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PATS Trading Psychology Or Mack's Soapbox


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PATS Trading Psychology Or Mack's Soapbox

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  #41 (permalink)
Boise, Idaho/USA
 
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https://www.youtube.com/watch?v=Xmu_i7_ot-c
About 15 minutes in Mack wraps up and reads an email from a guy who has managed to "get it" after a year.
Then he goes soap box about why you can't help people in chat rooms. He says he has tried in the past but they just don't want to listen. The issue being they are positive that what Mack calls the wrong way is the way to do it. He says some of his successful students have gone back to their old chat rooms to try to help people and they have given up because of the resistance from others to his methods.

I saw the same thing on an Elliot Wave site. I guy I still follow who is very successful (Coolbizone1) literally got run out by a bunch of whiners who mostly liked to insult and mock people. He posted his trading account and they of course did not.

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  #42 (permalink)
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The extra info starts at the end around 19 min.


Quoting 
If you understand the common sense of price action instead the common sense of your head or your brain, you will be a whole lot better off.

Truth.

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  #43 (permalink)
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Trailer Guy View Post
...I keep track of both to see what the system edge is and how much of it I am managing to capture.

I agree with that. I log every setup - whether I take it or not. As you stated, the comparison to performance is important. Opportunity expands and contracts. I don't want to see contractions revealed in a declining trade expectancy and expansions appear in the "would-have-been" column. I want to see a consistent percentage of captured opportunity.

Re Mack: I may have overstated my criticism. Someone was asking about his exits and I thought it helpful to warn them off of the multiple targets. Not only is the record keeping requirement higher, he'll have to start out with managing 2 discretionary stories at the same time.

I think the BE stop is a wrong tactic after only a 6t move. My experience has been more scratched winners than scratched losers there. However, that number is closer to 50% than 67%, so I think that requires a risk/reward minimum that doesn't use zero. What sort of a plan calls for taking on risk and taking zero profit? When I think about it, it seems to me that there are a couple of psychological parts to it. First, the scalped size is in the bag and is mentally weighed against that hurdle of a 67% W/L. There's not enough of a plan for the swing size to make me comfortable. Second, is basic risk relief - which I think works on us before we enter. A high probability scalp also means a high probability that we will receive risk relief, which may cause us to avoid too much thinking about the swing trade that we are also entering. "No risk it, no biscuit" - Bruce Arians

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  #44 (permalink)
Boise, Idaho/USA
 
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Leon of Pizza-

Let me say that I try really hard to not have any original thoughts. The motto for my fake trading firm is "Our strength comes from our lack of innovation". So let me parrot others here and offer an opinion.

Van Tharp has said in print that successful rules based discretionary traders typically hit about half of their trades, he calls it efficiency. But how can you measure if you don't know what 100% is? So we are on the same page and I would like to see someone come up with a counter argument that holds water!

On Mack's Price Action Trading System. I like it because it is like adding another sauce to the main item I was all ready cooking. I am continuing to focus on my day trade. The difference is that when I make a trade the computer automatically adds three more contacts with two profit stops, an initial stop on all four and an instruction to move two to break even. I have opted to put in a profit stop at 3 points for the fourth contract so I do have to get in gear and move that if the trade is going well. I agree with Mack, with no evidence to support it, that having those profit stops entered immediately gets you a better spot in the ques for better fills. So you concentrate on the one trade and if it starts to turn against you hit the correct button to bail on what ever is left of the scalps as well. It is a big deal to me to finally be using some of those advanced features. And I really like the ca-ching sound going off. Of course because it is all on the chart I can step in and drag and drop at will, which you have to do anyway to manage the runner contract.

As far as record keeping goes I have added an extra column to my spread sheet which I set up for day trading. That column is the points from the scalp. On my statistics page I have two columns now for each trade so the points made or lost are broken into scalp and runner. But the computer brings that up from my raw data page so no extra work on my part.

For November, based on what I see as the correct trades following the rules (perfect paper trading for posing by someone else's Lamborghini with a rented model on my arm) 96% of the scalps hit 4 points. The runners were stopped out at 0 20% of the time but contributed over 60% of the total points.

I think a key issue is to look at the scalp trades through a different prism. Futures Trader 71 has shown many times how he calculates the average rotation. I think of these scalp trades as a way to harvest a profit off of the average rotation (was around 3 and a half points, don't know his current number) while you are going after every possible swing trade knowing that some will not work.

I think anyone day trading with price action playing the pull backs and reversals with a small number of contracts should look at having the computer trade the scalps to add to their bottom line. Obviously with an initial R of 6 points and a payoff of 4 you need to have the appropriate win loss ratio. And if they are trading a slow chart, like the 5 minute they had better look at the initial part of their trades on a much faster chart to back test. With today's volatility five minute bars are covering a lot of trades.

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  #45 (permalink)
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Trailer Guy View Post
...96% of the scalps hit 4 points. The runners were stopped out at 0 20% of the time but contributed over 60% of the total points.

Wow. Now all you have to do is find the %ROC for each and ditch the lesser method.


Trailer Guy View Post
...I think of these scalp trades as a way to harvest a profit off of the average rotation...while you are going after every possible swing trade knowing that some will not work.

I get that. I think of it as 2 adjacent time frames, meaning 2 groups of traders using different risk/reward ranges. Our perspective's are close enough to discuss it. Either way, there are 2 trades on with different risk/rewards, so why does the outcome of the 1st trade determine the result of the 2nd?

Also, if we're both talking ES ticks here, I'll point out that Mack is using 6t and you're using 18t. Moving the stop up after 18 favorable ticks is a lot more reasonable. Yet, if the initial entry had any meaning - BE remains a support price that has a reasonable probability of being tested, so a few ticks below BE is the better price to quit the swing. Or if there's a little something of support in the profit zone, then just below that is another price better than BE. In that model, you're replacing the 80% BE exits with partial winners and partial losers. I'm not saying that the numbers would turn out better, but you're at least using basic S/R principles to place your stop and that seems a more appropriate tactic if you want to hold the position for an indeterminate range.

Alternatively, why not just limit out at a higher predetermined range? The overall strategy then is multiple range scalps. That works better for me because I'm a shabby swing trader. I also like the cleaner experience record that you can't get from swinging with a manually adjusted (discretionary) stop. My experience with secondary exits isn't nearly as good as yours, but I don't see that its due to using target limits and avoiding the dreaded BE stop.

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  #46 (permalink)
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Leon of Pizza View Post
Wow. Now all you have to do is find the %ROC for each and ditch the lesser method.



I get that. I think of it as 2 adjacent time frames, meaning 2 groups of traders using different risk/reward ranges. Our perspective's are close enough to discuss it. Either way, there are 2 trades on with different risk/rewards, so why does the outcome of the 1st trade determine the result of the 2nd?

snip

Alternatively, why not just limit out at a higher predetermined range? The overall strategy then is multiple range scalps. That works better for me because I'm a shabby swing trader. I also like the cleaner experience record that you can't get from swinging with a manually adjusted (discretionary) stop. My experience with secondary exits isn't nearly as good as yours, but I don't see that its due to using target limits and avoiding the dreaded BE stop.

Sorry, I wasn't clear. First, this price action is looking for pullbacks and reversals so in my mind you are daytrading swings and the scalp is just an add on bonus to the trade. Yes that break even is five ticks from the entry. On paper the entry is one tick above or below the close of the signal bar but that is a drag and drop manual operation when the bar closes so the precision isn't that perfect. The break even is placed by the program so it is allways at five ticks from the entry.

I have the program entered an 18 tick profit stop for the fourth contract. So if I sit on my hands I am out at 3 points. If the move is looking good I can grab that sell with the mouse and move it further. Or if things arn't so hot I can take that break even stop and move it up a little. The big money comes from hitting these extreme moves. Even when you have a contract in play Mack has no troble adding on at pullbacks so frequently you have several swing trades running.

To me these consolidation ranges are trouble because they are so tight and you don't always get decent signal bars. But they seem to end with a big and very fast move. Getting paid $90 bucks after commissions to grab the ups and downs in the range (five tick move) hoping you are getting in on a big 10 points in 5 minutes algo run has it's charms.

Before I added his rules onto what I was already doing I was using Fat Tails Chande Kroll atr based stop loss system. Works great in a trending market. No reason you can't use something like that once you have a swing trade going. These days I just watch my two direction indicators and when they start saying time for a reversal I get out when price crosses the EMA line. Not saying the oscillators are always right but they are usually right so if I go against them I make myself write down why price action looked so good.

Here is an example from Thursday where I screwed up. I thought wrongly that after failing to get back above the EMA that nice big red bar was the start of another leg of the drop. Well I was wrong. I was also a tick low on my entry. The oscillators called the down move correctly, but they didn't call the double bottom. Mack's idea of letting the computer do stuff paid off.

Entry at 1:27:35
2 contracts closed $100 gross profit 1:27:48 ( I am not that fast on my own)
2 contracts stopped out at break even 1:28:22 So the whole thing was over in less than a minute and I got paid. The way I was trading I know it would have been a loser.

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  #47 (permalink)
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Trailer Guy View Post
...18 tick profit stop for the fourth contract...

I misunderstood. The 18t target was in your existing strategy and you added the Mack later. 5t initiates the move to BE.

Re: record keeping, when you adjust the 18t stop, do you still log the result with its original setup/plan? If I move an order and take more ticks than I planned for - I only log the planned ticks towards my expectancy. The entire MFE is logged to the setup's expectancy. Its more work, but I feel like the record is more accurate and the record's purpose is to produce confidence leading up to entry. I have to keep one eye on the market and one eye on myself lest I run amok.

If the setup expectancy increase is consistent, I'll bump the target up. If the setup's expectancy contracts, then I'll retreat and go for smaller targets.

If I move an order, I log the trade as a scratch (scratched winner or scratched loser). So, in addition to the range, each of my trades has one of these 4 outcomes (W, L, SW, SL). I use the scratch count as a discipline indicator. I tally up daily, weekly and monthly.

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  #48 (permalink)
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Leon of Pizza View Post
Snip-
Re: record keeping, when you adjust the 18t stop, do you still log the result with its original setup/plan? If I move an order and take more ticks than I planned for - I only log the planned ticks towards my expectancy. The entire MFE is logged to the setup's expectancy. Its more work, but I feel like the record is more accurate and the record's purpose is to produce confidence leading up to entry. I have to keep one eye on the market and one eye on myself lest I run amok.
snip-

Hope everyone had a good holiday break from trading.

You are way better at calling targets than me. When I enter a trade I have no idea where I will get out. I exit when it looks like the move is going to end. I like to have some sort of variable stop loss system running that I can attach the stop to. What bothered me for several years was Van Tharp's expectancy/system quality number. Finally I cam across a bootleg copy of his advanced pamphlet on the internet. Buried inside the 100 pages was a paragraph that said if you use a variable stop just use your average loss. So that is what I do.

So what I see is you are correct there are really three outcomes for the trades that are significant. The relatively rare actual loss, the much more common scratch trade and the winner. I don't see changing the stop as something to record as I am assuming that to always be the case. If it hits the profit target before a change then I have that in my results column. The big issue to me is that past written trading wisdom does not deal with this situation.

The idea is you are taking every single entry knowing full well that many of them will not exceed the current level of noise but the ones that do you got in early. So what to do with the noise entries, do the zeros go on the win or lose column and I think either one hurts the accuracy of your calculations if you are following advice for trading with basically two outcomes. And this dual system of Mack's has two components each with three outcomes. The scalp has three discrete outcomes (-6, +2 and +4) and the trade has two discrete and one variable outcome (-2, 0 and plus). So yea, it's like a cross over record that doesn't fit into the category racks at the store.

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  #49 (permalink)
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Trailer Guy View Post
...I have no idea where I will get out.

I try to avoid that situation. I use my setup's MFE record and chart structure to generate a RFE (Reasonable Favorable Excursion). My goal is to limit out near the RFE. Most setups have multiple RFEs - one for each of the various groups of participants. Thanks for the compliment, btw. If I had the patience and psychological mettle to wait for those higher targets, it would be deserved, but too many of them end as scratched winners.

Mack's measured 2nd leg is a good example of using chart structure. He doesn't stress it as a place to limit out with the "runner", but its at least implied. Btw, that number is the 100% curve on a fib extension. Another is what he calls the 2 tier channel (also a 100% expansion of the channel's initial range).


Quoting 
Van Tharp...said if you use a variable stop just use your average loss.

Hmm, not sure I understand that. My average loss number is affected by my mistakes and I don't see what that has to do with the other participants and what they're doing. Isn't it better to find their average MAE and then plan to risk a little more than that? My goal is to imitate their behavior, so any numbers I make are only used to find how close I'm getting to that. The numbers used to plan trades are their numbers only (the setup's expectancy).

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  #50 (permalink)
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Hi, i'm using NT7 what indicator is this for the order flow for each bar? I really like that set up!


Trailer Guy View Post
Sorry, I wasn't clear. First, this price action is looking for pullbacks and reversals so in my mind you are daytrading swings and the scalp is just an add on bonus to the trade. Yes that break even is five ticks from the entry. On paper the entry is one tick above or below the close of the signal bar but that is a drag and drop manual operation when the bar closes so the precision isn't that perfect. The break even is placed by the program so it is allways at five ticks from the entry.

I have the program entered an 18 tick profit stop for the fourth contract. So if I sit on my hands I am out at 3 points. If the move is looking good I can grab that sell with the mouse and move it further. Or if things arn't so hot I can take that break even stop and move it up a little. The big money comes from hitting these extreme moves. Even when you have a contract in play Mack has no troble adding on at pullbacks so frequently you have several swing trades running.

To me these consolidation ranges are trouble because they are so tight and you don't always get decent signal bars. But they seem to end with a big and very fast move. Getting paid $90 bucks after commissions to grab the ups and downs in the range (five tick move) hoping you are getting in on a big 10 points in 5 minutes algo run has it's charms.

Before I added his rules onto what I was already doing I was using Fat Tails Chande Kroll atr based stop loss system. Works great in a trending market. No reason you can't use something like that once you have a swing trade going. These days I just watch my two direction indicators and when they start saying time for a reversal I get out when price crosses the EMA line. Not saying the oscillators are always right but they are usually right so if I go against them I make myself write down why price action looked so good.

Here is an example from Thursday where I screwed up. I thought wrongly that after failing to get back above the EMA that nice big red bar was the start of another leg of the drop. Well I was wrong. I was also a tick low on my entry. The oscillators called the down move correctly, but they didn't call the double bottom. Mack's idea of letting the computer do stuff paid off.

Entry at 1:27:35
2 contracts closed $100 gross profit 1:27:48 ( I am not that fast on my own)
2 contracts stopped out at break even 1:28:22 So the whole thing was over in less than a minute and I got paid. The way I was trading I know it would have been a loser.


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