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How to Break Through in Trading
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How to Break Through in Trading

  #21 (permalink)
Market Wizard
Cleveland Ohio/United States
 
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Jeremy1984 View Post
Does this mean I have to learn how to backtest? Or do you recommend me manually going back and checking myself? I pride myself on having an amazing work ethic so whatever it takes I am up to it.

Manual backtesting is possible, but my experience is that it is easy t cheat or make mistakes. And the funny part is that the discrepancies almost always make your backtest look better than it is, giving you false confidence.

I recommend computer backtesting. I use Tradestation, but there are plenty of other software platforms around that do it. There are a TON of pitfalls though that you can run into. It is easy to keep backtests that are complete garbage. Also, not everything can be backtested correctly.

BUT, if you do it correctly, you can end up with historical results that have a reasonable chance of working going forward.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #22 (permalink)
Market Wizard
Cleveland Ohio/United States
 
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Jeremy1984 View Post
Does this mean I have to learn how to backtest? Or do you recommend me manually going back and checking myself? I pride myself on having an amazing work ethic so whatever it takes I am up to it.


By the way, you'll see differing points of view in this thread: some people will say to backtest, and some people will say not to backtest (don't look in the rearview mirror, etc.)

Obviously, these are wildly different views, although you can do some of each (sort of a hybrid approach).

So, which is right? Both, and neither. You can screw up your trading backtesting, and you can screw up your trading not backtesting.

Ultimately, you have to decide with what makes YOU feel comfortable, something that "fits" your personality. For some people (Typically more analytical thinkers like engineers, scientists, doctors, etc like to backtest. More artistic types do not like to backtest as much, typically) backtesting is the way to go. For others, not.

Whatever you decide, just do not base your decision on what you think is easier (that is what most people do). The easy short cut road is usually more expensive in the long run.

Kevin


P.S. By the way, since I mentioned that you need to find something that "fits" you, anyone here who is interested in this read this post : https://futures.io/trading-reviews-vendors/26335-kj-trading-systems-kevin-davey-...thing-35.html#post663876

Years ago, I bought a $600 course, that really helped me build a trading approach that fit me... now I want it to have a good new home...

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  #23 (permalink)
Super Moderator
Sarasota FL
 
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Pariah Carey View Post

Become an elite member of this forum. Best two ES points you’ll ever spend. Read the spoos thread, big mikes advice and ask any question threads, and inletcap’s stuff. Those opened up whole new galaxies for me and taught me to see the markets in ways I never imagined.

Excellent advice. I do suggest you take it. The lifetime membership to Elite is $100, exactly what you'd make/lose on 2 points of ES movement. It lets you get into a huge trove of practical, real-world experience.



kevinkdog View Post
By the way, you'll see differing points of view in this thread: some people will say to backtest, and some people will say not to backtest (don't look in the rearview mirror, etc.)

...

Ultimately, you have to decide with what makes YOU feel comfortable, something that "fits" your personality. For some people (Typically more analytical thinkers like engineers, scientists, doctors, etc like to backtest. More artistic types do not like to backtest as much, typically) backtesting is the way to go. For others, not.

Whatever you decide, just do not base your decision on what you think is easier (that is what most people do). The easy short cut road is usually more expensive in the long run.

More excellent advice. You will find an enormous number of answers being offered, no matter what you try. It's not something that you can expect to be given to you, by a mentor or someone's method or book, or any other way. If it were that easy, everyone would be a millionaire, right?

So, with all that variety, you will need to make decisions about what makes the most sense to you. Then what?

@Big Mike's signature block includes some very good pointers:

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.

The first point may be the best: when you're absolutely consistent with something, you at least can know whether it works for you, as you are executing it, and you have a chance at finding out what is really good about it, and what you need to change. (You may have to toss it overboard entirely, which is fine too, once you are sure about how you really are executing it.)

Last advice: don't expect advice to work for you. You'll need to find your own way. Take some steps and see where you go.

Good luck, and I do mean that.

Bob.

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  #24 (permalink)
baltimore md
 
 
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kellys View Post
I'll share what helped me progress and hopefully by doing this it de-jams some of you guys...or not

When I think back to when I first took up trading, I am uncomfortably embarrassed at my stupidity then.
I was ignorant and took what the industry fed me as given.
That was my first mistake. You should put into question everything! Break it down.
The painful thing is that by the time you realise all this, you are 5 years on! Less or more depending on personality, intelligence and environment.

Ichimoku is an 'indicator'.
What does it indicate?
It indicates trend direction, momentum and support/resistance...CONSIDERING PRICE ONLY.
Price only? That was my second mistake!
Does it make sense to look out the back window of a car when you're driving it? How many people have you seen doing that? None!
When you trade price only, it is akin to driving a car staring out the back window.
To become profitable you need to look out the front window!
If you couldn't see the problem before with back testing price alone, then you should see it now.

You do however need price to trade.
The error I was making back then was using price incorrectly. Mistake number three.
You can now see why many (including myself) get caught in a really nasty loop.
The most useful attribute of price is that it indicates how the market feels about certain information.
I'll give an simple example:
I remember a few years ago I was trading USTs (I'm a rate and currency trader only - I'll elaborate on this in a further post), and a piece of flow hit the wires. It was news on the Ebola virus.
It was interesting to see how the market reacted to that flow. The market obviously worried about an outbreak or it spreading cross-borders, because they began to bid treasuries. This bid continued on through London and well into the US session.

As I went along I began to realise that I couldn't make money trading price or derivatives of price alone, but I needed to focus on what drives prices.
Here is how it works:
INFORMATION>>TRADER ACTION (CLICK CLICK)>>ORDER FLOW>>PRICE MOVEMENT
How can one expect to make consistent money by focusing only on price movement, or output?
Start focusing on input and your trading will improve.
We need to trade FORWARD, not BACKWARD!

I'll post further later in the day and cover some other things that helped me progress.
Enjoy the weekend!

Should I be journaling what moved the price and why?


Last edited by Jeremy1984; December 11th, 2017 at 10:01 PM. Reason: typo
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  #25 (permalink)
Schin Op Geul, Netherlands
 
 
Posts: 19 since Dec 2017
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@Jeremy1984
Yes, absolutely!

Intelligent market participants will trade on a 'forward basis'.

Basically, you have pre-event, event, post event.
Traders are working the market through the 3 phases.
Intelligent traders will work with probabilities and risk. They will 'price in' based on probabilities.
If what has been priced flops, then there exists a 'mispricing'. Intelligent traders will see this also. It will be obvious to them, but not to unintelligent traders.

I'll give some examples tomorrow to illustrate what I mean.
These will be in relation to the foreign exchange market. That is a market I am familiar with. I never trade markets that I am not familiar with.

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  #26 (permalink)
baltimore md
 
 
Posts: 8 since Dec 2017
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kellys View Post
@Jeremy1984
Yes, absolutely!

Intelligent market participants will trade on a 'forward basis'.

Basically, you have pre-event, event, post event.
Traders are working the market through the 3 phases.
Intelligent traders will work with probabilities and risk. They will 'price in' based on probabilities.
If what has been priced flops, then there exists a 'mispricing'. Intelligent traders will see this also. It will be obvious to them, but not to unintelligent traders.

I'll give some examples tomorrow to illustrate what I mean.
These will be in relation to the foreign exchange market. That is a market I am familiar with. I never trade markets that I am not familiar with.

Amazing. I look forward to your examples.

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  #27 (permalink)
Schin Op Geul, Netherlands
 
 
Posts: 19 since Dec 2017
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@Jeremy1984

As promised an example.
EUR/CHF
If you were tracking financial conditions and markets back in late 2016-early 2017 then you would have understood the effect politics was having on the markets and participants (actually it is still having an effect, in particular in the UK and the US).
The risk at the time had much to do with 'protectionism'.
If you consider the French elections and the EUR alone, you could see that despite potential central bank divergence and economic trends (ECB and SNB), the EUR/CHF exchange rate remained suppressed. It was held down despite fundamentals pointing to higher prices.
Can you see how the EUR/CHF could be mispriced once the French elections had passed on an Emmanuel Macron win?
You had intelligent market participants trading in a risk premium (that was on a possible Marine Le Pen win), but once the risk had passed, these smart participants adjust and then pick up on the mispricing.
The risk premium needs to now be priced back out and price now needs to reflect diverging CB's and economies.

If you ever wondered what 'edge' is, then this is it!
It is the way you think about the market.
You have:
Participants
Risk events
Price

I'll get some more examples when I get some time and cover other aspects that will help you progress.
Keep at the fight! Never give up!
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  #28 (permalink)
charlotte nc
 
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What really Helped me.....

There are a ton of great ideas on this thread that are spot on. So clearly there is a lot of valuable information here already. But I'll just add the few things that really helped me figure out how to improve my systems.

This is more of an automated system that uses advanced computer programming, but some of the these concepts can be translated to discretionary trading as well.

1. I track the performance of all of my entries based on how the get filled and where the price immediately moves next. There are a few ways I characterize this. (I look to see if the bid - ask level changes) or if just the last price changes.) I break this down into three categories. Type A: = Flat. Price hasn't moved since my entry. Type B: Price moved in my favor. Type C: Price moved against me. Typically type B's will start with a 1 tick profit and lead to winners, whereas type C's will start with -1 tick and typically lead to losers. Build a few different entry rules and measure them independently this way. How do they play out? Were you on the wrong side or right side. Once you crack this move onto the next part.

2. What are my targets: (PT vs. SL?). How am I sizing each? What is this based on? There are a number of factors that can impact whether or not you succeed in sizing your opportunity right, but I will give you an idea of the one of the largest factors. (Volatility). If price is moving a ton, then your odds of a larger target being reached becomes more manageable. In low volatility situations small targets are reached more easily. So setting your PT / SL relative to this is key. You should measure the volatility and analyze your PT/ SL settings through tons of back-tests to see the correlation and help you find the sweet spot, but it is there.

3. Exits: Getting filled or not getting filled has everything to do with order types. A market order will get filled immediately whereas a limit order may only get filled after 2-3 touches, price pass through or never. So just know your odds of getting filled with your order types and sizing, play with different order types and figure out what works best for you.

The learning process I recommend would be:

1. Learn the mechanics of the exchange, the order types, the pros and cons of each and their implied house edge. Understand this forwards and backwards because this will be the key that determines if anything else works or fails so the better you grasp this part, the more everything else will make sense.

2. Don't even worry about having a defined system yet, but start testing independently entries, exits, and sizing. All three are completely independent and all 3 have very important value but you could be great at one and suck at two and your whole system will fail. So pick one of these three to start with, and learn to quantify it and measure it independently, to see how well you can get at just entering on the right side, or exiting quickly, etc.

3. Once you understand the mechanics of everything, and know the house edge, you can start to combine entries, exits and sizing into actual trading theory and start developing your system.

I would approach it in this order. Most people go straight to copying a system from someone else, but they lack the fundamental knowledge of points 1 and 2, so even a great system in weak hands will fail.

Good luck!

Ian

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  #29 (permalink)
baltimore md
 
 
Posts: 8 since Dec 2017
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iantg View Post
There are a ton of great ideas on this thread that are spot on. So clearly there is a lot of valuable information here already. But I'll just add the few things that really helped me figure out how to improve my systems.

This is more of an automated system that uses advanced computer programming, but some of the these concepts can be translated to discretionary trading as well.

1. I track the performance of all of my entries based on how the get filled and where the price immediately moves next. There are a few ways I characterize this. (I look to see if the bid - ask level changes) or if just the last price changes.) I break this down into three categories. Type A: = Flat. Price hasn't moved since my entry. Type B: Price moved in my favor. Type C: Price moved against me. Typically type B's will start with a 1 tick profit and lead to winners, whereas type C's will start with -1 tick and typically lead to losers. Build a few different entry rules and measure them independently this way. How do they play out? Were you on the wrong side or right side. Once you crack this move onto the next part.

2. What are my targets: (PT vs. SL?). How am I sizing each? What is this based on? There are a number of factors that can impact whether or not you succeed in sizing your opportunity right, but I will give you an idea of the one of the largest factors. (Volatility). If price is moving a ton, then your odds of a larger target being reached becomes more manageable. In low volatility situations small targets are reached more easily. So setting your PT / SL relative to this is key. You should measure the volatility and analyze your PT/ SL settings through tons of back-tests to see the correlation and help you find the sweet spot, but it is there.

3. Exits: Getting filled or not getting filled has everything to do with order types. A market order will get filled immediately whereas a limit order may only get filled after 2-3 touches, price pass through or never. So just know your odds of getting filled with your order types and sizing, play with different order types and figure out what works best for you.

The learning process I recommend would be:

1. Learn the mechanics of the exchange, the order types, the pros and cons of each and their implied house edge. Understand this forwards and backwards because this will be the key that determines if anything else works or fails so the better you grasp this part, the more everything else will make sense.

2. Don't even worry about having a defined system yet, but start testing independently entries, exits, and sizing. All three are completely independent and all 3 have very important value but you could be great at one and suck at two and your whole system will fail. So pick one of these three to start with, and learn to quantify it and measure it independently, to see how well you can get at just entering on the right side, or exiting quickly, etc.

3. Once you understand the mechanics of everything, and know the house edge, you can start to combine entries, exits and sizing into actual trading theory and start developing your system.

I would approach it in this order. Most people go straight to copying a system from someone else, but they lack the fundamental knowledge of points 1 and 2, so even a great system in weak hands will fail.

Good luck!

Ian

Thanks a lot. Everything really made sense and I definitely will take your advice. As far as learning the mechanics of an exchange, where would you suggest is the best place to learn this? For example if I wanted to learn everything about CL on the NYMEX, where should I look to find everything I can about it?

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  #30 (permalink)
Chicago
 
 
Posts: 143 since Jan 2015
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Jeremy1984 View Post
I have been trading off and on for the past 3 years or so. I have basically been treading water the whole time. I haven't blown up an account nor have I really made any decent money. I have never had a mentor and never really spent any money on education besides books. I figured by now that I would be somewhat consistent in making money. I rely mostly on Ichimoku and trade ES,GC and CL. I also trading stocks with 5% or more gap at the open. I'm not sure where I really go from here. My one trader friend suggest I find a mentor and spend money on education. Any advice is appreciated.

I intend to strip this away to find out what really matters. There has to be 3-5 concepts that are time tested. See my latest thread series.
https://futures.io/beginners-introductions/43687-beginners-what-really-matters-volume-profile.html

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