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.

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.

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.

Hi!
Guys, I´m 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!

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.

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. That´s why I have an expected profit smaller than a possible loss. In any normal trading situation I´d never do that! However, I´ll post profits and losses.

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

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!!

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.

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.