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Take the inexpensive route
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Take the inexpensive route

  #21 (permalink)
 Vendor: protradered.blogspot.com 
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You need to do what must be done.

Over the years I have come to conclusion that most traders prefer a signal calling room, or an easy way to trade, or some magic tools, or signal perfection from their strategies. All these things are an illusion. Most signal calling rooms are in sim therefore the trades that work and don't work are 50/50 at best. Your real presence in the market with the real contract vs. the room moderators 10 contract lot in sim mode may as well be 1,000,000 miles from each other. The market does not have to produce 10 losing contracts for a sim trade, but it must produce a losing contract for your trade to work. Consequently when you see a moderator trading anything more than 1 contract in sim mode and the trade succeeds, most likely that trade had an even chance of failing regardless of what the moderator did. Therefore trading a strategy in sim mode with a 10 lot is absurd.
Trading in sim mode for the purpose of devising a sound money management strategy to go with your signal is reasonable. If your intention is to enter the market with 10 contracts when you go to cash, then by all means trade in that way and get the money management concerns and proceedures worked out. However be aware that whether the real cash trade succeeds or fails will have a lot to do with the size of your order and therefore trading anything more than two contracts will not produce reliable results of your strategies performance in sim mode. All it will do is tell you that the first contract may have a chance at getting to the first target but the second contract and second target is a total 50/50 crap shoot for anything over 1 contract.
Think hard about how the market really works. Retail supplies cheap inventory. Institutions and large locals, funds, etc. do not trade the way retail does. These traders are more correctly investors, who accumulate and distribute inventory at precise locations in order to initiate movement which will enable them to gather or distribute their inventory. This is how they make money. You and I are the cheap sale. We use heavily leveraged positions that we rent from our brokers for very brief periods, and we never own any inventory. We cannot hold a contract unless we have the margin for it, and even at an overnight discount, that contract is expensive. The true risk is the value of the contract, not the amount of stop you decide to work with. Should the market do something crazy overnight (a very common event) it could run past your stop and cause you severe heartburn in the morning. How would you like a morning cover the margin wakeup call? Trade signal calling rooms have large turnover because only a few of those 100 traders will get their trades filled, and only a few will have any chance of getting to the first target, let alone a second or third target without grief. The inventory that is placed in the market is very enticing for a large trader whose sole purpose on Monday is to accumulate inventory for distribution on Wednesday. Many strategies that work great in back test and sim, fail miserably because of these reasons.
The more realistically you approach your strategy development and trading in sim, the more likely your results will be reliable enough to take into the real cash market.
Learn are the things that are most important, not so much strategies. The available strategies go from simple trend, counter trend signals to pure price action and structure. Learn enough to put together something uniquely your own so that you will be able to trade for the long haul. Money management and expectation must be in sync. Willingness to accept loss at appropriate times. Confidence to trade your statistics. The real importance of keeping comprehensive stats and trading analysis.
In the end, you must do what needs to be done, and not what you want. The market does not care what you want. You need to learn to do what must be done for you to be able to sustain a consistent winning result from your trading.


Last edited by Jaguar52; October 26th, 2012 at 04:14 PM. Reason: grammer
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  #22 (permalink)
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Pick a spot, start there

Strategies are a dime a dozen. They give you a reason to get into the market and an expectation from the market. So what. Good strategies are usually so simple that most traders dismiss them out of hand because there is little complexity to them. This is great mistake. Simple is most often best in trading, so just pick a spot and start there.
Any strategy alone is not enough. The key issue is what to do after you are in the market. One of my oldest mentors (now deceased) told me to close my eyes and click the mouse to get into the market. Then when I opened my eyes I had to deal with it. He said at any tick point, 50 traders go long and 50 go short. So what. He taught me focus on trade management over signal management. I learned that most strategies are workable and that the deciding factor was almost always fear tolerance, willingness to be wrong at the right time, and lack of confidence. He said that traders are not confident because they do not know what is going to happen next. So, worrying about it was a waste of time. Better to spend your energy on deciding what was most important to you once you were in the trade. Price will move as it moves, but what you do will make all the difference in the world. So, he said, just pick a spot to get in. If you are long or short does not really matter as long as I understood the order of my priorities. For me Capital Preservation is number one. The easiest way to preserve my capital was to simplly not trade. An amazing truth. So, since I was going to trade, then the balance of risk and reward was crucial and dynamically changing on every tick. He also taught me that living to trade another day was much more important than any single trade.
So, when I take a signal I really have no idea what is going to happen next. I have an expectation based on historical statistical probabiliy, but the reality that is painted on my chart takes precedence. He taught me to have a specific failure point but to base it on price structure, not dollars. The market is full of very sophisticated algos and dispationate professionals. The market is full of deception and mis-direction. It is full of mis-information because of the turn over and drop out rate.
Every day we all have to pick a spot to start and take a stand somewhere. However, 2 steps forward and 1 back is normal. If that is where you are at, then you are making progress.

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  #23 (permalink)
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Trading is all about losing well


Trading is risky. Futures trading is very risky if you have not done enough homework and preparatory work before entering the market with your cash. How much is enough? The accurate answer is there is never enough.

As you trade you constantly learn and gain further understanding of what you see and how to capitalize on opportunities. The more you trade, the closer you get to more consistent performance. At least this is the desire of most all traders.

So why risk more than you have to? It would be better to prepare by practicing as well as you can all those things that you need to be doing so that when you go for it with cash you have only yourself to control. You cannot control the movement of price or the market, and there is no way to know the days agenda. You can only control your actions in the market. So, learn what are your best actions and do more of them. Learn what are you poor actions and do less of them.

Qualify your performance. Use the qualifier for the confidence you will need to rely on when you ask the market to produce the other side of your winning trade.

Set a performance level that you can realistically maintain. This level has nothing to do with what you want from the market. It is just what you are capable of attaining consistently. For me it was 2 ticks on the ES, then 4 ticks, then everything else. My first realistic-in line expectation-capacity goal was to become the 1 point king on the ES. This achievement flowed over into all other aspects of my trading. It is probably what led me to be a scalper. To this day, trend trading is not my forte. I have absolutely no faith in the market. I trade what I see, take what I can, and keep my loses small. My consecutive win average to first target is 10. My overall win rate is about 82%. Each full stop negates 3 first target trades. When I get a runner, it is usually an extra 15 ticks. That is it. I can do this. So, my goal is simple. MAINTAIN this level as I work on the next level.

If you learn to lose well, then you will by default be ready to win better.

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  #24 (permalink)
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Basics of What I use

I use a version of the classic supertrend. It is a very basic version without bells or whistles.
The only settings I change are the sensitvity.
I use a 3R chart for CL set to 4 sensitivity, 21 period.
I also use a EMA pair of 9/49 period, and a baseline EMA 200 period
I also use a volume, and a CCI momentum set to 49 period. I only use the fast ma.

This combination describes these strategies:
BTCT - basic trend counter trend scalping
MACE - moving average cross; convergence expansion

As the bar builds I watch the volume bar postition. I am looking for volume entering with the tick direction, or no change for the opposing direction. Volume entering on the opposing direction tells me of a balanced exchange, and I wait for the imbalance of the order flow.
I watch the momo increasing in the direction of the tick, but am cautious if momo increases while the bar tics in the opposite direction and volume does not. The market is all about deception, so I am looking for the events of volume and momentum that are incongruous with the price direction. I am cautious about following the crowd until I see solid price commitment out of a balanced event.

Best time to start is after the first signal failure.

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Take the inexpensive route-12-1-2012-2-24-45-pm.jpg   Take the inexpensive route-12-1-2012-2-43-17-pm.jpg  
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  #25 (permalink)
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Thanks!

Great thread, exceptionally insightful posts by @Jaguar52. Looking forward to seeing more of your charts.

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  #26 (permalink)
Just a boy
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Jaguar52 View Post
I use a version of the classic supertrend. It is a very basic version without bells or whistles.
The only settings I change are the sensitvity.
I use a 3R chart for CL set to 4 sensitivity, 21 period.
I also use a EMA pair of 9/49 period, and a baseline EMA 200 period
I also use a volume, and a CCI momentum set to 49 period. I only use the fast ma.

This combination describes these strategies:
BTCT - basic trend counter trend scalping
MACE - moving average cross; convergence expansion

As the bar builds I watch the volume bar postition. I am looking for volume entering with the tick direction, or no change for the opposing direction. Volume entering on the opposing direction tells me of a balanced exchange, and I wait for the imbalance of the order flow.
I watch the momo increasing in the direction of the tick, but am cautious if momo increases while the bar tics in the opposite direction and volume does not. The market is all about deception, so I am looking for the events of volume and momentum that are incongruous with the price direction. I am cautious about following the crowd until I see solid price commitment out of a balanced event.

Best time to start is after the first signal failure.

Ed, the trades you took as per your blog do not line up with this chart which suggests you should have gone long around 8.59am (yet in your blog you went short about this time) and again the picture shows a long about 9.10am and in your blog you didn't take the trade.

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Last edited by steve2222; December 2nd, 2012 at 12:13 AM. Reason: correct time of trade
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  #27 (permalink)
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steve2222 View Post
Ed, the trades you took as per your blog do not line up with this chart which suggests you should have gone long around 8.59am (yet in your blog you went short about this time) and again the picture shows a long about 9.10am and in your blog you didn't take the trade.

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Yes, and therein lies the rub. If only I could trade as well in real time as I do in hindsight. What appears so easily recognizeable now manifests itself one tick at a time. As it paints I only see the elephants tail, and so it appears at that time to be a horse, or a cow, or maybe a camel. So, I trade accordingly. Afterwards I see the full picture and tell myself that maybe next time I will get it perfectly.

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  #28 (permalink)
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Qualify for the position.

Learning to read charts and use indicators is not hard. The hard part is learning how to control risk; and accepting your ability or lack of trading ability. This is not a one size fits all business, and not everyone is going to be able to succeed at trading. It takes a lot of consistent effort, but not so much technical savvy. The real learning in trading is self control, both mental and emotional. But unless you get to a confident technical proficiency level first, you don't stand a chance when the real pressures of loss and the unknown outcome come into play.

How can you know if you have what it takes? You can do this in a variety of ways. A simple way is to place 50 trades and see if you can win 35 of them. Add a little pressure by maintaining realistic risk reward ratios that you will be able to adhere to. Try this in sim first, then cash. Another simple way is to take 50 trades and you must wind up net positive by the last one. Use your imagination.
The point is that whatever way you trade - be it standing on your head with a red balloon tied to your big toe - you must be able to duplicate and maintain your performance level. Trading is more than just a strategy. It is more about your ability to employ that strategy successfully.

So the best thing I can tell you is to either qualify for the position or go do something else.

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  #29 (permalink)
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What is Trading Commitment?

In trading, the strategies and methods you employ should be the result of your own observations and conclusions. The actions you take to facilitate the statistical probability of your strategies require commitment. This means the longer you stick to what you know you must do, the better you will get at doing it. So, observe, conclude, design, facilitate, and act. No method is better than any other, only the trader employing that method determines the success of it. Not all traders will succeed even though they employ the same method. No two wing chung practitioners are alike, and only one will remain standing at the end of the day.

If you decide to learn another traders methods, keep in mind that the methods he employs is probably similar to many others, and there is no secret to it. There is nothing special about it, other than how that trader is able to successfully employ it. Can you do the same? That is the crucial question. You won't know until you try. In doing so, you need to give it time. The reason for success or failure should be apparent. Until it is apparent (look to your performance stats and journal), you will not be able to make a good decision as to whether to continue with it, or let it go. Is it you or the method that fails? Match your actions with the required actions and determine if you are doing it. If you cannot tell because the signal strategies are so darned subjective, then you really are in a bad place. Chances are it will never work until you become exactly like the person teaching you the method. So, to my mind, it is better to give it a defined amount of time, and the final successful application of someone else's method will depend a great deal on your successful interpretation of it. In looking for a trading strategy or method to employ in your trading, whether your design or someone else's, the closer you get to minimal (KISS) the better you will be able to commit to it and make it work for you.

In discretionary trading, money management and risk reward are dynamic. Signal entry and initial risk reward at entry are static and should be as mechanical as possible. The very next tick changes everything. It either confirms or denies the statistical probability of the strategy. Each tick will continue to do one or the other until you are either stopped out for loss, or hit target for gain. No one knows how many ticks it will take to fulfill the statistical probability, nor how many trades, nor how many signals. If you concentrate on trading what you see happening, and have the greatest desire to just make money, then the focus on your trading will be to take everything available up to the point where your statistical probability completion of the strategy is threatened. Knowing that point may mean you will not complete the full profit potential of that particular signal. This must also apply to the loss. Knowing when the statistical probable failure point has been reached means you can take a controlled loss rather than a statistical loss.

Know what kind of trader you are now, what kind of trader you want to be, and what kind of trader you need to be in order to make money. Typically trend traders make much more money per trade, have fewer winners, take many more losses, and draw down in proportion to their winners. Scalpers typically make less money per trade, have many more winners, take fewer losses, and spin their wheels a lot as long as their loss remains no worse than 1:2 proportion to their winners. Trend traders typically ignore any profit not at target, while scalpers take the maximum highest probable target available before accepting more adverse excursion in their trade. Scalpers are not afraid to trade more, make less per trade consistently. Trend traders tend to trade less, make more per trade and give a large portion of gains back at periodic intervals. At the end of the year, both traders can wind up making the same amount.

The trader who accepts both trend trading and scalping as normal and is not hung up on the category definitions, is a trader who knows what he is doing and if well trained, can do it consistently well. For me, I am a scalper always on the lookout for the trend trade. I am not hung up on what the theoretical definitions are about trading, and I tend to ignore what most other traders have to say. I did not always. There was a time I was a sponge and until I wrung myself out, my trading was a mess. I was neither trend trader nor scalper. I was a schizophrenic trader!

If you are going to become a trader, then think about becoming a trader committed to making money - period. 10 here, 40 there, 300 next, until you hit the big one. You have to be in it if you ever want to catch it. If you only want the big ones, then you should accept all that it means and stop worrying about it. If it means at the end of the year you are still losing, then maybe you need to become a bit more flexible. To my mind, with a realistic money management and risk reward plan, even a mediocre mechanical entry strategy can be profitable. The main requirement for you is to know your trading self, and commit to it.

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  #30 (permalink)
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Jaguar,

I just wanted to let you know that this thread has helped me immensely and that I hope you continue this series. Thanks so much.

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