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Traders with 5-10 years of experience but still not profitable
Like you, I'm still trying to find my way. I was introduced to tech analysis in the early 90s when I got my commodities license. I wasn't there long enough to learn much of anything, but the concept of S/R and trendlines made a lasting impression. I'm still trying to find my "edge," but I don't think there is a "proper" way to use s/r to the degree that they themselves are an edge.
If you're coming from IT, you probably prefer questions and problems to have concise answers and solutions. I have an engineering/math background and do as well. Seeking something to "clarify the underbelly" of the market sounds a lot like a holy grail to me. You won't find it. If you do, it will be like the slit experiment and will change it's behavior if you found the holy grail. Technical analysis is more art than science. Kind of like statistics. It's just not exact. I've had to get comfortable with the element of chance and try to figure out the odds of a trade working or not more or less by estimation or feel.
So, is there an inherent edge in proper use of s/r levels?? I would say, no more than there is a proper color for a painting. It's just a tool. But, keep in mind I don't have anything I would call an edge. I use s/r, trends, some indicators I've created using time and sales and cumulative data and trying to learn to read depth of market heat maps and just beginning to work with market profiles. You're partially right about s/r lines being like the market profile but it depends on where you place the lines. I've seen people place them on two wicks a mile from the next nearest candle. I try to place them closer to where I see some consolidation.
Well, that's my opinion today... subject to change tomorrow.
There are traders who post here who use literally every conceivable method, some basically the opposite of others, and who are consistently profitable. They will have very different explanations of what they are doing and what they think works and doesn't. But there are also a huge number of others who use the same methods and who are consistently not profitable -- a much larger group than the few who make money, yet you will read the same type of analysis and the same opinions of what works, it just doesn't work for them.
So one conclusion might be that there is no method, no technique, no knowledge, no Way that is going to do it, at least by itself. The reason for this conclusion would be that you see the same thing being used by both successful and unsuccessful traders. How can this be? Well, there are differences in skill, there are differences in execution, there are differences in how objective a person can be while trading real money, there are differences in how realistic their attitudes toward risk are and how well they manage it, and how well they manage losses. There are differences in how they actually apply their methods. There are lots of differences. They aren't really doing the same "thing."
Here's a simple question: could you learn how to play tennis like a tennis pro by reading a book on tennis? No. How about if you talked to a dozen pros and tried to figure out their secrets? No. How about if you start playing tennis? Probably this would also be a "no," frankly, but it's the only thing that stands a chance.
So by all means, look into everything you can. But if you want to know how price reacts to -- or ignores -- a particular level, or anything else for that matter, draw the line on your chart and see what you see.
I'm not being negative about your search at all. Search away, and look at everything that has any interest to you, and, hopefully, learn from it. I just want to point out that, while you do have to have a method (and not all methods "work." by any means), your method, and any conceptual understanding of markets that you may have, is not by itself going to take you where you want to go.
I wish I could now tell you what the Answer is, but of course, my point is that there isn't one. Pick up the tennis racket. You can get help and guidance, and learn from what others have done, and you should, but you have to swing that thing yourself, and how you do it will not be how anyone else does.
Trading is not a theoretical problem to be solved. If it were, it would be easy, wouldn't it? It would be in a book or a course or something and you could just go read about it. They haven't written that book yet.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Very insightful analysis, @bobwest. The biggest takeaway for me is execution. From my perspective (i.e. in my trading room), the biggest variable affecting my trading is my ability to execute my plan. Assuming my plan is solid, then execution is everything. Execution includes:
There are plenty of traders who can trade without automating their systems (Linda Bradford-Rashke and Damon Pavlatos are two well known examples). They have decades of experience including pit trading, hand-drawing charts, execution, and enough black swan events to fill a room. LBR started her career with a spectacular failure in options that left her indebted for several years (ref: Trading Sardines). She tried to automate her methods of trading, but could never get them working. These are the types of people who have been trading for so long they can just feel the market pulse and trade accordingly. Sometimes they are right and sometimes they are wrong, but 30+ years later they are still trading. My dad does it on his 'play' money account and he spends the entire market day in front of his computer, making small and mostly profitable bets. That works for him because he enjoys it and he has built his small account into a much bigger account. No ego, no bragging, just executing his feel for the intraday market movements.
I know I harp on the automation of trading a lot, but for me, getting a 'feel' for what the market is going to do, as my dad does, is too time consuming. Automation eliminates my biggest problem: me. I eliminate the biggest problem, so in this case plan = automated system. Do automated traders have execution problems? Absolutely! Here is a short and incomplete list:
Forget to turn on PC/VM Sunday night when the markets open
Forget to monitor systems while they trade and matching trades to the signals
Poorly tested code causing errant entries
Override a trade to take profits or minimize a perceived loss
I have personally done 2, 3, 4 and been tempted on 1 and 5. Learn and continuously improve.
Your tennis analogy is spot-on. I tried to play tennis a long time ago. I liked running around the court and hitting balls, but I was terrible at the game even though I knew how to play. I set down my racket and quit because I could not execute, even though I find the game fun. Speaking of quitting, this book on my bookshelf came to mind yesterday when thinking about this topic:
The Dip - By Seth Godin
It is a very short book, your library probably has a copy and it takes almost no time to read. The premise is that it is okay to quit, and provides some guidance as to when you should quit an endeavor and when you should stick it out. Consider this: is there a more profitable and/or enjoyable enterprise you can do other than trading that you can do? There is an opportunity cost to trading and I have set trading to the side multiple times to focus more profitable opportunities. I know a former trader who loved trading, but quit because of personal execution issues and is a happier person for it. This book cuts to the heart of this discussion.
I'll leave with a quote I heard last year: "When good traders make a great trade, they feel great. When great traders make a great trade, they feel nothing." And so it should be.
Thank you for this very good post. It is right on topic for this discussion.
I particularly like the fact that you address the common idea (of disgruntled discretionary traders) that automated trading solves all problems. Aside from the fact that you still have to have something that really does work (the same as everyone else ), and all the issues of backtesting that people who don't do it think is no problem ( ), the very same human issues still arise, just in a different form, as you have described. (Disclosure: I am not an automated trader and have never tried it, just admired it from a distance.)
I will look into the book by Godin you mention. I also am an enthusiastic fan of LBR (Linda Bradford Rashke), although I haven't read her book, and I'm sure I ought to. Anything she does is gold. And she is a very, very real trader, who is not making her money by selling worthless stuff to newcomers.
I like this thread and I have a simple aim in it, as far as whatever I post in it:
1. To let people know that it is not that unusual, and not terrible either, to have toiled, perhaps for years (actually, it's realistic to expect to take years) and not (yet) be successful at it. Everything that is worthwhile takes time and real effort, and is not guaranteed, even with the effort.
2. Since some traders do it, it is possible. But it is just not going to fall into your lap.
The point you make, that sometimes you should just move on, is a very important thing too. It will not be right for everyone.
It's hard to tell people that something that excites them for the vast possibilities they clearly see may be a harder grind than they believe or want. But this is also true.
There's a simple piece of logic here:
If trading were easy, everyone would be a billionaire.
Not everyone is a billionaire.
Therefore, trading is not easy.
That doesn't mean impossible, and discouragement is not necessarily the lesson to be learned. But the right lesson is that it is not an easy path to riches, and then people can make whatever decisions appeal to them.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
So I'll just come back to what's their 5 year sharpe ratio?
I'm sorry that I end up picking on you, but it's really frustrating to talk about it in the thread already and still see people making the same mistake. To show that a trader or method really has edge you have to show performance on a risk adjusted performance measure over a long time period.
What's happening is we think things have edge when they really don't because we don't know how to interpret performance metrics properly. And hence there's no way to separate out the noise.
Though the Sharpe ratio is one of the most widely used methods for calculating risk-adjusted return it has several weaknesses, for example the assumption that investment returns are normally distributed.
Long-Term Capital Management (LTCM) had a very high Sharpe ratio of 4.35 before it imploded in 1998.
Yes, well that's the scary thing. If 99% of traders can't hit a five year sharpe of .5 then how do you think they'll do on a more sophisticated metric? I only focus on sharpe because its the one everyone knows.
Very wise, thank you, that is the real challenge isn't it, finding the method that I should pour most of my time into, I would rather master one thing and spend large amounts of time on it than be mediocre at several things. I have spent the majority of almost two years diving into indicator-based trading and did not find anything there that I believed for me would generate any competitive edge. The closest I came to there was vwap channels over HT applied to LT and mean reversion. However, this edge would lead to me taking bigger losses when I did take them and turned out to be not as conducive as I thought.
The only thing I was ever massively profitable was exploiting volatility in options, however, that is not where I wish to focus as it is very subjective and discretionary with only a few hard rules that lead to the edge. I would frequently mistime my exits and I actually sold a few early that would have changed my life monetarily had I just timed it a bit better. That to me is too heartbreaking and it happened more than a few times to me. So I am looking for something more rules-based and higher frequency.
To follow your analogy I suppose I am still searching to find the style of tennnis which may suit me best. I just want the most direct way of understanding the rules of the game which seem vague beyond gain more points than your opponent.
I believe I would find an edge in something that most people aren't doing. Since we know that large players move the prices, ideally I would want to enter and exit close to them, the question I have then narrowed down for myself to find an answer for is, what method could uncover these large players' moves? And while avoiding most of their mind games?
Not advertising, but I think Bookmap will come closest in finding where the big players are sitting and what forces are driving the prices where and why. Spoofing is there as usual, but once you can recognize the legit executions, Bookmap allows to see something which I believe nothing else can come close by in real time. My experience.
You can read the rules from a book. To gain more points than your opponent? That takes practice
"Style," as you put it is accurate. If you wanted to be a painter, how successful do you think you'd be to copy Picasso or Van Gogh? "Style" is deeply personal and develops over time. You are right, you need to find your style. No one can find it for you. You're on the right track asking questions, but at some point you have to trust yourself to make mistakes. Then, how you choose to fix those mistakes is what defines "style.".
