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The PandaWarrior Chronicles
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The PandaWarrior Chronicles

  #1631 (permalink)
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PandaWarrior View Post

And in some respects, my life (financial at least) does depend on my trading......therefore I must trade like it doesn't. Hows that for a paradox?

I went through that, still not overly interested in reading about it, but it is here on futures.io (formerly BMT). That paradox, mixed with a low point on my life history, caused me to completely fuck up anything I knew about trading. And while I may not stand a chance, if there were any justice in the trading world, I would force the resulting understanding into you. lol!

My 10 minutes of fame...

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  #1632 (permalink)
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As a new trader I would always (always) freak out when I got a 6 tick ES winner (~= 15 tick CL) and would close it immediately. Then I got used to the feeling and would allow myself to hold for 12 ticks, then 20, then 30 (these days I don't usually get a day trade larger than about that much). The idea of closing a trade at +6 ticks is laughable to me now, as I slowly broadened my comfort zone such that 6 ticks seemed like hardly worth the effort/risk.

In a similar way, I found scaling in to be VERY difficult when I first tried it. "Wait a minute, I'm going to increase my risk, and worsen my average?" But then after doing it a bit, it has become much easier. In fact, I scale into trades almost every day now, and even if I happen to get flat, I am often looking to get back in, and view the entire sequence as one position play, rather than thinking of a trade as being flat to flat.

I think scaling might be particularly hard for CL traders, as you guys often receive gratification sooner due to fast market movement, and it's much more tempting to be in, get your profit, and get flat. Scaling in requires a very different mindset, one of maximizing potential profit by simply having a position on, versus the "get out as soon as possible" mentality.

Have you tried entering with 2, and then working around the core position? The disadvantage to only opening with 1 is that if you get a solid move in your favor quickly and you reach a logical scale out point, you have the tough choice to get flat or sit through a retracement. If you have 2, at least you can pay for the trade and then an add that does not work out will not cost as much.

When I have problems adding, it's usually because I add at a disadvantageous price. The thing is that the add needs to be a place where you would be comfortable initiating a position; the fact that you are in the money on the initial position does not make it wise to add for the sake of adding, versus adding at a place where you would be okay initiating a new position.

The first key to adding successfully, IMO, is being good enough at gauging market state so that the adds have enough potential to justify the increased risk. A market that is rotating and balanced on any given day is not a market to add in. Better to go all in, and scale out or all out on those days. But if the market is out of balance enough that it has potential to run, then it makes sense. The second key IMO is to add early. Very often we will start small, and add large later, thinking that the movement in our favor justifies the risk. But I think a +1/2, +1/4, +1/4, or +1/2, +1/3, +1/6 approach may be wiser, to better the average and avoid adding too large when the rubber band has begun to stretch. Of course, the whole point of scaling in instead of going all in is that the trade working provides some clue (though it's an illusion much of the time) that it will continue to work in our favor, so adding too early negates the purpose of scaling in to begin with, so it is a tough balance.



PandaWarrior View Post
Another member PM'd me and told me I was on the right track, gave me some personal examples of his success (which I won't repeat here, most of you would not believe me if I told you what he said as his success using a scale in approach was/is far beyond what most of us would imagine is possible).

If you don't mind, would you humor me and post the short version? I'm always open to out of the box thinking, and if it's something I could hardly imagine, all the better!

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  #1633 (permalink)
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josh View Post
The second key IMO is to add early. Very often we will start small, and add large later, thinking that the movement in our favor justifies the risk. But I think a +1/2, +1/4, +1/4, or +1/2, +1/3, +1/6 approach may be wiser, to better the average and avoid adding too large when the rubber band has begun to stretch. Of course, the whole point of scaling in instead of going all in is that the trade working provides some clue (though it's an illusion much of the time) that it will continue to work in our favor, so adding too early negates the purpose of scaling in to begin with, so it is a tough balance.

Would quit mkaing me look bad? lol!

Yes, that makes sense. I am living with that as my main mind filter recently.

And, no, that does not make things feel any easier.


Last edited by GaryD; May 30th, 2013 at 09:52 AM. Reason: dirty mouth
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  #1634 (permalink)
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Briefly regarding POP's Rule 1: it is a very logical rule, but can be very hard to actually implement because it means you will usually take yourself out, instead of letting the market hit your predetermined stop. Sometimes this will turn out well, but others it will mean that you get fooled and get out of what turns out to be a winner. I asked FT71 about this and he said that he does not particularly agree with rule #1 for today's markets, because they are fundamentally different than they were back when POP was written. I agree with this for the most part. The thing is, if you analyze the market and make a decision on entry and risk, by altering that during a trade you are assuming that you are acting objectively based on new information, without much/any bias due to your position. My opinion is that simply having a position alters the bias enough that it will usually be better to stick with the view that was formed before the position was on. A large enough sample has to be examined to determine the approach that works best.

Sometimes you will get out and feel great because it would have stopped you out, and that's when you'll want to adopt Rule #1. Other times though, your judgement will be off due to bias, or due to randomness, and the trade would have worked out, and the feeling of taking off a winner that would not have hit the stop can be quite damaging.

So, if rule #1 is to be implemented, it must be done so by following POP's admonition to be willing to get back in. Sometimes this can lead to choppiness, and focus must be kept to ensure that you don't get long, short, long, short and chopped up. And, it can be difficult to get out, and be patient enough to wait to determine if a trade idea is still good, without just hopping back in 10 seconds later, costing commissions and probably worsening the price of the trade. So with either approach, patience must be exercised so that a trade idea has the opportunity to prove itself.

And I meant to say, thanks PW for discussing these topics on your thread--I find them some of the most important in trading. Once we know how to trade, figuring out how to maximize our effort without completely messing everything else up in the process is a real challenge, and something I am constantly working on. So thanks for talking about this stuff!!

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  #1635 (permalink)
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PandaWarrior View Post

What remains to be seen is my emotional state if after waiting for a setup and trigger, I enter, press the trade and it ends up being BE. How will I feel? Will I want to revenge trade to make up for it? Enter next time with larger size initially? Chase the runner? Who knows? Only time will tell.

No. You know now. The fear is, being wrong.




PandaWarrior View Post

I forgot to mention I was reading a trader the other day whose win rate is around 25-30% but yet makes in the mid 6 figures every year. Why does he make money? He presses the winners. He loses with 1-3 units and wins with 5-10 units....I don't know how many lots are in the units but even if its only 1 lot per unit, the math still works.

There is the example of what I just said above.

He does not give a fuck if he is wrong 3 of 4 trades. Why? The math works.

This comes from a guy who has thrown himself on his sword... Get cocky about it, to some degree. Not in trading boldly, or ignoring, or even just not prioritizing, RISK.

But in a way that allows you to 1) make the choices you believe in, and 2) ignore the ones you don't.

Do you know something that, right now, you could suggest in a spreadsheet that you KNEW was a good possibility?

And, assuming that you do, How many times would it need to be right?

Holy grailish talk, Brian. Maybe in my possibly on the edge of sanity manner of speaking... But my response to that is, So?


We put so much into it, because it is emotional. So, it is a given that we need to remove the emotion.

Man, we have a similar history. I melted online. So? If I knew everything myself I would give it to you. I don't. But I see something that makes me feel in you.


Last edited by GaryD; May 30th, 2013 at 12:31 AM.
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  #1636 (permalink)
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josh View Post
As a new trader I would always (always) freak out when I got a 6 tick ES winner (~= 15 tick CL) and would close it immediately. Then I got used to the feeling and would allow myself to hold for 12 ticks, then 20, then 30 (these days I don't usually get a day trade larger than about that much). The idea of closing a trade at +6 ticks is laughable to me now, as I slowly broadened my comfort zone such that 6 ticks seemed like hardly worth the effort/risk.

In a similar way, I found scaling in to be VERY difficult when I first tried it. "Wait a minute, I'm going to increase my risk, and worsen my average?" But then after doing it a bit, it has become much easier. In fact, I scale into trades almost every day now, and even if I happen to get flat, I am often looking to get back in, and view the entire sequence as one position play, rather than thinking of a trade as being flat to flat.

I think scaling might be particularly hard for CL traders, as you guys often receive gratification sooner due to fast market movement, and it's much more tempting to be in, get your profit, and get flat. Scaling in requires a very different mindset, one of maximizing potential profit by simply having a position on, versus the "get out as soon as possible" mentality.

Have you tried entering with 2, and then working around the core position? The disadvantage to only opening with 1 is that if you get a solid move in your favor quickly and you reach a logical scale out point, you have the tough choice to get flat or sit through a retracement. If you have 2, at least you can pay for the trade and then an add that does not work out will not cost as much.

When I have problems adding, it's usually because I add at a disadvantageous price. The thing is that the add needs to be a place where you would be comfortable initiating a position; the fact that you are in the money on the initial position does not make it wise to add for the sake of adding, versus adding at a place where you would be okay initiating a new position.

The first key to adding successfully, IMO, is being good enough at gauging market state so that the adds have enough potential to justify the increased risk. A market that is rotating and balanced on any given day is not a market to add in. Better to go all in, and scale out or all out on those days. But if the market is out of balance enough that it has potential to run, then it makes sense. The second key IMO is to add early. Very often we will start small, and add large later, thinking that the movement in our favor justifies the risk. But I think a +1/2, +1/4, +1/4, or +1/2, +1/3, +1/6 approach may be wiser, to better the average and avoid adding too large when the rubber band has begun to stretch. Of course, the whole point of scaling in instead of going all in is that the trade working provides some clue (though it's an illusion much of the time) that it will continue to work in our favor, so adding too early negates the purpose of scaling in to begin with, so it is a tough balance.




If you don't mind, would you humor me and post the short version? I'm always open to out of the box thinking, and if it's something I could hardly imagine, all the better!


As noted, I am a beginner at this although in theory I understand it quite well. POP advocates this: Enter small, testing the market, add as follows; 3:2:1. With the numbers representing units and not lots. Add progressively smaller as price moves further away from initialization price. Thereby reducing the negative effect of the rubber band snapping. Since I can't really do it like that due to account size constraints, I must work with what I have. That means I will enter with one, add a second and then a third if possible and there is sufficient room in my trade to justify adding the extra layer of risk.

CL is an instant gratification machine if you do it right. Nothing wrong with fixed targets of 20 or 30 ticks. That can represent many many swings throughout the day. However, my targets are starting to look like 40-70 ticks and inside that there will be at least one swing of at least 20 ticks many timea. However, it can run those same 40-70 ticks without pausing to breathe and it often does. In this scenario, simply buying a higher high or selling a lower low may be the only option to get in as the pullback entries or whatever other method one might use simply never materialize.

As to the trader I mentioned, I can only say this: In the last 6 months he said he had added to positions only 6 times....I'm now assuming he is swing trading for the most part but those 6 adds accounted for a mid 5 figure increase in his equity. On top of his other profitable trades. So assume somewhere in the upper 5 figures to low 6 figures for profit in the last 6 months. I realize this might be chump change for some, but for others, this is a really nice pay day. As it would be for me......

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #1637 (permalink)
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josh View Post
Briefly regarding POP's Rule 1: it is a very logical rule, but can be very hard to actually implement because it means you will usually take yourself out, instead of letting the market hit your predetermined stop. Sometimes this will turn out well, but others it will mean that you get fooled and get out of what turns out to be a winner. I asked FT71 about this and he said that he does not particularly agree with rule #1 for today's markets, because they are fundamentally different than they were back when POP was written. I agree with this for the most part. The thing is, if you analyze the market and make a decision on entry and risk, by altering that during a trade you are assuming that you are acting objectively based on new information, without much/any bias due to your position. My opinion is that simply having a position alters the bias enough that it will usually be better to stick with the view that was formed before the position was on. A large enough sample has to be examined to determine the approach that works best.

Sometimes you will get out and feel great because it would have stopped you out, and that's when you'll want to adopt Rule #1. Other times though, your judgement will be off due to bias, or due to randomness, and the trade would have worked out, and the feeling of taking off a winner that would not have hit the stop can be quite damaging.

So, if rule #1 is to be implemented, it must be done so by following POP's admonition to be willing to get back in. Sometimes this can lead to choppiness, and focus must be kept to ensure that you don't get long, short, long, short and chopped up. And, it can be difficult to get out, and be patient enough to wait to determine if a trade idea is still good, without just hopping back in 10 seconds later, costing commissions and probably worsening the price of the trade. So with either approach, patience must be exercised so that a trade idea has the opportunity to prove itself.

And I meant to say, thanks PW for discussing these topics on your thread--I find them some of the most important in trading. Once we know how to trade, figuring out how to maximize our effort without completely messing everything else up in the process is a real challenge, and something I am constantly working on. So thanks for talking about this stuff!!

You note I did not include that part of POP's rule in my original post. I think for the most part, in today's marketplace, you can simply decide how much you are going to risk to find out if the trade is valid. If you get taken out, oh well. I take rule one to mean this: Enter small so if wrong, I am wrong small. The remainder of the rule is not really relevant in my view....although this might change in time.

As to discussing this in my thread, its time to focus on winning. And this is how you win.....so yes, I'll discuss it more as I find things I want to discuss or remember.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris

Last edited by PandaWarrior; May 30th, 2013 at 12:46 AM.
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  #1638 (permalink)
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GaryD View Post
No. You know now. The fear is, being wrong.


There is the example of what I just said above.

He does not give a fuck if he is wrong 3 of 4 trades. Why? The math works.

This comes from a guy who has thrown himself on his sword... Get cocky about it, to some degree. Not in trading boldly, or ignoring, or even just not prioritizing, RISK.

But in a way that allows you to 1) make the choices you believe in, and 2) ignore the ones you don't.

I agree 100%


GaryD View Post
Do you know something that, right now, you could suggest in a spreadsheet that you KNEW was a good possibility?

And, assuming that you do, How many times would it need to be right?

Not sure what you are asking or suggesting here....


GaryD View Post
Holy grailish talk, Brian. Maybe in my possibly on the edge of sanity manner of speaking... But my response to that is, So?

I think its pretty darn close to the holy grail. How to lose small and win big.....age old wisdom. Implementation is the kicker.


GaryD View Post
We put so much into it, because it is emotional. So, it is a given that we need to remove the emotion.

I disagree. I think we need to work with the emotion. Recognize its there, and let it roll off our back like water off a ducks back.....or channel it some other way.....but elimination of emotion is impossible. See this blog post for more. The importance of emotion in trading. | traderhabits.com


GaryD View Post
Man, we have a similar history. I melted online. So? If I knew everything myself I would give it to you. I don't. But I see something that makes me feel in you.

Yeah I think its one reason why we keep crossing paths....success, failure, self examination, incessant obsessing over details.....its all there.....

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #1639 (permalink)
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Markets are a pain delivery mechanism


PandaWarrior View Post


One thing I've learned this last two weeks:

It does not matter one bit where you put the stop. There is a trade premise and the stop is how much you are willing to lose to find out if that premise is correct. End of story. There does not seem to be a benefit to a technical stop location at all.


I agree with this. The market's action evolves to compromise the majority - it gravitates to cause the most pain to the most number of participants - e.g. if everyone seeing "support" and is leaning towards the long side then the inevitable drop has to happen to hunt the stops below "support".

Its always staying ahead of the rate of change as it is hurled upon you, as fresh as ever since Jesse Livermore nay ever since the beginning of trading....

It would not be too much of a leap of faith to believe that the astute / experienced traders "know" where the stops would be (in the sense that experience tells them what the other traders are most likely to think) and initiate their counter-positions there.

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  #1640 (permalink)
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Holding


How to not chicken out?

I have a 10-tick stop and a 10-tick target but never hold for more than 6 - 8 ticks. Never.

Well, the answer is in the question, you may say - JUST DO IT! Just hold for those 10-ticks. I mean I need to do it, but am struggling here.

I am seeking something specific I can do to reinforce a habit of not moving stop and target.

To state it simply: Having large losing trades in the past makes me afraid to give up on winners and I rather accept piddling profits rather than losing the accumulated gains (which are not really big - they are 4 - 5 ticks after slippage).

Here it must be noted that I have practiced and my technique allows me to have a good win rate of 70%+ YET when real money is on the line I tend to not wait for the 10-tick winner but settle for less.

The answer is to of course be confident and take the heats of the pullbacks and allow either stop or target to be taken out.

But how to reinforce this loop.

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