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Simple Directional Trading profitable?
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Simple Directional Trading profitable?

  #21 (permalink)
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GaryD View Post
Loosely quoting Big Mike; the trade is entered by itself, meaning you don't require any other trade in any other position to go a certain way in order for this trade by itself to be profitable. More complex trading would be, Spreads, Options, Hedges, Portfolio trading.

Expanding on that; Entering and/or exitting a trade in a single and immediate vehicle based on nothing other than what that particular instrument is doing. No correlations, no offsetting long/short strategies, no basket trades, etc. One on one.

If I can answer this more simply. Directional trading is placing a trade that will benefit if prices go in the direction you choose. If you think price is going in an upward direction, go long. Down, vice versa.

Sideways is also a direction and can be used by options players who make money if price stays (about) the same.

Whatever you do, you are placing your bet on what you think is going to happen.

The challenge then becomes determining how long you want to stay in the trade depending upon whether the price is going in your direction or not. Cut losers, let winners run.

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  #22 (permalink)
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A guy can go crazy looking at a chart and thinking who's creating that move, OTF's, hedgers, spreaders, scalpers, and an infinite number of all other traders.

On my screens I have the S&P500 advances/decliners, the S&P TICK, the NQ, the YM, the XLF and the XLK representing the biggest sectors, all to give me some sort of "security" when trading the ES but at the end, when I hit the buy or sell in the DOM I'm not looking at those charts. The only thing I hear is the alert that I have in the TICK every time it goes above 250 since usually that indicates we'll see some sort of high in the ES in 1 to 3 minutes time and I don't want to go long on such periods.

So I ask myself why do I have all those charts up there? I'm only trading the ES. I'm only reading its chart and trying to figure out what information is that move giving me?

Many, many, many times I tend to go the opposite way of my initial reading because I hear my NQ or YM alerts saying to me that they are making news highs/lows and ES is really not following them. I go in ES thinking it will follow the other 2 and when I look, NQ or YM are rotating after that new high/low and I'm already down 1 or 2 handles in ES because it also rotated but with a vengeance. ES was weaker than NQ or YM and when they reverse ES just broke.

So why the hell do we need to follow other stuff when trading an instrument? This damn idea of security we want to have, a continuous confirmation loop that freezes us.

When we are targeting just a couple of handles we really don't need any other chart besides the instrument we are trading. Adv/dec, NQ, YM, XLF, XLK, all may be still, while ES moves 2 handles. If we are looking for some sort of confirmation for a move in ES we'll end up not trading at all, although, at the end of some days not trading at all would be preferable

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  #23 (permalink)
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And if you aren't scalping?

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  #24 (permalink)
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I feel directional trading is profitable provided a trader develops a strategy with an edge for himself, restricts the trading to active market hours and have a good money management plan with fixed daily loss and profit limits.
However, I have read about professional traders groups like Dubai Professional Traders group who specliaise in future spreads and arbitrage. While trading spreads, one is always hedged in the markets and it is possible to trade big quantities with lesser margin. Also , selling the options is also part of such fund management firms.
In short, spreads, options are favourites of pros and most of retail traders are looking for that magic indicator that shows correct direction of market.

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  #25 (permalink)
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Big Mike View Post
And if you aren't scalping?

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I'm not fond of breakouts. Statistically speaking, over the years, breakout trading has been where I've lost more money but for those that trade breakouts, in a higher time frame, possibly hourly or even daily, might have some advantages when looking at NQ, YM, sectors, adv/dec, TICK and others.

If you have the financials and tech all inside the same range, a breakout would serve as confirmation for ES, NQ or YM. Adv/dec also would confirm with new highs/lows.

Yes, all this can also be used by scalpers. They can take advantage of that higher frame reading and grab a quick 2 handles or whatever the move gives them but that is where the problems begin. More often than not, breakouts generate false moves that will rotate for 2 or 3 handles, precisely where stops usually are resting for scalpers. That's why I tend to fade breakouts. I find them more rewarding.

But then again, do we really need to look at other instruments for this? We are looking at those other instruments for confirmation but that's not granted. You continue to have false breakouts. Heck, those same instruments might have been the ones giving the signal for a breakout that ended up to be a false one. So we are basically adding stuff that continuously distract us from what is really important, the instrument in which we are trading and the price and volume that is being traded there.

Please don't misinterpret me, knowing what is happening in other markets/instruments is important, the same way news are important so we can be up to date if all of a sudden some dramatic move happens or prepare us for a news pending. I just don't see a reason for it to be a constant focus of our trading strategy.

If we're trading ES, this should be our primary focus and not what NQ, YM, XLF are doing. There might be hedging between them but we cannot do anything about it. Hedging or not, the bars we're seeing in ES chart are the bars you need to focus. Those are the ones we're trading, those are the ones that will signal whatever they'll signal.

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  #26 (permalink)
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For sake of discussion, here is a simple chart of Citibank and JPM that I already had on my screen. The green line overlay is XLF by comparison.

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The thread premise is "Is simple directional trading profitable" (long term). If you answer yes, then you would probably ignore XLF here and just trade the base instrument.

But what if your research indicated that JPM and C should return from their present divergence from XLF? Then would you consider a long underlying and short XLF (whatever the bear is) strategy, where the current gap spread between the base instrument and their sector should be closed?

Mike

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Last edited by Big Mike; August 7th, 2012 at 08:36 PM.
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  #27 (permalink)
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Big Mike View Post
But what if your research indicated that JPM and C should return from their present divergence from XLF? Then would you consider a long underlying and short XLF (whatever the bear is) strategy, where the current gap spread between the base instrument and their sector should be closed?

I always had problems doing that type of analysis. It's the same as comparing NQ with AAPL.

JPM and C are the third and fourth biggest companies in the sector. JPM weights 7.7% and C 4.5%.
We are talking about a sector that has 81 companies which 71 represents 50% of the sector and the other 10 represents the other 50%.

For a spread based trade you need to take in consideration all the 81 companies or at least the top 10. WFC and BRK alone weights 18% of the sector. They alone can mess your spread.

XLF may in fact "return to the mean", closing that gap spread but you need to know in which position the top 10 companies are in relation to the sector itself. If WFC, BRK, BAC, USB, AXP, GS, SPG, MET are all strong and JPM and C are lagging rest assure the gap will widen even more.

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  #28 (permalink)
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And speaking of methodologies other than simple directional trading, there is an absolutely fantastic thread on GTAA (Global Tactical Asset Allocation) here:

https://futures.io/elite-circle/21967-developing-gtaa-system.html

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
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  #29 (permalink)
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Big Mike's simple directional trading question

I would like to bump this thread. The original question was. Is it possible to be long term profitable by trading only a simple directional strategy.

I would like to further restrict the definition of simple to one entry. The only traders who I KNOW are profitable are two guys at a prop firm that I was with and they average down or as FT71 calls it campaign. I am not saying I don't think that others are profitable but these guys I have watched for a long time and I KNOW. They do have losing days and when they do the losses are big. Maybe one losing day per month and the loss is four days average profit. They trade stocks, use a lot of limit orders and work the positions.

But, most people who try this blow up. It is a difficult money management problem. And you still have to honor a daily dollar stop and have average daily gains that pay back the losing days quickly.

So as I said, I would like to further clarify the definition of Simple Directional Trading to mean One Entry. Multiple exit/scale out OK.

After all that, I think the answer is yes. When I look at my trading this year, I was definitely not profitable, the fault is psychological not a problem with strategy. I have a problem with revenge trading and not accepting risk. My problem is that I have the idea that I can be profitable every day. I will put together long strings of days where I make 200 to 500 dollars a day although some of these days were accomplished by breaking my max daily loss rule. Then after 10 or 15 days like this, comes the day when I don't recover from the violation of my max daily loss and I give back all the profit and more.

I think the difficulty of this thread is that the profitable traders do not have any interest in the topic and the unprofitable feel that they have nothing to offer.

The best answers so far in this thread were from Massive1.

It would be great to hear from profitable traders who can talk about their experience/expectation for profitable days percentage, ditto weeks and months. ratio of losing days to winning days, average losing day, average winning day. info could be given as percent of account.

Also would like to here about percent of entries that are limit versus market and percent of exits that are tgt versus trail.

I am going to redouble my efforts to prove that the system that I would like to trade, will be profitable. That perfect system for me, would 1) trade during US mkt hours 2) trade only one instrument 3) single entry, mkt order at confirmation 4) partial exit at 1 times risk 5) final exit at tgt or raised stop. 6) have a high winning day percentage 7) have a virtually 100% winning week percentage.

So is this asking to much?

Archie

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  #30 (permalink)
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abdunbar View Post
I am going to redouble my efforts to prove that the system that I would like to trade, will be profitable. That perfect system for me, would 1) trade during US mkt hours 2) trade only one instrument 3) single entry, mkt order at confirmation 4) partial exit at 1 times risk 5) final exit at tgt or raised stop. 6) have a high winning day percentage 7) have a virtually 100% winning week percentage.

So is this asking to much?

Archie

The only thing I would change is 2. I have found that only about 15% of a stocks move is predictable. That is what you doing, you are predicting a stock price is going to move up or down from where you enter. I think it is a mistake to limit yourself to one stock out of the 5000+ major stocks available to you.

Rather, limit yourself to one type of set up. Then, search all the major movers for that set up.

“Enter by the narrow gate; for wide is the gate and broad is the way that leads to destruction, and there are many who go in by it. Because narrow is the gate and difficult is the way which leads to life, and there are few who find it.
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