Seriously, this post is AMAZING. can i thank you multiple times?
Question 1: Do I have a foundation? I believe so, I have read hundreds of books, from price action, auction market theory, psychology, automated trading, high frequency trading, DMA. Any and every webinar that peaked my interest. I even took courses in financial engineering and computational finance on the side. I have a large toolbox of understanding. Its not very useful/effective at this point. But it exists.
Question 2: Yes I have a written plan, its very detailed and based on a business plan. I have actually shown the entire thing to my family members to have them review it. It includes very specific rules for entries, exits, risk management, when I will trade, how many contracts, trade management. It has gone through many revisions but i keep all of that there so i can see how it has evolved. Its a substantial document at this point. I have a cliff notes version posted publicly on my journal thread. It evolves publicly and changes are made based on reasons shown, mostly in the area of simplifying and drilling down to 1 tool / entry technique to master.
Question 3: Ah the crux of the matter. A majority of the time I execute my plan, my journal shows over 90% of the time. I do not take revenge trades, I know when to pull my own plug due to risk or psychological imbalance. Others have told me and I believe that discipline is my greatest / only trading skill. But humbly in my heart, I know I could do better. They are not "blatant" rule breaks but they are in that gray area so to speak. This area is 100% in my control and improvable. Without a doubt, I KNOW I can get better here.
How do I see myself in this whole thing. I am trying to loop phase 2 and 3 together over and over again until I make progress. I have a plan, its well written. I trade 20-30 trades and then determine what is going well and going poorly. Revert back to the plan and edit/evolve it. Rinse Repeat. But its a hard road to hoe because trading is strange. You don't see progress clearly, and the randomness inherent in it makes it even more difficult to discern. You make a change, still losing, do it again, still losing but hopefully less this time. That I believe is my heaviest psychological burden. I am a fat man on a diet, whose scale is mostly random. Not knowing if what I am doing is actually helping. Which is the entire reason I posted this. Thanks again for your insight @podski. Also thanks to the futures.io (formerly BMT) community for letting me bear my soul and not get burned for it. This is one of the reasons futures.io (formerly BMT) is awesome.
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@treydog999: I do not know how @podski meant his 3 questions, but I like this structure to answer your question about the right path. However, I have my own interpretation of these questions and what the answers to these should be in order to answer your question properly. Maybe this will shed some light on your problem...
Question 1: Do you have a foundation? This has nothing to do with how many trading books you have read or how many seminars, etc. you have visited. This has to do, with what @Trendisyourfriend has mentioned in the first reply to you: The EDGE. So, question 1 should be answered honestly by you and you should ask yourself whether you have a method which shows an EDGE. Answer also, how you know that you have an EDGE. Did you backtest your method? Over what time period? Did you apply a proper testing process? The latter is the most important and often neglected part of testing by beginning traders. There are some very good books about how proper testing works. The outcome of successful testing is a robust (!) method.
Question 2: Do you have a written plan? This is the plan, that helps you to execute the EDGE, which has been hopefully determined in question 1. Nothing else. It might include some self management aspects as well. And if it is more than a few pages long, my view is that it's worthless. A plan should be operational and, hence, short. It should be something which you can go through briefly before every trading session. Nothing useful in having a plan with twenty-something pages sitting on your shelf. Or, if your EDGE is really more complex, try to create a shorter, operational version of it for everyday use.
Question 3: Do you follow your plan? If not, then it is probable that the EDGE you have found in question 1 does not fit your personality. For instance, I have tested successfully some statistical methods but could not trade them well, as I have to analyze and interpret charts (I love that aspect of trading). I've realized that I feel more comfortable by trading discretionary... and that, in a certain manner as well. If your answer to question 3 is "no", you have to go back to question 1 and try to find another EDGE which fits your personality (another style of trading).
Hope that helps a bit.
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I just saw that your poll does not include the EDGE as one of the most important things in the development of a successful trader. Maybe you see the EDGE as a prerequisite. I don't know. But it's an interesting observation...
You have to give up, if you can't find an edge anymore or if you cannot follow any of the plans for the various edges you have found. The latter means that your psychology is just not made for trading. Nothing to be ashamed of.
Of course, you have to try to figure out how much effort you want to put in in order to find out whether you will find an edge or if you are able to overcome psychological hurdles. I do believe that becoming a successful trader is hard work (relating to all 3 questions), but I do believe also that your work should be smart as well. It's worthless if you work hard but you walk into the wrong direction or in circles all the time...
That means, that if your current path in your development as a trader has not worked out for you for some period of time now, you should probably change your approach to trading (i.e. how you want to develop yourself). Otherwise, I'm afraid you will continue to struggle. Reading more books or visiting more seminars will not help you here...
In terms of edge, your saying i need robust backtesting and systemization. Which I talked about earlier in the thread. If that is what it takes to establish an edge. Why would anyone trade discretionary basis? Automated trading would always be the best choice. If you take the mark douglas approach, that its just the probability of 1 thing happening over another. But not in a systematic way then I do in fact have an edge. But lets put it this way, this edge can not be taken advantage of in a systematic/automated manner at least by me. But I am able to find and create automated systems so discovering edges is not a problem. Here is an example of 1 of the analysis that I do for a discretionary setup. But If i can not fully automate it then is it discarded as an edge because by most people's suggestions above, that would be true. In which case my I question why there are so many discretionary traders in this forum and not more automated.
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(this was originally posted in my journal)
Using the Mark Douglas approach, of 1 thing happening over another. This analysis not a total systemic strategy in any way, there are no stops targets context. But on a sequential closing (it closes every bar after entry) which is a very robust methodology of testing. This is because each sequential closing generates a new set of trade paths due to trades may have been entered before because we were not in a position will be skipped and generate new signal equity curves. As well as you can see if over time there is a directional predisposition to your entry area as well as how stable it is.
I don't want to take Big Mike out of context but i think his statement applies. Its a holistic view to trader development. yes an edge is important but the other aspects of trading are important as well. Because if you had an edge in question one that was entirely robust there would be no need for further development. Just execute with the maximum capacity for the strategy and get rich. It would be that simple.
The 2nd and 3rd questions would be really minor IMHO. Because if you tested the strategy in question 1, you already know the exact parameters of the edge so just execute that which would be your trade plan. Or as I am suggesting completely automate it so it executes without human psychology and 100% correctly every time. 3rd question would also be answered by question 1 because you would have seen the backtest statistics and could judge if those numbers were inside your trading comfort zone. Like win rate, max drawdown, max losing streak, average trade expectancy, etc. There would really be no need for human intervention.
Let me get back to the original point. it comes down to. How do you define an edge? If its always a complete trading system, backtested robustly. Then automated trading is what I should focus on 100% and so should everyone else. No one trading price action, trend lines, elliott wave or anything that has any form of subjectivity should be considered having an edge. As each trade would be a sample of 1 as they are not consistently like the rest. If you consider the mark douglas approach then these subjective techniques then become allowed to be considered an edge.
Also this is the path to trader development? is not discovering your "discretionary" edge part of that path, in tandem with developing all the other skills and attributes i mentioned in my POLL?
Discretionary methods can be tested as well: manual back- and forwardtesting (moving the chart bar by bar and making decisions - this is not the same as live trading but comes close), sim trading, small live account, etc.
The fact that so many discretionary traders are on this forum does not prove anything. How do you know how many of these are profitable and to what extent?
Yes, I am a discretionary trader as well. But my decision to become one was not influenced by what other people do, but by what I think is the right way for me. I tried different paths until I found out.
You have to think for yourself and develop your own approach that fits you.
I don't like Mark Douglas' definition of "edge" as - if taken literally (he talks about "probability") - it leads to focus on the win rate. But there are methods out there with lousy win rates which generate overall massive profits as the winning trades are way bigger than the losing trades. So, an "edge" in trading - as I see it - is to have a method which generates a net profit over time. That covers the different strategies possible.
I do not understand what you write below the attached graphs and I do not have access to your journal either as I am not an elite member. If you want to know what I mean by proper testing, read Robert Pardo's book Design, Testing, and Optimization of Trading Systems. Even if you are a discretionary trader you will understand what I mean.
Well, what I've meant with "EDGE" is what I've described above. If others define "edge" differently, then we are talking about different things. Then just exchange "EDGE" in my posts above with: "OVER TIME NET PROFITABLE SYSTEM". Without an OVER TIME NET PROFITABLE SYSTEM all the planning and psychology will not help you. And I don't think that it's so easy just to execute it and to get rich only because you have an OVER TIME NET PROFITABLE SYSTEM. And some discretionary "systems" cannot be easily (or even not at all) automated, but they can still be tested.
What I am getting at with the statement of discretionary traders or automated traders on this forum is simply this. Using the strategy development methods laid out by Pardo, Bandy, Striesman, Chande or Kaufman are that automated trading has a significant advantage over discretionary trading. So you would presume we would see more automated traders than discretionary ones, or at least on % of profitable traders.
As with back testing of discretionary systems by hand bar by bar. Sure its a great tool, though not as accurate as systematic backtesting, out of sample testing, and WFO. Although I do take the discretionary part as a dilution of the results, due to 2 factors. If I could show you the same trade some time later say 10 years or 10000 trades later would a discretionary trader, trade it and manage it exactly the same way? Maybe but probably not. Also could you give that system to someone else and have them execute it the same way? again, maybe but probably not. This was my sample of one point. Where because of the subjectivity, how statistically significant is the samples put out by this type of testing methodology. Which is a reason why I am saying that automation has advantage over discretionary on this point.
Everyone who is a trader is looking for a net profitable system over time. This is the entire goal of this exercise. Now I agree with you on the testing, I do develop automated systems. I understand conceptually what you are getting at in trying to apply it to discretionary trading. I just don't agree on the level of applicability of that automated workflow on discretionary trading. Even with an automated backtested system over 10+ years, basket of instruments, monte carlo results, incubation, walk forward testing, and real time out of sample trades thats only an indication that you may have discovered an "edge". Though its persistence in the future is unknown, we only know it worked in the past. It really is just a filter, get rid of stuff that never worked as it probably wont work in the future. But stuff that worked in the past probably has a better chance of working in the future.
As with regard to my charts, it is giving you the stats of 1 of my discretionary trades. Boiled down to an entirely automated process. Seeing if after my entry trigger, is there positive expectancy. Which can be seen in the average trade chart. As you can see it is positive. So this entry type has directional bias, and positive expectancy in the mathematical sense. So if I enter at my area, I have higher % chance of price moving in the direction of the trade, and in such a way that I expect to make more money than I lose. The rest of the charts are other statistics of that system. There is no need to actually reference my journal, all the information needed is posted here.
Not necessarily. One thing is the proper testing of a method. The other is the extent of the "edge" (as I see it) of a method. For instance, most automated systems do not take the context of the market into account properly, or at least not to that extent to which a discretionary trader is able to. That's a big advantage of discretionary trading (if the trader is good at it, of course).
Good, we have the same view here. What you say in the last sentence (marked bold by me) is what I was getting at. And the more proper the testing has been done (with all its flaws for discretionary methods), the better the chance the method will stand the test of time. But its for sure no guarantee.
Okay. Are these 50 different tests of this one discretionary trade which are shown on the x-axis?
Honestly, I do not know anything about your progress in trading. I just assumed that you struggle with it for some while now, as you have started this thread (maybe by bad). Maybe this is not true and you were asking your question whether you are on the right path only as a general question one should think about when starting trading?
Yes, I am posting this because I am personally struggling with my discretionary trading. But also for others to reference. The chart is 1 set up, closed every bar for 50 bars. it ends up being like 50 different tests because if you close a trade at the 5th bar you can take another trade on the 6th bar for example. But if you hold the trade for the 6th bar that trade would never have been entered previously. This creates different sets of trades, so if you compare the list of trades taken say for the 5th bar and the 6th bar or 10th bar holding periods they would differ from each other. It has no stops or targets ,commissions or slippage, just time based exits. This just determines if the entry without any context provides at least some kind of inherent advantage using automated execution.
I totally agree with the testing thing for any trader. Obviously you don't want to just randomly pick stuff. But my testing methodology is unorthodox. I don't think i have seen anyone test something for discretionary methods like i have shown above. Its not super exact but at least shows there is something 'there'. I can not prove that this edge beyond a shadow of a doubt and with full on market frictions (com/slip) because if I could I would be able to auto mate it completely. Which is the other point i was getting at. I am assuming that edge your talking about for the discretionary trader will give this the boost it needs to become much more profitable.