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Lord Sidious's Trading Journal

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  #41 (permalink)
San Marcos, CA
 
Experience: Intermediate
Platform: NinjaTrader
Trading: 6E, ES
 
Posts: 55 since Nov 2010
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tickleboy View Post
Hi Fat Tails. I was reading your comment on Lord Sidious's Trading journal and you talked about the need for a "Trading Edge" but you didn't explain how one would go about finding or researching that edge. Have you posted about this somewhere else that I could read about your thoughts on that? I don't want you to have to write out something I am sure you have written about somewhere (Or someone else for that matter).

You had mentioned that a rising MACD below the zero line is no edge which I believe I understand. So my thoughts on finding an edge with the MACDs would be locating some pattern (Say... a large acceleration on the MACD line indicating a strong move as an example) and then backtesting that pattern to see if it statistically results in a high probability setup or not. This is just what I am reading into it... please correct me if I am wrong.


trendisyourfriend View Post
I have stressed in bold your passage about the MACD and your reference to testing some patterns. I would bet most people interested in trading the markets think along these lines, ie, finding a recurring pattern by using some mathematical indicators and try to profit from the signals they provide. If the markets were just that, i think it would be an easy proposition but is it really just that?

Markets are not price movement. They are traders making trading decisions.

To find an edge and profit on a consistent basis, you'll probably need to re-examine your conception of what makes the markets tick so to speak. If the markets are not price movement then you need to ask yourself why are so many traders focusing all their efforts on this aspect! To be sure, just look at how many indicators there are in Ninja and/or are constantly developed. Most of these indicators are centered around the notion that markets are just price movement. Sure you can test a pattern and see if it is profitable but in my opinion it is not the fastest and safest way to find a long lasting edge that does not depend on backtesting to become manifest in your attempt to profit from the markets.

In my opinion, you need to form an understanding of the nature of the markets. The way to profit is through finding opportunities where there is a higher probability of a sufficient number of traders making trading decisions, which will lead to net order flow in a particular direction, and then acting to trade with this orderflow.
Find the areas on a chart where other traders will make trading decisions and you've got yourself an edge.

@trendisyourfriend, absolutely! You have to determine which side is in control and then join the flow. However, indicators can have a place when backtesting to evaluate a basic concept. Ideally you are looking for patterns in the price (or more accurately patterns in trader behavior) but developing a backtest on price patterns is rather difficult. Once a person has confirmed that the underlying idea has merit, he can look for the price patterns and the reasons behind them. Since indicators lag, price signals are more useful for actual entry/exit. I have found that backtesting and optimization can only go so far. Not enough people realize this so they start the endless search for 'faster/better' indicators. [My personal experience - YMMV, in which case give me a call ]

@tickleboy, Lord Sidious has the right idea. Start with a concept, test it while observing whether will the rules will catch good trades and avoid bad ones but also when the rules fail to catch good trades. After the trial period, adjust the rules or add/remove a rule. So far so good.

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  #42 (permalink)
Portugal
 
 
Posts: 91 since Apr 2012
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Somehow, dont know why, charts 1 and 2 were not correctly upload in my First Day Trading (New Trading Plan) post. Everything alright now! Click here, please.


Good trading!

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  #43 (permalink)
desert CA
 
Experience: Intermediate
Platform: NT7, TOS, CQG-trader
Broker: AMP, DT, TDA
Trading: CL,NQ,YM
 
Posts: 2,130 since Jul 2011
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In regard to indicators, even though they always lag, they can be used in other ways to help gauge a probable entry or reasons to stay out of a trade, or exit a trade. For example, while a MACD alone will be lagging, looking for divergences with MACD in comparison to price is another way of using MACD , looking at a pattern on the MACD instead of just the current close of bar result of the MACD. Then there's also an average of the MACD which can help generalize the overall trend in the past 20 bars or so depending on its settings. Divergences can also be looked at on the stochastic. Stochastics can be helpful to a more experienced trader when price is in a range and the trader wants to scalp tops and bottoms. When there's more momentum and bigger movements in price, stochastics fail to show discernible fluctuations when they overstay it's oversold or undersold boundaries. And then a momentum indicator such as RSI would be more reflective of price movement in this scenario. Also, like TIYF said, it's important to have an awareness of price structure. Like knowing for example when price is in a consolidation phase vs. a trending phase, when a continuation breakout is likely to occur or a trend is showing weakness and a reversal may be coming soon. Price action material like Brook's can help in that area.

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  #44 (permalink)
Portugal
 
 
Posts: 91 since Apr 2012
Thanks: 8 given, 15 received

Hi!


Guys, Im beggining to feel quite unconfortable trading my trading plan. I find to rigid and honestly, it should be more flexible. I feel as I have a strait jacket. In fact, entries oportunities are very few, if I follow all of the rules. Thats why today I did only 2 trades again. Both of them turned out as losses, but once again I was right regarding market direction.



Trade 1



Loss: €8



Trade 2



Loss: €8




Chart (entries market as red arrows):

Note: The orange line marks the moment I start trading.






Analysis (Trade 1):

- Entry (short) when 5 SMA was pointing down, Stochs was close to overbough area, MACDHist and MACDlines were bearish. Sold, with the 8 points target and 8 points stop. Market went down 6, then rose 9.5...! However, my entry proved to be right, as the market went down.


Analysis (Trade 2):

- The previous candle to the one I shorted, penetrated the Support 1 line. 5 SMA was point clearly down, Stochs was oversold and MACDHist and MACD lines were giving signs that the price would continue to fell. RSI was near 60. I waited for the candle to pass 8 points in order to enter a short position. Price fell 5.5 points, then hit the stop, exactly 8 points higher, in the Support 1 line. After that, the market fell more than 40 points.



Grey arrow:

- This was a situation that Id have enter long. However, since it was 5:15pm here (12:15pm in the US), I didnt enter because I defined I wouldnt enter during the 12:00 - 1:30pm (US time), or 5:00 - 6:30pm, here.


Once more, there were several situation Id enter judging for price action, that turned to prove right, but that I didnt enter because the rules didnt allow.


So, until now I have 4 trades (1 win, 3 losses). I beggining to see that this plan maybe should be adjusted. Its quite frustating to trade like this. There are very few ocasions were all my filter rules meet all together in order to enter a position.

I know that I commited myself to trade with this plan for 10 trading days (two weeks), but honestly, I was thinking about making some adjustments. What do you guys think?



Good trading!

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  #45 (permalink)
Portugal
 
 
Posts: 91 since Apr 2012
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Cloudy View Post
In regard to indicators, even though they always lag, they can be used in other ways to help gauge a probable entry or reasons to stay out of a trade, or exit a trade. For example, while a MACD alone will be lagging, looking for divergences with MACD in comparison to price is another way of using MACD , looking at a pattern on the MACD instead of just the current close of bar result of the MACD. Then there's also an average of the MACD which can help generalize the overall trend in the past 20 bars or so depending on its settings. Divergences can also be looked at on the stochastic. Stochastics can be helpful to a more experienced trader when price is in a range and the trader wants to scalp tops and bottoms. When there's more momentum and bigger movements in price, stochastics fail to show discernible fluctuations when they overstay it's oversold or undersold boundaries. And then a momentum indicator such as RSI would be more reflective of price movement in this scenario. Also, like TIYF said, it's important to have an awareness of price structure. Like knowing for example when price is in a consolidation phase vs. a trending phase, when a continuation breakout is likely to occur or a trend is showing weakness and a reversal may be coming soon. Price action material like Brook's can help in that area.


Tell me about it! I feel Im chained...!



Good trading!

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  #46 (permalink)
Miami FL USA
 
Experience: Advanced
Platform: Ensign 10, NT7 DOM
Broker: IB, IQ
Trading: Currency Futures
 
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Lord Sidious View Post
Hi!
Guys, Im beggining to feel quite unconfortable trading my trading plan. I find to rigid and honestly, it should be more flexible. I feel as I have a strait jacket.

I know that I commited myself to trade with this plan for 10 trading days (two weeks), but honestly, I was thinking about making some adjustments. What do you guys think?

Good trading!

I think you're starting to feel the labor pains of the work of trading. Don't confuse making money, with learning how to trade. In your few trades you're beginning to see things you might want to change, that's good, that's the whole idea behind this exercise. My vote is don't change a thing, continue on with your commitment. Ask yourself different questions; Am I waiting for the bar to close before entering? Am I placing my orders (limit or market?) on, above or below the previous bar's close? If I only changed this (order entry within the previous bar) would this adjustment effect my stop out rate? Maybe you are limiting yourself with the time restraints, "time will tell." Think outside the box, don't crawl back into it! You're on a mission to collect data and define a baseline of your trading, not make money. You're the one choosing to do this with a cash account!!

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  #47 (permalink)
desert CA
 
Experience: Intermediate
Platform: NT7, TOS, CQG-trader
Broker: AMP, DT, TDA
Trading: CL,NQ,YM
 
Posts: 2,130 since Jul 2011
Thanks: 2,372 given, 1,710 received

Hey Sidious, ok, I looked at your chart. And tried to duplicate it on my platform, and put some of my thoughts on it. Please mind that this
is of course totally after the fact. I would recommend bollinger bands set at 2.0 but I heard you're committed to not
changing your chart for a period, so maybe it's not a good idea now.

YM can move a bit on the 5min, so maybe a bigger stop say 12 or 15 would be needed unless you can pinpoint very good entries. After price has moved in your trade's direction say 7 or 8 ticks, you can move your stop to close or at break even, lock in a tick or two. Anyways they're lots of ways and advice to manage stops and trailing stops for runners. I still have problems managing my trades too.

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  #48 (permalink)
Berlin, Europe
 
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,844 since Mar 2010
Thanks: 4,238 given, 26,638 received


tickleboy View Post
Hi Fat Tails. I was reading your comment on Lord Sidious's Trading journal and you talked about the need for a "Trading Edge" but you didn't explain how one would go about finding or researching that edge. Have you posted about this somewhere else that I could read about your thoughts on that? I don't want you to have to write out something I am sure you have written about somewhere (Or someone else for that matter).

You had mentioned that a rising MACD below the zero line is no edge which I believe I understand. So my thoughts on finding an edge with the MACDs would be locating some pattern (Say... a large acceleration on the MACD line indicating a strong move as an example) and then backtesting that pattern to see if it statistically results in a high probability setup or not. This is just what I am reading into it... please correct me if I am wrong.

@tickleboy: Sorry I did not see your post earlier. The forum allows you to mention another member by using the prefix @ - as I have done with you now. That way the other member will be alerted to your post!

Finding an edge is crucial. Just selling an overbought stochastics or buying a MACD divergence does not work. There is no edge.

So what gives you an edge? First you need some setups made up of an entry rule, several exit rules and a way to define your position sizing. Then you need to test the setups via simulation or a backtest. If some of your setups pass the test you may pray that the setup that worked in the past will also work in future.

An edge is thus a setup that has been validated statistically. Too large a subject for this thread. Except that I did not see any edge in @Lord Sidious' trading approach.

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  #49 (permalink)
Berlin, Europe
 
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
 
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Posts: 9,844 since Mar 2010
Thanks: 4,238 given, 26,638 received


Lord Sidious View Post
Hello, guys!


I could only do the analysis of my first trading day (15th May) now.

Like it was written, the main objective is not net profit, but to see if my strategies/rules/tactics/filters work. Thats why I have an expected profit smaller than a possible loss. In any normal trading situation Id never do that! However, Ill post profits and losses.

I follow all my rules/tactics defined in my trading plan, except I did only 2 trades and not 3.

Now you have a set of rules. But do you know that these rules provide you with a statistical edge? Have you made any backtests or have you run any simulations?

Have you tested whether a stop of 8 ticks is appropriate or whether you should have a stop of 20 ticks?

Or why did you select those rules?

Maybe it was an angel who appeared during night and told you to trade that way.

I am happy that you reduced the number of contracts traded. This should make your tuition fee cheaper.

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  #50 (permalink)
Portugal
 
 
Posts: 91 since Apr 2012
Thanks: 8 given, 15 received



Cashish View Post
I think you're starting to feel the labor pains of the work of trading. Don't confuse making money, with learning how to trade. In your few trades you're beginning to see things you might want to change, that's good, that's the whole idea behind this exercise. My vote is don't change a thing, continue on with your commitment. Ask yourself different questions; Am I waiting for the bar to close before entering? Am I placing my orders (limit or market?) on, above or below the previous bar's close? If I only changed this (order entry within the previous bar) would this adjustment effect my stop out rate? Maybe you are limiting yourself with the time restraints, "time will tell." Think outside the box, don't crawl back into it! You're on a mission to collect data and define a baseline of your trading, not make money. You're the one choosing to do this with a cash account!!

I dont enter trades lightly. I take in account some of the aspects youre writing, not all, however. But yes, Im starting to see things I might change. The question is Im starting to think Ive made my rules too rigid. One of the things Im seeing is that 8 points for a stop loss in DJI trading is too tight. I stand by my losing trades, but the fact is this was proven in all the 3 losing trades. 8 points stop were easily hit, although my entry direction was correct.



Cloudy View Post
Hey Sidious, ok, I looked at your chart. And tried to duplicate it on my platform, and put some of my thoughts on it. Please mind that this
is of course totally after the fact. I would recommend bollinger bands set at 2.0 but I heard you're committed to not
changing your chart for a period, so maybe it's not a good idea now.

YM can move a bit on the 5min, so maybe a bigger stop say 12 or 15 would be needed unless you can pinpoint very good entries. After price has moved in your trade's direction say 7 or 8 ticks, you can move your stop to close or at break even, lock in a tick or two. Anyways they're lots of ways and advice to manage stops and trailing stops for runners. I still have problems managing my trades too.

Yes, Cloudy, Im starting to agree that 8 points is too tight. I wont change my chart/rules until the end. 8 more trading days!

Thank you for your analysis. Unfortunately I cant understand it, because text size is to small...



Fat Tails View Post
Now you have a set of rules. But do you know that these rules provide you with a statistical edge? Have you made any backtests or have you run any simulations?

Have you tested whether a stop of 8 ticks is appropriate or whether you should have a stop of 20 ticks?

Or why did you select those rules?

Maybe it was an angel who appeared during night and told you to trade that way.

I am happy that you reduced the number of contracts traded. This should make your tuition fee cheaper.


No, it was not an angel!

These were rules I simply came up with, based on what I read and from my little trading experience. Like I wrote before, I begin to see that 8 point stop is not appropriate for DJI trading. Yes, so far I lost €24. Not that bad.



Thank you for your answers, guys! I really appreciated!

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