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Finally Turning the Corner, tha "its 80% Psychology" thing...
I'm feeling really excited about realizing more of my potential this year. Last year I put in a ton of work, I really upped my game on all the levels plus worked 2 jobs and saved enough money so that starting this year I have 4 full days a week for trading. I've settled on the Dow as my market of choice. I love the way it moves. For me personally, I'm better just focusing on one market and trading it short-term. I know my weaknesses and strengths now and am ready to actualize my goal of being a 6-7 figure per year trader. It's so important to know your kryptonite and create routines around your strengths.
Here's a trade I just took and added to my Best Trades folder.
I love this trade and yes it happened to work out but even if it didn't it's still a 'beautiful thang'.
One huge step for me has been automating my trade process. FuturesTrader71 was so kind to share his scaling approach and I'm using Visual Trading Console to execute for me on MT4. If you're interested on more of that let me know. FT71 said something that really hit me hard, here's my paraphrase " f you have issues with emotional trading, make your trade management completely automated". This is has been huge for me (and my monkey).
Here's the nitty gritty for the Dow trade I just took:
After 1st scale, 1/3 comes off and stop to breakeven. Then its a stress free trade.
And ya, the Dow has kept going but that's ok, a lot of times it comes back so I'll just bag the profits and look for the next trade. It also wasnt a high volatility time so I thought it might make a trip back into the poc area. I've giving myself some discretion with the 3rd scale but the rest is automatic.
I hope you will enjoy the Huang/Lynch book . . I still read certain sections from time to time and find it quite useful. They also wrote a sequel, Working Out, Working Within.
It always amazes me the different paths people take when trading and where they eventually end up . . providing they survive all the pitfalls. My first software was Metastock 1.0 in the mid-80s and using Dial Data. I have always tried to embrace as many different techniques as possible and to learn as much as I can. Plus, you never know where a gem will surface. Many turn out to be dead ends, while others put you on a whole other direction. I've attended the old TAG seminars in Vegas, member of the great Avid chatroom, and even dropped in Woodies' CCI . . gb007 was the only gem there. I won't even mention the amount of money spent on books, software and hardware. In the end, it comes down to yourself and many 1000's of hours of sweat and dedication . . lots of people just see the potential in the market but aren't willing to make the sacrifice. It's no wonder that psychology determines the success or failure of most traders. Hopefully, during the journey one finds something that feels comfortable and provides some success.
You mentioned that you have now just trade the YM. I too have dropped others for just the ES. Too stressful trying to follow too many . . if your system works then just add more contracts . . why look elsewhere. I also trade very short-term since it keeps me better focused, even if it is somewhat exhausting at times. In this regard, the video on Cady's curiosity mindset as been quite beneficial the past couple of days. Much more relaxed watching the trade just play out which betters my outcomes. Less anxiety makes trading more enjoyable. My only automation attempt has been my audio and visual alerts which allow some relaxation between trades. You need breaks coupled with some breathing to keep your mind and body fully in the game.
Thanks for the heads-up on the Bruce Bower videos. I'll be sure and view them. I look forward to more of your posts in the future.
Hi, I just discovered your journal and l have a couple of observations that immediately came to my mind when I saw the picture above (post #212).
This is just my opinion and I am also trying to reach profitability so I still don't have the answers, anyway I will share my thoughts about the trade in the picture:
1) I used to adopt exactly the same scale out policy that you described for years. Now I came to the conclusion that it is too conservative and in the long run it is not sustainable.
In the best hypothesis that the trade reaches all your targets, you gain 42+28+20=90 and if you get stopped out you lose 75. That is in the very best scenarios you have a trade with RR=1.2 to 1.
For a trading style to be sustainable with this RR you need a high win rate. You can have a high win rate if you gravitate towards scalping but even in that case I think your RR is too low. The problem of this approach is that it is not "robust".
If you are not profitable yet you need a RR choice that makes your system robust, meaning that it can absorbe all your the stupid trades that you will take.
2) A major flow of this scaling style is this (it happened to me again and again) I will multiply your number by 10 so that the psychological effect is more evident: Suppose you risk 250 USD per contract and your first scale out is at +200 and the second scale out at +280. Once your trade has reached the second target you have cashed in 480 USD and you are happy.
Then you will have one contract open with the following possibilities
to gain 420 USD more by letting the trade run
to close the trade with 280 USD more ( that is at the same price of the second contract)
to move the stop at break even
.
Out of these three situations the only correct one to give a chance for your system to work is the first. But most of the time after reaching the second target the price will retrace a little bit and you will find yourself with 480 USD in the pocket and the third contract which should be a runner is not really running, it is just walking around an area of +200 USD/+150/+220, so you will look at it and think "you know what?? if I close now I can close the last contract with +220 USD and go home with 700 USD. If I gain 700 USD per day this roughly 15K per month".
I don't know if I am correct but this is what I used to think and do. If this is the case you risked 750 USD to gain 700.
I think that the right way to scale out is that the first scale out target must be at 2:1 Risk reward, the second scale out at 3:1 and then you forget about the last scale out or make it at 5:1. If you are a scalper maybe you want to scale out at 2:1 two contracts and the third one you let it run. But if your first scale out is at 1:1 you will end up having an average winning trade that is almost the same of your average loser or even less.
This is just my humble opinion based on my experience, so take it for what it is.
SBtrader82 . . I agree with having 2:1 ratio for intraday swing and higher time frame charts. You need to offset the time risk that is higher in those charts. Risk increases the longer you are in the market. Commensurate with this is the need for either greater return or smaller stops in order to achieve a profitable ratio. Yes, a lower 1.2 ratio can be used depending on a system with a higher win rate, such as scalping.
My system is pure scalping and my overall ratio can fall down around your lower level at times. There is no way it would ever achieve a 2:1 ratio but then my risk is considerably lower due to being in the market an extremely short time. To show this is possible, I have attached a chart that shows my trades from Friday. It is from opening to around 9:00 PT . . I usually stop around noon ET on Fridays. This is a 30 second chart that I take my trades. The upper colored bars represent potential setups while the second chart colored bars denote possible entries. I use either a 5 or 6 tick stop depending on volatility from the prior week. Exits are determined by a number of factors. If I see setups on my "longer-term" charts (2m/90s/1m), then I will expect my runners to go further and time exits will be based on those charts. Exit and entry signals are based on indicators (three are not shown) and filters (not shown.) Only use two filters: markets' tick chart and A/D ratio.
Another filter are the S/R lines which are square of nine lines shown on the chart. The black lines denote the major degree lines (0/90/180/270/360). I have found the SQ9 lines to be especially useful with the ES over the years. They act like magnets to price by attracting, repelling, or holding. Many times once price breaks or is repelled by a line, prices will flow the the next line especially with prices trending in that direction. A good example is the 7:26 breakout trade. I didn't get a signal on the the first down move but once price broke the trend line (not shown), I knew it would head toward the next lower SQ9 line. The major 55 ema was heading down and the 8 ema (red) had broken the upper SQ9 line.
My color bars are based on indicators and are created by programing the color bars based on alerts in Sierra Charts. I also use audio alerts that can be developed using the following free site: Balabolka If the text-to-speech file sounds odd just adjust the text phoenetically. Mine are simple . . ES long or ES short but you can create anything. The English lady's voice is much nicer than a ding or beep. Just attach the WAV file to your sound directory and attach your alert to it.
I hope this has been of interest to some. I'm sure my system might be a bit hectic for some but it does work for me. I still miss trades . . three on Friday. Two for not being filled and the other a call of nature. I have also discovered that each future contract has a different personality and by concentrating on one or two that addresses all your needs that you'll discover many nuances which can greatly increase your profitability and enjoyment. It's amazing how one will just feel more comfortable and seem to fit. Kind of like the wand in Harry Potter.
Have a great weekend and a profitable trading week ahead . . .
@Powdrpig thanks a lot for your post, it's really interesting. I never thought that since you are involved in the market for less time than there is less risk and you can have a system with higher win rate.
Iterestingly that's, almost the opposite of how I perceived things, but I can clearly seeyour point. I am definitely not a scalper but I don't regret taking a trade that lasts only a few minutes.
I have one question for you, that has always been in my mind: "do you think that there is a level of noise in the market?" I mean do you think that there is a time frame below which you cannot trade and the market is just noisy, or do you think that in any timeframe it makes sense to trade?
SBtrader82 . . That's a very good question regarding excessive noise drilling down too far in time. Personally, I doubted I could ever trade this low. I was using pretty much same system on a 2min but I was just getting tired waiting for trades. If I tired expanding to other contracts, I could never get a feel for them or they just had something that didn't meet my needs, For example, I would like to trade gasoline since system works great, but the volume is low which I think subsequently causes the wide spreads. In terms of the NQ, I thought it would be perfect but in that case there is too much volatility for me to trade. My stops would be beyond the threshold I would find acceptable. In that case, yes, noise would prevent trading that contract. My stops would be even larger in using a 2 min time frame. I do sometimes look at the Russell but the volume isn't that great. It was an excellent future to trade when it was the TF, then they sold their soul to ICE. Exchange fees plummeted due to nobody wanting to deal with ICE. Now they are back as RTY with CME but volume never returned. The YM just never feels right to me . . maybe it's just because there are fewer stocks in the index.
I think a lot of how your system will perform just depends on what you're trading. The ES provides everything I want. It has great liquidity and huge volume plus almost always a one tick spread. I also like the fact that it has an unquenchable thirst for size. Scalability in unmatched other than bond market. It will gobble up 1000 lots and not even hiccup. Also the volatility has greatly increased for the ES over the past few years. Previously, it was difficult to get any move greater than 6 ticks most of the time. Now I get nice runs even using a 30s chart. Although on those types of runs, I'm switching to a higher time frame for exits.
I think a lot of the indices have much more volatility than a few years ago and there are all sorts of different traders these days. That is probably why I like really short time frames. The volatility helps me since it promotes faster moves. Most of my trades are around a minute. For this past week, 57% of my trades were for 8 or less ticks. But that that's okay . . elephants get fat just eating peanuts. I'm trying to utilize my longer time-frames more so Friday was just 32%.
It's difficult trying to quantify volatility in the market. Each week I look at my Sierra charts stats to determine my stops for the next week. It gives an open trade average loss for the week which I add usually 2-3 ticks. I've been down to a 4 tick stop at time but usually it's 5 or 6. Friday's average loss was 1 tick. Sometimes you get lucky.
Bottom-line is I think noise is difficult to fight. For traders, there is an unending battle between balancing noise and lag with indicators. Somehow I've been either lucky or too stupid to have quit searching in finding a system. But then I have been at this since mid-80s. My occupation was as an economist so I suppose I just like fiddling with numbers and formulas for entertainment. It just takes a long time to fit everything together . . if you're not willing, then go find something else you enjoy.
Wow! Thanks for sharing your experience and chart. That's awesome you settled on a 30 second chart after trading all this time! Do you use keyboard shortcuts to trade quickly and did you see my external numpad setup in a previous post?
I appreciate your feedback on the risk to reward factor (and SBtrader82). Would you be interested to share more on your trade management approach? I'm curious, are you all-in, all-out for each trade, or do you scale-in, scale-out? Do you pyramid sometimes? It's very cool to meet a scalper who's been at this for decades! I'm also curious if at some point on your journey you reached a level where you became "solidly consistent", like keeping it green every month and scaling up your size every so often - or do you still go through variance, like a losing month, then lower your size, build it up again, etc. ?
So sychronistically, I've been making some upgrades the last few days. Last week I started listening to some psychology talks by Trader Tom on youtube, he's a scalper also and I then I got curious about his methods. He has a couple of scalping presentations on youtube I found very interesting. From my perspective he's an expert scalper on what I've termed "Trading 1.0" which is reading charts bar-by-bar, price action trading like Al Brooks (and I'm not knocking it with that label - some people have incredible success that way).
I've termed "Trading 2.0" utilizing the 'volume profile framework' (day types, opening range, initial balance, opening types, statistics, etc) with volume inside the bars and cumulative delta (hitting the bid vs taking the offer). At one point I started getting frustrated with the pure price action stuff (even though my psychology & boom-bust pattern was the real problem) so I went deep into that study, which is what I've been learning from Futures Trader 71 & some others.. So I had this idea yesterday, what would it be like to merge these 2 worlds and be a Trading 3.0 guy.. This way I can get into trades with more precision (smaller stops) and still utilize everything else I've been working with. Now that I can see the renko bars unfolding I'm less likely to get faked out by the candlesticks and I can extract the value from them. I'm bringing a 2 and a half minute chart into the mix so I can get in with tighter stops.
Jedi Alert ! epic, that definitely skill..
For Sure. Do you still tinker with how you view the charts or has it been the same for a bunch of years?
I've tightened up my renko bars on the main screen and added heiken ashi, this will allow me to ride waves longer. I can get way more precise with the 2.5 min but not too fast that it messes me up.
A very important piece is that I have a 1.5 point spread on the Dow with my fx broker and zero commissions. I'm not ready for multiple full futures contracts yet and my micro fees as a Canadian are not conducive for scalps, my cost for micros works out to like 2.5 points plus the spread.. 3.5 is insane.. On a full contract it works out to 2 points which is way better and there's the advantage of saving a tick on average by using Sierra vs MT4..
Thanks, Tropical Trader for your comments. I'll be able to address your questions this afternoon but first I wanted to share two items.
The first is Dr Brett Steenbarger's latest blog post regarding trading psychology techniques and how it is not what we thought it was accomplishing. There is also a link to his Forbes article within the text on the same subject. Most interesting. TraderFeed: Why Your Trading Psychology Exercises Don't Work
The second item is the Netflix series on different mindfulness techniques, Headspace Guide to Meditation. I believe one episode is on analytical meditation where you focus on a specific problem rather than nothingness. I saw this mentioned in today's Parade section of the newspaper. Sounds like a great series.
