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Trusting your signals


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Trusting your signals

  #1 (permalink)
Des Moines, Iowa
 
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Trusting your signals

How do you stop the slow bleed of your account? I see my signals. I know they are correct, but hesitate - seeking to make sure they are correct. Then when I pull the trigger I either go long at the top or short the bottom. How do you just let yourself go? How do you re-wire your thinking / actions?

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  #3 (permalink)
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Good question and something im currently dealing with. I've been discussing this quite a bit lately in my futures.io (formerly BMT) journal as it is currently my single biggest issue.

Basically it comes down to the realization and COMPLETE faith in the following:
  • There are no certainties in trading, only probabilities
  • You cannot know if a trade will work before you put it on. No one on the planet can know this, not from the smallest retail trader to the biggest hedge, investment or HFT firm. (I find this quite comforting)
  • The results of the very next trade does not matter. All that matters is that you take it because it forms part of your overall edge which is based on the probability of hundreds/thousands of trades. Every time you skip or mismanage a trade, you essentially negate your edge
  • Once the trade is on, your only job is to manage it according to your plan. There is no need to stress about the outcome because that is out of your hands. The market will do what the market will do
  • Your money management plan has been built in such a way to allow you to take every signal with confidence. When your money management plan tells you to stop trading you do so, until then you take every single signal
  • Your entry into a trade is one of the least important aspects of a trade and more importantly your overall success as a trader

With all that said, it's definitely easier said than done. You can be aware of the above and believe it, but still not truly have faith in it. You still find yourself not putting on the trade until you are absolutely certain it will be a winner. Well, as mentioned, there is no certainty.

One thing that I can tell you from recent experience, is that it is a huge relief once you start believing these concepts because all the pressure that you usually place on the next trade being a winner just disapears. Who cares, it's just one of a hundred/thousand trades.

Something i've started doing lately is asking myself the following question every time I see a trade setting up: "Will I look back during my review session later and consider this a valid entry?". If the answer is yes then I have no choice but to take the trade.

I would suggest you watch all the psychology webinars on futures.io (formerly BMT) (if you haven't already). I particularly find great value in the webinars from FT71 but they're all excellent. Whenever you hear the presenter talking about probabilities and the fact that the next trade result doesn't matter, make sure to pay close attention.

Good luck, I can certainly relate to what you're going through. I have by no means conquered this aspect of my trading but am making progress.

cheers.

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  #4 (permalink)
Des Moines, Iowa
 
Experience: Intermediate
Platform: NinjaTrader
Broker: Kinetick / IB
Trading: spy
 
Posts: 27 since Feb 2011
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Casting doubt aside

Thanks for the reply. It is maddening, isn't it? You can read all the books, watch videos, attend seminars, spend countless hours in front of your monitors, back test your signals, be able to read the chart perfectly from the left side of the chart and yet still not have complete faith in your signals when they are happening in real time.

I am not bogged down by indicators (went through that stage years ago) and only trade the SPY with one one SMA and stochastics. I simply have to find a way to cast doubt aside and embrace the unknown every time my signal appears. I need to take every trade or take none.

Appreciate your suggestions. They are all very valid.

Rudy

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  #5 (permalink)
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Rudedog60 View Post
I see my signals. I know they are correct

How/why do you think they are correct? Be detailed in how you reached this conclusion...

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  #6 (permalink)
Des Moines, Iowa
 
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signals



Those are my signals.

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  #7 (permalink)
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Rudedog60 View Post
Those are my signals.

OK, but why do you trust them?

I am trying to get you to come to your own realization here... just tell me 5 reasons why you trust these signals.

Mike

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  #8 (permalink)
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DarkPoolTrading View Post
...Basically it comes down to the realization and COMPLETE faith in the following:
  • ...
  • Your money management plan has been built in such a way to allow you to take every signal with confidence. When your money management plan tells you to stop trading you do so, until then you take every single signal
  • Your entry into a trade is one of the least important aspects of a trade and more importantly your overall success as a trader
...

I am of that school that prefers to only take trades that have merits. In other words, i filter my signals. Saying the entry is the least important aspect is not recognizing that a trade has both an entry and exit points. They are part of the same animal and should be treated equally in terms of importance. You would not want to go long in front of a supply zone, would you?

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  #9 (permalink)
Des Moines, Iowa
 
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Big Mike View Post
OK, but why do you trust them?

I am trying to get you to come to your own realization here... just tell me 5 reasons why you trust these signals.

Mike


1. stochs tell me the momentum has shifted to the offers being hit for longs or the bids being hit for shorts
2. price action moving above / below the 12 SMA tells me price will continue in that direction until the trend is broken. I don't trade against the 12 SMA. If price is above it, I;m long...if below, I'm short.
3. The modified wave indicator is really just an approximate colored 9 SMA. The change of color gives me an early indication of momentum change and the cross of the 12 SMA confirms continued momentum change and strength.
4. I watch these signals along with the tick and nyse advance/decline chart next to the chart I attached. For the most part the SPY will move in the same manner as the add.
5. Because I see it happen right before my eyes every day.

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  #10 (permalink)
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Rudedog60 View Post
1. stochs tell me the momentum has shifted to the offers being hit for longs or the bids being hit for shorts
2. price action moving above / below the 12 SMA tells me price will continue in that direction until the trend is broken. I don't trade against the 12 SMA. If price is above it, I;m long...if below, I'm short.
3. The modified wave indicator is really just an approximate colored 9 SMA. The change of color gives me an early indication of momentum change and the cross of the 12 SMA confirms continued momentum change and strength.
4. I watch these signals along with the tick and nyse advance/decline chart next to the chart I attached. For the most part the SPY will move in the same manner as the add.
5. Because I see it happen right before my eyes every day.

OK so I think I've identified the problem.

You have no objective reason to believe your signals are any good. Go create a spreadsheet in Excel and go do market replay or backtest 100 days of charts and start tracking the signals. This will be a start.

Then if it still looks good, start doing the same in real time. Every time you think there is a signal, put it in the spreadsheet.

What you will find without a doubt is that you will need to change the rules drastically, or will be unable to define the rules clearly, in order to make a trade actually be profitable. You'll begin to understand why entries are one of the least important parts of trading, yet that is where everyone focuses.

Once you get that far and track it live in real time without any hindsight bias, without any delay, without waiting for new bars to print before making or adjusting your decision, and you do that for say another 100 days, then you'll be ready to hopefully move forward (likely not with this setup).

I've talked about this many times here:


Mike

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