In my reading about psychology, specifically about the medical processes that go on in the learning state, I learned that when we repeat behavior we imprint it into our long term memory. This is why bad habits are hard to break. It's also why some traders suggest not simming right away but just observing the market. One of the first methods I tried to learn was SpyderTrader's FTT method at Elite Trader. He said not to sim the market for months, just observe it. I thought he was crazy. How could I prove myself right (or wrong) without doing a sim trade? So I simmed. And lost. And finally gave up. While I don't think his method is doable based on the techniques he teaches, I do think he had a very good point when saying not to sim it. Simming it would just imprint mistakes into the long term memory.
And I think that's what has happened to me lately in trying to short strong moves away from value. I see it on the chart and I recognize it but I still keep doing it!
Yesterday I made some progress there. I took one long on ES and got $250. I then started looking for a short. But I didn't find one and so I ended with just that trade. The short eventually came later in the evening and by then I was just casually observing the markets while doing non-trading tasks at my desk. "Yeah that looks like it might go down" "Yeah it's going down now" "That was a good place to go short". Just observing without trading. And it was pretty cool.
Sometimes I think trading, even on sim, can get us (at least me) so caught up in the trade that we lose sight of the big picture.
And so I decided that this week I was going to focus on observing the market and focusing on the big picture. No trading with the DOM. Not even writing down entries on paper. Just observing. "Market going up" "Market stalling" "Market may go down" "Market going up again". See that last one would have been a loss and I may have even unknowingly fallen victim to cognitive dissonance and refused to "see" that the market was going up instead of down. And that's what I got to work on. If you have no position on you can be free to change your mind at any time. And we must have that same freedom even with a position on!
This morning on the dax it played out perfectly. Price came down to test friday's VAH (dax was closed yesterday) and then bounced up. Showed up perfectly on all my charts and there was a cycle turn and a ladder setup. A perfect long. It was cool to watch it unfold and just observe.
So I plan to continue this for this week so that I can break my habit of going short on the first sign of weakness. I also have some reading to do and a few videos I want to catch up on. This week is dedicated to the big picture and knowing when to fade a move or go with it.
I'm also committing myself to doing something non-trading during my lunch break. I'm already running every other day and hope to start every day if my knee can handle it. I'm also thinking of piano, drawing, cooking, cleaning up the house, etc. I'm convinced that a nice break is good for my trading.
I hope to be back to trading next week, but I'm actually not in a hurry. I may still write posts here, just not P&L and trades.
Good trading (or observing) to you for the rest of the week.
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The following 6 users say Thank You to cunparis for this post:
Agreed. I think observing the live market and analyzing charts is important. I think SIM is only useful for learning how to place orders and getting to feel comfortable with your trading platform's mechanics, but beyond that I'd go straight from observing to live money but with the smallest position size possible and only increasing upon success and feeling that you are in control of your emotions. Otherwise SIM is a waste of time.
I've long attributed whatever success I've had to the time I spent mostly just watching the market. So many traders are unwilling to do it. Especially in America we have a culture that believes in "instant success." "Learn Russian in 21 days" and all that stuff.
One thing I'm working on right now is a set of interactive cognitive exercises a person can do, with feedback, to help train their brain faster than just staring at live charts. I can't wait to see how people do, if they put some effort into it. Knowing people, that's a big "if" but I'm going to try anyway. You can lead a horse to water, but you can't make it drink.
The following 2 users say Thank You to Richard for this post:
That's an interesting point of view, quite opposite of my own so I thought I'd clarify my previous post just so that I don't give the wrong impression.
I think sim is very useful in the progression:
learn about the markets
observe the markets real time and learn to see the setups and the trade possibilities
trade them on sim until consistently profitable
trade them with real money 1 contract until consistently profitable
slowly add more size
What i was saying in my post is that i'ts easy to skip the observing part and go from learning to simming, or even worse trading with real money!
When that happens we can potentially repeat the same mistakes until they become habits. And that's exactly what I did. That's why some days I did great and some days I did terrible. On a more "cyclical" day it worked great. On a trend day it didn't work at all. Instead of observing this and getting to the bottom of it, I was too "into it" and just kept simming away. Still in the phase waiting for the simming to be consistently profitable but that wasn't going to happen.
So one step at a time. If you can't see the setups playout in real time, then simming it will only make it worse. I don't know about everyone else but when I start betting my money I don't want to be wrong and that can be costly. One way to combat this is to have a tight stop and admit defeat early. Another is to pick better setups to begin with.
So in my opinion simming is just a step in the process, a process that should be done in order.
I have a new indicator, for now I just call it "accumulation distribution" need to think of a sexy name for it but basically I analyze the volume & order flow to determine if professionals are buying or selling and then calculate the magnitude. It's still a work in progress but so far the results are interesting. The chart is busy and it may take a few minutes to understand it. If you'd like to see a day in the past or a future day just let me know. If you think this has no value you can let me know as well. I just brainstorm and come up with ways to visualize the data and then it takes me a while to determine if they're useful. So if you see something, good or bad, please let me know!
The 2nd image is my daily chart. Nothing is signalling a turning point and my volume indicators are usually slightly "early".
The 3rd image is a trend indicator that I've worked on in the past and just recently got it out again. I'm not sure if there's any value in this one but it is telling me the trend is still up. The indicator analyzes the volume to determine the trend. In fact all of my indicators are based on price with little or no use of price!
So my analysis is this: Pros are starting to distribute their inventory but they want to keep prices high so they can continue doing so. So they are selling the rallies and buying the dips. Trend still up and we need to break 1156 before we are in a correction.
I'm always interested in new ways to analyze data to make more informed decisions for my trading. I've learned a lot about how professionals trade by analyzing the market data and testing theories & algorithms.
My swing trading is going well, since October 1 my profit factor is 19.2. I'd like to have 1 year of consistent profits before I consider it an edge.
The following user says Thank You to cunparis for this post:
I hope you don't take my questions the wrong way; I only want to hopefully get you thinking and getting closer to being a consistently profitable trader. Let me know if I ever "cross the line" with you.
I never take anything the "wrong way", especially in written word where it's hard to understand what someone is saying. Everyone has their own way and no right or wrong. Your questions are provocative and that's a good thing. They make me think. I took a while to think about your post before replying.
I don't believe there is a "perfect indicator". I do believe that price-based indicators are a waste of time and that's why I focus on analyzing non-price data.
I saw a software that analyzes the order book and then predicts the direction of the market based on the order book. I think this is going to be my next project. I think I've almost exhausted the volume analysis.
The important point is that in doing my research and testing out ideas, I'm learning a lot. So even if the indicators aren't useful the experience is. Westbeach has given me some very critical input on my volume analysis and that has really helped me. So I hope that by sharing ideas we can all learn.
PS: I was hoping for a reply to my posts on psychology in Mike's advice thread. I hope you didn't take my posts the wrong way.