believed it was the correct path to take. Over the last 18 months or so, I trained myself to look at only 1 chart (5min) and infer what is happening on higher & lower TFs as well as taking off volume and trading off the charts so no need for DOM. Again another breakthrough for me. Through NLP and understanding my own personal psychology, I have come to realise that the more stimuli I have, the worse my real-time execution becomes. When not under stress, I am able to process maybe 6-8 pieces of information, but when market is moving and I am reading the hard right edge of the chart, that may go down to 1-2. The candlesticks and MAs are already 2 pieces, so adding the DOM and other charts introduces more stimuli and reduces my execution capabilities. Also as I am detailed oriented, I have a tendency to want to drill down to smaller TFs and if I have them up, I become attached to them and lose track of the big picture.
So what is the point of me telling you all this? Hopefully, some of you will be able to relate to my journey. I hope that others will not make the same mistakes as I did and save themselves some money, by starting off trading small with risk capital and focusing on the basics and important areas. I see majority of traders spending all their time searching for the holy grail in technical analysis - let me save you some time by understanding that you are competing against the smartest and most capitalised institutions in the world. Whatever concept or idea you have thought of, they have probably tested it already. Just accept this and believe you only have a small edge in this business, otherwise no-one would take the other side of your trade. There are many methods that do have this small edge, pick one and master it whether it is through price action trading, market profile, volume footprint etc. The most profitable guys I know personally stick with one main method and keep it very simple. As humans we are naturally inquisitive and although this can have its advantages, you have to be aware that it can do more harm than good for your trading. Becoming profitable in trading is actually very simple but not easy to do, as you have to fight your desire to jump around looking for what others are doing - find what works for you and stick with it long enough to understand its subtleties, realise its edge and let the probabilities play out - this is more down to psychology than anything else.
The way to become profitable as an individual trader IMO isn't to compete against the HFTs on small tick charts scalping for few ticks, but to notice their footprints through hours of screentime and hone your execution skills thereby realising your edge through the laws of probabilities. Focus on and have deep respect for position sizing, business & contingency plans, trade management (scaling in vs out) and most of all psychology. The reason I wasn't able to become profitable was purely down to the fact that I didn't transfer my psychology skills from golf to trading at the outset. I didn't take the time to truly figure out my values and beliefs with regards to trading and start from there.
Once you have worked consistently on your psychology and have a simple method that you believe in, spend sufficient time working on your business plan, logging trades, controlling risk through position sizing, increasing efficiency of your trade management etc. Don't spend 90% of your time working on entries believing that is the holy grail, which majority of traders seem to do - this may give you a few % edge at best - believe me. Working on the other areas is what will make the difference between losing and winning.
Hope that helps.