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Common sense trading decisions
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Common sense trading decisions

  #31 (permalink)
Big game hunter
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Maybe Im the only one to notice this but it seems almost every successful trader online has something to sell . Many have goods and services for sale in one form or another and some are even of great value at least to me .

The big wolf in this pack are brokers since you cant trade anything without one . A search of trading brokers yielded me 101,000,000 results on google and I would think there arent 101 million brokers around so theres folks tagging along hoping we consider them someone worthy of our attention and money . But googling around for anything trading can keep you busy 24/7 for years or a lifetime .

The 2nd biggest wolf I see are the infamous educators . Im all for seeing would be traders seeking education but believe me when I say you wont get anything for a fee that you cant get without a fee , or a relatively great fee . Remember , this is first hand experience so being one thats toftt I can attest to this . Ill add the old disclaimer that theres good and bad and blah blah but lets be fair to ourselves and our hard earned funds .

Im one to also pose the question "why would a successful trader sell goods and/or services if they already succeed and everyone knows trading offers limitless income" . Ive been told that its because trading is a lonely , isolated game and its good to have others to correspond with - believable . Ive been told its because "I enjoy helping others" - not so believable given that the greatest traders Ive heard of are a ruthless bunch . To me , theres nothing wrong with being ruthless , in a legal capacity , if its in the name of exploiting others that have already risked their money willingly .

Point is , if you're a new would be trader then you are the sheep . Unfortunately , theres trading industry wolves that love to eat sheep . For every sheep they eat theres more waiting in line to take their place . Differentiating between harmful and helpful people is hard if you have no experience and the wolf knows that . There are countless resources a click away from here regarding reviews and experiences . Do your due diligence and homework before you give up your money and equally important - your time .

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  #32 (permalink)
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As for trading educators, I think you can dismiss the overwhelming majority within seconds of viewing their web page.

If their website is filled with performance reports and charts showing winners, text showing %% gain or a chart showing daily/weekly/monthly/annual PnL, then I would say 9.9 times out of 10 --- RUN!

It's called cherry picking. It's also called lying. Perhaps every once in a while you'll get an honest vendor who was too ignorant to know that his sim trading results he is posting with "fill on touch" are not realistic in the real world. But for the most part, vendors who develop a website like this are vendors to be avoided.

Now, there are some vendors out there who place emphasis on actually teaching you something. Not on calling trades. Not on selling indicators. Not on selling systems. But on actual education. These vendors are fewer because it takes a great deal more work to talk to students one-on-one than it does to have a "Buy it now" button on your website cranking out $100 or $500 or $2000 indicator packages.

Still, too often people think if it costs a lot it must be good. This is not a given. So just because a vendor is charging you $10,000 for education doesn't mean it's worth $1. Always do your due diligence. During that process, ignore any research that does not come from an extremely reputable source. If you can't find overwhelming proof that an educator is genuine, then I think you should just 'pass' and move on.

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  #33 (permalink)
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Big Mike View Post
Nice work @Eric j, good post.

Over the years I've seen two different kinds of strategies when it comes to traders who are long term successful:

- I've seen the "base hit" strategy, lots of small gains, very very few home runs, and also very very few big losses.
- I've seen the "home run" strategy, majority of trades are break even/wash (no score...), but maybe 5 to 10% of trades are home runs with huge gains. Losses are very tiny as risks are very small.

It's interesting to see both work, but I think it is a matter of personality.

Mike

I once read a paper wherein a large company (I think it was Refco, but I'm not sure about it) tried to characterize their successful own-desk traders. They identified two types of traders. Type A had a win rate of 80% and type B a win rate of 30%.

The successful ones - measured by account balance at the end of the year - were type B traders. They stuck to the rule of "cut your losses short, let your profits run". Type A grabbed whatever little profits they had as soon as a trade was profitable. And had to eat the occasional but large losses.

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  #34 (permalink)
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Since the 'Small Losses' was mentioned, I have a query for any of you guys to think about.

I have always felt like 'Small Losses,' like anything else is relative. I.e. someone with a properly sized account could be day/Swing trading ES and consider a 15 point loss small, if in fact he usually holds a position for 30+ ES points. Vice versa, 15 ES would be crazy for a pure intraday ES trader.

So the thought is, do you guys consider 'small Losses' a matter of the number, or in relation to the average win size?

Say you where trading ES, looking for 1-3 point wins, but say your initial stop size was 3 points..... so let's say your average win is half the size of your average loss. Now ignore win % for now...... Would someone who takes small 3 point losses, that are normally larger than an average win, would that be considered a 'small loss?' Or would you guys say that relative to his wins, he is taking bigger than 'small losses?' Or... would you say that as long as he isn't adjusting the size of that initial stop, he is taking his 'small losses?'

Just food for thought.

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  #35 (permalink)
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Small is relative to two figures: Account size and average win. And you have to take current market volatility into account: you have to adjust your stop width to that. With a small account you will have to accept a higher % of average loss than with a big one.

There are a bunch of books about money management, e.g. Ralph Vince, The New Money Management or Balsara, Money Management for Futures Traders. Where these concepts are explained in detail.

You cannot ignore average win rate. In your example, if you take 3 losses (not uncommon) you are down 9 points and you need 6 (average) winning trades to break even at all. That's already a 67% win rate and you are not yet profitable at all.

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  #36 (permalink)
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forrestang View Post
Since the 'Small Losses' was mentioned, I have a query for any of you guys to think about.

I have always felt like 'Small Losses,' like anything else is relative. I.e. someone with a properly sized account could be day/Swing trading ES and consider a 15 point loss small, if in fact he usually holds a position for 30+ ES points. Vice versa, 15 ES would be crazy for a pure intraday ES trader.

So the thought is, do you guys consider 'small Losses' a matter of the number, or in relation to the average win size?

Say you where trading ES, looking for 1-3 point wins, but say your initial stop size was 3 points..... so let's say your average win is half the size of your average loss. Now ignore win % for now...... Would someone who takes small 3 point losses, that are normally larger than an average win, would that be considered a 'small loss?' Or would you guys say that relative to his wins, he is taking bigger than 'small losses?' Or... would you say that as long as he isn't adjusting the size of that initial stop, he is taking his 'small losses?'

Just food for thought.

For me, its relative. I think as long as your losses are smaller than your average winners, you should be good. If you are a scalper, you need a higher win rate than someone that holds for large runs. I get the idea of holding for big winners and seeing a 30-50% win rate. But my issue with that is this, why make your living depending on the one or two big winners you may get a month. Why not take smaller winners more consistently. This assumes you have a reasonable method to produce those winners and the discipline to wait for them and the aggressiveness to take every signal you get.

For me as a scalper, I use a ten tick target, a 9 tick stop that gets trailed very aggressively. Yes I get stopped out of trades to soon sometimes but I have a reasonable expectation that I will get enough of the ten tick winners each day to offset the small losers and produce a net profit that meets my longer term income goals.

In the end, most days all my losers are smaller than my winners and that is all I can ask at this point.

Simplicity is the ultimate sophistication, Leonardo da Vinci


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  #37 (permalink)
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PandaWarrior View Post
...But my issue with that is this, why make your living depending on the one or two big winners you may get a month. Why not take smaller winners more consistently. ...

Time and the possibility to handle more instruments or you use the free time to relax by the beach while the scalper has his nose glued to the screen.

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  #38 (permalink)
Big game hunter
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forrestang View Post
Since the 'Small Losses' was mentioned, I have a query for any of you guys to think about.

I have always felt like 'Small Losses,' like anything else is relative. I.e. someone with a properly sized account could be day/Swing trading ES and consider a 15 point loss small, if in fact he usually holds a position for 30+ ES points. Vice versa, 15 ES would be crazy for a pure intraday ES trader.

So the thought is, do you guys consider 'small Losses' a matter of the number, or in relation to the average win size?

Say you where trading ES, looking for 1-3 point wins, but say your initial stop size was 3 points..... so let's say your average win is half the size of your average loss. Now ignore win % for now...... Would someone who takes small 3 point losses, that are normally larger than an average win, would that be considered a 'small loss?' Or would you guys say that relative to his wins, he is taking bigger than 'small losses?' Or... would you say that as long as he isn't adjusting the size of that initial stop, he is taking his 'small losses?'

Just food for thought.

Small doesnt come into play for me . "Small" to me is not risking a chunk of my equity big enough to need a very exponentially large win to offset it . I found that no matter what the risk its imperitive to capture enough 2 or 3 x risk winners to keep the losers from dragging you back to where you started . Moving my stop or closing trades before the target , for some reason I cant explain , yielded me more losers , BEs and headaches from trades that ultimately went on to my original target than instances where it helped the trade . This is a testament to my OWN psyche but I feel better taking a stopout than the aforementioned headache .

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  #39 (permalink)
Big game hunter
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How to trade

Have you ever wondered why a trading method or approach that backtests well or visually appears to give good signals fails when you take it to the market ? This drove me crazy for years and cost me some real money until I backed off and regrouped . It still mystifies me but I think I have explainations for this phenomena .

Firstly , do most would be traders approach a market arbitrarily or do they choose a market that they can identify the personality of ? Secondly , do they apply a method to that market that compliments the personality of that market ? Judging by what I see here most days Id say they apply a method that stimulates the eye to a market that was grabbed out of a hat . I mean that with due respect of course but few can deny this is happenning every day . Its natural to want to jump into trading with a canned approach and join in where the pack is involved but this is not a game in which the followers last long enough to pick up scraps from the leaders .

What I found to be a better approach is to choose markets in which I can detect a personality and then trade around that personality . We have the great benefit of tons of historical data at our disposal and most of it is gratis so its a good idea to exploit this gift . The greats of trading like Victor sperandeo , Richard donchian and Toby crabel to name a few succeeded at this game without the aid of computers , at least at first . They thought outside the box and were keen masters at feeling the markets pulse . Take the initiative and watch for telltale behavioral nuances that each market or pair offers because they all have them . Pick one pair or market and see what happens around news releases or lunchtime or when a market opens or closes across the globe .

After you find its pulse then just add tools to divine the hints that precede those moves you found to be inherent in your market of choice . Thats a "tops down" approach and a systematic way to do things that all experts in their fields employ , just ask one . Behave like an expert and you'll become an expert . If you want to get results that others cant seem to attain then why would you want to do or approach things the same way the others are doing them ?

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  #40 (permalink)
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trendisyourfriend View Post
Time and the possibility to handle more instruments or you use the free time to relax by the beach while the scalper has his nose glued to the screen.

This scalper has his nose glued to the screen about 2 hours a day. 5:30AM to around 7:30AM. Its about all I can handle. I set a daily goal....20-30 ticks and quit. Risk is about the same or 10 trades, whichever comes first or if I am trading like crap......I just quit.
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Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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