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Overcoming Analysis Paralysis Trading Journal


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Overcoming Analysis Paralysis Trading Journal

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  #1 (permalink)
detroit, mi
 
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Hello everyone,

it's time to move from lurking and reading about other's traders' success and failure journeys and write a story of my own.

This journal is to help make me accountable and motivated to move from endless hours of hindsight analysis as a hobby to a hard right edge trading as a business.

I've spent several years on and off doing market analysis, watching price behavior, did some coding and backtesting in WealthLab and TradeStation. I've kept my own notebook journaling price behavior observations and personal reflections at the same time related to both trading and life. I've spent a lot of time with SPY, eventually wanting to move to ES and other futures when less risk averse and coherent executable trading business plan established.

To be continued....

Tihfa

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  #3 (permalink)
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Congrats on taking the step.

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  #4 (permalink)
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continuing on....

most of my concepts come from the works of tony oz, alexander elder and alan farley as well as quants on blogosphere i.e. stokes, varadi, murphy etc...multi-time frame, recursive/fractal channel trading, cofluence of oscillators, trendlines, horizontal S/R, fibb etc...trivially worded and/or pictorially defined concepts, yet it took me years of on and off observation to appreciate or acknowledge or to make sense of on my own...i guess i was obsessed with trying to capture every zig-zag as well as tops and bottoms which gave rise to multi-time frame fractal characterization...idea was to code it all to avoid a long list of physchological impediments and i fell short....hence have to do discretionary trading then code the exits and eventually entries....

one of challenges is traversing up and down the time frames and getting stuck in execution lower time frame when actually observing a trade setup or getting a signal off of higher time frame...another challenge is executing and managing positions while working my day job during RTH. the good news is i have whole lot of time off at the end of year and thinking of doing the combine program...

most of my signals and/or setups are such that trades are anywhere from a day to a week trying to capture some multiple of ATR, where as combine is probably geared toward daytrading with trades lasting from minutes to perhaps couple or few hours at the most. due to fractal modeling i suppose i could do combine with the observation that every zig is made of zig and zags of its own or rather some range, congestion and breakout directional move...we'll see....

the basic channel trades are either trend mean-reversion, trend pull back, sideways, ranging channel boundary fading, or channel breakouts and strong directional moves in direction of present trend or forming trend reversal ( aka fat tails).

in summary, to me the most important thing is to follow price and interpret price behavior through TA analysis. this is my understanding of term Price Action...

sounds great in theory, then there is practice....

cheers,
tihfa

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  #5 (permalink)
detroit, mi
 
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one of different views....trend lines, fibbs, horizontal S/R generating entry zone (EZ) area........rectangles are supposed to be EZ areas, rectangles can get moved with time passing to generate a cofluence with incoming trend line...

need to figure out how to use TS drawing menu...

tihfa

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  #6 (permalink)
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all right, at turtle pace...figured out how access platform during RTH while at work.it took me couple of days... it is bit burdensome trying to do this while working but until it is fully automated will have to deal with it...

since i have done multple time frame analysis there is temptation to trade off all signals or look for cofluence between too many signals.

i'm best off to start off with daily bar timeframe for setups and context (i.e. chart in previous post). only issue there is waiting for trades to complete in 1 to 5,6 days.the other chart woud be either 30min or hourly to get a better entry or exit through PA (i.e. first HH or pull back forming HL) .

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  #7 (permalink)
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Nothing wrong with moving slowly. It is far superior to not moving at all, or moving backwards.

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  #8 (permalink)
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i find it easier to journal in my notebook than here on the website, thoughts flow easier...

short summary for last couple of days is the effort to determine the target - come to realize that every directional move on a base time frame typically consists of ranges and range break outs in the direction of base time frame directional move on lower time frames. dont see how i can capture directional move on a base time frame other than trying to capture individually range and range breakout moves on a lower timeframe as a way to capture base time frame single move.

how to protect profit against deep pullback or trend-reversals is the challenge here especially given quick bearish breakdowns against steady uptrend gains or very volatile moves during downtrend.

in an essence I see four type of trades to capture most of moves or to mitigate against loss or gains loss:

1) trend pullback
2) trend pullback continuation off of failed mean reversion move = fat tail
3) mean reversion
4) mean reversion continuation off of failed trend pullback = fat tail that can be a real deep base time frame pullback or base time frame trend reversal or range formation

all 4 trades are essentially channel trades where base time frame highs and lows are forming either a trending or sideways ranging channel

sounds like a TA textbook but this is personal conclusion after much analysis....

maybe i am overcomplicating this but it sounds like all 4 trade setups are independent requiring separate (albeit related) entry, exit management...

i will tackle this over the weekend....

ps i just love all these smilies (pretty awesome)

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  #9 (permalink)
detroit, mi
 
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After reading FT71 credo:

"Trading is a game of probabilities. I don't have to be right every time. I just have to follow rules. I know my system works. Every trade is just a profit or stop. Any given trade is not of significance. Results over a certain time period is what matters. Trading within my proven system puts odds on my side. I just have to play to allow chances to realize. I know I can trade by rules. All I do is I react on signals, a signal to enter and a signal to exit that are generated by my system. They take me in and out with no hesitation. I can observe the market being emotionally detached from it. Any stock movement is just numbers that change by certain patterns, and I know how to read those patterns. I am totally focused on what the market is telling me. I can hear it and react on it."

it always comes down to the feeling that I have half-a$$ baked plan, made up mostly of lots eye-scanning and some backtest crude entry/exit indicator based setups.

have to go bar by bar to confirm and write out in pseudo-code position management, money management and some stats down like MAE.

i have to memorize and religiously repeat the credo above after i write out the pseudo code.

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  #10 (permalink)
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what has been causing issue with analysis is perhaps the fact that i am trying to do too many things off of the same chart:

define trend and S/R levels, how to enter/exit trades...

same chart settings may be used for all three aspects or not...so am writing out now objective and definition of each: PA action/price structure, trend, setup definition, trade entry/exit...


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  #11 (permalink)
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@tihfa Your last two posts stimulate interesting thought. I wish I had a nickel for every hour I spent running down rabbit holes searching for what you've described. In an attempt to save you from spending your weekend ferreting out answers to irrelevant questions I suggest you view this futures.io (formerly BMT) Webinar.

Webinar: Denise Shull - Psychological Leverage and Market Mind Games

In your two posts there are several avenues for intense discussion and I'm up for that, but in this webinar I believe Denise identifies many of the limits of our humanity and asks me to consider these limits while searching for answers to problems or issues I may be having with my trading. It may behoove you to spend an hour and twenty minutes contemplating the task at hand and maybe in turn, rethinking the starting point of your journey.

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  #12 (permalink)
detroit, mi
 
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well,

thanks cashish for the link. i skimmed through it and i guess there is both benefit and drawback to my mental gymnastics.

the obvious drawback is that i always on instist on understanding "everything" in toto before i do something which means i will never take off and always keep finding excuses and distractions from starting...

i understood long ago that i do not have the psychological makeup for this trading (discretionary and perhaps even mechanic )and plan was to automate the stuff...yet i prefer visual chart scanning hours at a time rather than simply cranking code...go figure..

the positive side to never ending chart reading and playing with myriad of indicators is further understanding of price structure vs setup. the what, why and how. or so i think....

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  #13 (permalink)
detroit, mi
 
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i found this summary off of a thread in 'psychology and money management section':

"Trading successfully using technical analysis based on charts must include a [REASON] to trade (setup/pattern/indicators); a [FRAMEWORK] : support/resistance lines, MAs, pivot levels, Bollinger/Fibb Bands...
And an [EXECUTION] Trigger ( A Strategy based continuation/violation of certain level/thresholds)...Of course last but most important is [MONEY MANAGEMENT] : this must be individually tailored for each setup. Could be $Stops, $Targets, MAs, Supp/Resistance, Swing High/Lows etc...

A reason, framework and money management aka context. If your reason is corrupt, like wanting to win, then you're already on the wrong foot. If you're just taking trades because of red of green arrow appeared you're already on the wrong foot. etc....
"

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  #14 (permalink)
detroit, mi
 
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tihfa View Post
i found this summary off of a thread in 'psychology and money management section':

"Trading successfully using technical analysis based on charts must include a [REASON] to trade (setup/pattern/indicators); a [FRAMEWORK] : support/resistance lines, MAs, pivot levels, Bollinger/Fibb Bands...
And an [EXECUTION] Trigger ( A Strategy based continuation/violation of certain level/thresholds)...Of course last but most important is [MONEY MANAGEMENT] : this must be individually tailored for each setup. Could be $Stops, $Targets, MAs, Supp/Resistance, Swing High/Lows etc...

A reason, framework and money management aka context. If your reason is corrupt, like wanting to win, then you're already on the wrong foot. If you're just taking trades because of red of green arrow appeared you're already on the wrong foot. etc....
"

above quote summarizes nicely and clarifies what was confusing me....so i am proceeding in this order...

1) define setup "buy lower, sell higher" - pullback
2) define or model price structure => trending channel
3) identify within price structure S/R interfaces => channel boundary
4) execute with particular money management and position management strategy => fixed fractional position sizing, scaling in

similar to above will do for setups "sell higher, buy lower" and "buy high (higher), sell further higher"

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  #15 (permalink)
detroit, mi
 
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1) setups

have been already coded - basic mean reversion stuff...like rsi or spy is down buy the following day etc...

2) have to finish coding structure aka channels...let's hope it will not be like 2 months to do this...

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  #16 (permalink)
Birmingham, AL
 
 
Posts: 1,065 since Apr 2012

How's it coming along?

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  #17 (permalink)
detroit, mi
 
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indextrader7 View Post
How's it coming along?

It7, thanks for following up.

i;ve finished couple of weeks ago trend definition, rather coded it. (it took much longer than it should have )

it's been taking way to long to code everything. frankly, i am very disapponted with lack of urgency and enthusiasm. so basically want to start manually trading multiday swing/position trading. perhaps this will create some 'positive' excitement.

my goal was to create a supplemental income while changing my career. i have never seen myself doing trading as career. regardless in my case, trading is supposed to be a business, not a hobby or excitement type activity.

in order to accelerate everything i have started getting up early and getting into office couple of hours before everyone else to work on my trading. few hours of intense focused work yields more progress than weeks of inattentive sporadic work.

a lot of analysis and observations made over the months to manage entries, exits cannot directly apply. due to my day job (lots of meetings, phone calls) i cannot utilize more granular charts and lower times frames to confirm and to increase accuracy. this is where automated system would have been handy.

instead i will be going off of daily and weekly signals. just need to get going with some live trading.

challenge right now is position size, money management, trade management. things that i basically never paid much attention before other than everyone on different forums swearing by these being most critical part of trading.

my basic bread and butter type of trade is trend pull back, exploiting relative weakness within a trend. as the signals may appear at different relative weaker price levels i am trying to figure out whether to

1) go all in /all out,
2) all in then reduce position during drawdown /all out,
3) partial initial entry position (size depends on how 'relatively weak' is the price level; then scale in or average in,double up in drawdown (due to mean reverting nature of pullback type trade) /all out.

in every case so far: all out is the exit. Scaling out does not work out mathematically when trying to capture relative weakness to relative strength price movement.

all entry/exit levels have to pre-calculated managed through GTC orders, and nightly adjusted. i am preferring option 3 for my tade management.

hopefully this makes sense. if anyone has any comments or questions please let me know.

regards,
tihfa


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  #18 (permalink)
detroit, mi
 
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i am learning what was meant by people saying figure out trading "style" that fits personality and/or lifestyle....

most of my analysis has been attempt at perfecting entries, exits...i am recognizing now that if i am not doing automated trading i have to figure out how to swing trade with minimal to no interaction during RTH due to likely job interference.

so perfect stack up/cofluence of multi-time frame goes out of window...

likewise active trade management is out of picture as well so will have to widen my stops and figure out some sort of hedging....don't know anything about options, so that's not helping...

so far based on observations it seems that averaging in during further pullback within a trend is a solution for lack of intraday monitoring. obviously at some level there is a stop to close out all of position if hit or a hedge.

all right, go figure out hedging.....

tihfa

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  #19 (permalink)
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Here are some common thinking errors that impact your trading:

1) Confirmation Bias

The confirmation bias is a tendency to seek information to prove, rather than disprove our theories. The problem arises because often, one piece of false evidence can completely invalidate the otherwise supporting factors.

Consider a study conducted by Peter Cathcart Wason. In the study, Wason showed participants a triplet of numbers (2, 4, 6) and asked them to guess the rule for which the pattern followed. From that, participants could offer test triplets to see if their rule held.

From this starting point, most participants picked specific rules such as “goes up by 2“ or “1x, 2x, 3x.” By only guessing triplets that fit their rule, they didn’t realize the actual rule was “any three ascending numbers.” A simple test triplet of “3, 15, 317“ would have invalidated their theories.

2) Hindsight Bias

Known more commonly under “hindsight is 20/20“ this bias causes people to see past results as appearing more probable than they did initially. This was demonstrated in a study by Paul Lazarsfeld in which he gave participants statements that seemed like common sense. In reality, the opposite of the statements was true.

3) Clustering Illusion

This is the tendency to see patterns where none actually exist. A study conducted by Thomas Gilovich, showed people were easily misled to think patterns existed in random sequences. Although this may be a necessary by product of our ability to detect patterns, it can create problems.

The clustering illusion can result in superstitions and falling for pseudoscience when patterns seem to emerge from entirely random events.

4) Recency Effect

The recency effect is the tendency to give more weight to recent data. Studies have shown participants can more easily remember information at the end of a list than from the middle. The existence of this bias makes it important to gather enough long-term data, so daily up’s and down’s don’t lead to bad decisions.

5) Anchoring Bias

Anchoring is a well-known problem with negotiations. The first person to state a number will usually force the other person to give a new number based on the first. Anchoring happens even when the number is completely random. In one study, participants spun a wheel that either pointed to 15 or 65. They were then asked the number of countries in Africa that belonged to the UN. Even though the number was arbitrary, answers tended to cluster around either 15 or 65.

6) Overconfidence Effect

And you were worried about having too little confidence? Studies have shown that people tend to grossly overestimate their abilities and characteristics from where they should. More than 80% of drivers place themselves in the top 30%.

One study asked participants to answer a difficult question with a range of values to which they were 95% certain the actual answer lay. Despite the fact there was no penalty for extreme uncertainty, less than half of the answers lay within the original margin.

7) Fundamental Attribution Error

Mistaking personality and character traits for differences caused by situations. A classic study demonstrating this had participants rate speakers who were speaking for or against Fidel Castro. Even if the participants were told the position of the speaker was determined by a coin toss, they rated the attitudes of the speaker as being closer to the side they were forced to speak on.

Studies have shown that it is difficult to out-think these cognitive biases. Even when participants in different studies were warned about bias beforehand, this had little impact on their ability to see past them.

What an understanding of biases can do is allow you to design decision making methods and procedures so that biases can be circumvented. Researchers use double-blind studies to prevent bias from contaminating results. Making adjustments to your decision making, problem solving and learning patterns you can try to reduce their effects.

From:
7 Stupid Thinking Errors You Probably Make - Lifehack

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  #20 (permalink)
detroit, mi
 
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well, can't believe its been so long I started the journal, posted few entries and then reverted back to my old habits...

at this point I am basically exhausted and tired of whole analysis, price reading...haven't written anything in my notebook journal last few months...

hopefully what I am trying makes some sense. perhaps someone can point otherwise...

so I have number of basic setups. one of them that can yield a curve like this with about 30-50 trades a year.


Year PF Win %

1/1/2014 0.8 66.67%
1/1/2013 1.01 60.61%
1/1/2012 2.93 61.54%
1/1/2011 1.88 61.11%
1/1/2010 1.38 52.78%
1/1/2009 1.27 61.54%
1/1/2008 1.67 71.43%
1/1/2007 2.04 71.11%
1/1/2006 3.36 70.73%
1/1/2005 1.22 55.17%
1/1/2004 1.2 65.79%
1/1/2003 1.35 63.89%
1/1/2002 1.15 55.88%
1/1/2001 1.32 72.97%
1/1/2000 1.21 56.25%
1/1/1999 1.59 62.16%
1/1/1998 1.6 60.98%
1/1/1997 6.56 33.33%

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  #21 (permalink)
detroit, mi
 
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so idea is to put some filters/context without too many rules to get PF above 2.0 for every year so that in worst case scenario I would break even around PF 1.0....

second thought was to try to find common denominator among various setups that yield somewhat similar curve and PF/W % numbers. except this turned into a never ending optimization curve fitting....

I guess I don't know anymore what system numbers I should before I should start trading???

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