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So I keep getting reminded that I've not made my first post, now 338 days. I guess I should start.
This journal will chronicle my journey from long time obsessive observing and theorising to being a cash money billionaire. Hopefully this will be a cathartic experience for myself too.
Dream big or go home.......
The next few paragraphs will be a little history about me, so skip down for the trading stuff.
I started off in trading about 11 years ago when I was just 18 and spent a few thousand hours looking at charts trying to solve the markets before heading off to uni. It's quite funny because looking back I knew so little but had one of the most read threads on trade2win with 5 star rating. I was even asked to write articles for the site which shows how little the majority of people actually understand about trading because I knew relatively little myself and was just a kid.
This was the thread for those interested:
trade2win.com/boards/technical-analysis/12692-have-you-ventured-dark-side-yet.html
Throughout my 20's life, playing poker semi professionally, and chronic disease put the brakes on my trading career until about 2 years ago when I finally sorted myself out. I spent most of my late 20's trying to cure my Crohn's disease, spending thousands of my money made through playing and teaching poker in the process.
Researching and self testing for thousands of hours, ways to cure an incurable disease has given me a great foundation for the study of the markets, and made me realise that with enough hard work you can achieve things you never dreamt possible. I also did a degree in Economics which I initially intended to use to get a job at an investment bank.
Luckily I now have the disease under control and have held down a job as an auditor for the past couple of years - working to fund my studying for a career in trading. I'm happy that I have a severe incurable disease in many ways as it has given me lots of time alone to think, reflect, and hopefully grow as a person to the point where I can do great things. I no longer play poker as it was always meant to be a short term thing to save for a trading account - short term ended up lasting about 6 years however, and the money went elsewhere. I never enjoyed the gambling aspect of poker and much preferred teaching theory to students, which also paid okay back in the day.
The trading stuff:
Luckily I realised back in 2003 that all the smartest traders seemed to say indicators only show a delayed fuzzy view of what price alone can show you, so I ditched them pretty quickly.
I would say I'm 99% self taught by just looking at charts and making my own conclusions and theories. All I use is a price chart with volume. I spend about 60 hours a week looking at charts and back testing on top of my full time job. I've been profitable trading a small account but have never been happy knowing that my strategy could be better if I could reach that elusive 10,000 hour mark Malcolm talks about back-testing.
My method for the past couple of years that has led to the most "Aha" moments has been:
Observe, theorise, strategize, back test, reach an obstacle, repeat.
I've probably made more notes on trading strategy than I have written about everything else combined in my entire life - I'm very patient and could have mild undiagnosed autism, which I view as an asset for screen trading.
During my back testing I have been unable to accept being happy with any strategy that has any losses. I know that sounds crazy but it works for me.
As soon as I come across a loss in my back test I will spend hours, days, sometimes weeks trying to find why the loss happened. When I find the reason for that particular price action not working compared to all the previous entries up to that point I start again right at the beginning and theorise how I can work the information into my strategy.
So here I am thousands of hours later and the number of Aha moments in the past few months has been increasing each week to the point where I'm almost happy with my trading plan. I would say I have an intuitive feel for what price will do but I'm not looking to be a discretionary trader, everything I do has to adhere to my plan 100%.
So what's my trading plan.......
I won't divulge everything in public because it has taken 10+ years of struggling through adversity and near death experiences in hospital to finally allow me to be at a point in my life where it feels like this is my time. Failure isn't an option. I will however talk about my Aha moments and how I think they arose because I believe in paying it forward, karma, whatever you want to call it. I've made so many deals with god in my past 20 years dealing with chronic pain, despite thinking I am agnostic and driven by logic, that I'm not going to risk being selfish. I don't even care about money - my plan is to make billions and give it all away.
Trading isn't about the love of making money, it's about playing the game. Money just helps us all keep score (Paraphrasing terribly I'm sure!)
So some Aha moments.... (Most of these are observations about NQ/YM/ES/FDAX/GC with a view to being out before the market close)
Obviously being a price action only trader I've spent a lot of time observing breakouts, support, and resistance. I don't really know any price or candlestick patterns and whatnot as I've not a read a book about trading since deciding to try and solve this game on my own a decade ago. I do like to read journals from other struggling traders just to see why they fail, rather than trying to adopt their own theories; I also liked the market wizards books when I last read them back in 2004.
So when I thought about support and resistance I tried to deduce logically how these levels were any different to an indicator in their lagging nature but they all seemed the same to me. I don't doubt for a minute that many traders make lots of money using these things but they can't be 100% reliable with tiny risk. Indicators obviously are less reliable than S/R levels in terms of creating a great R:R, but S/R levels are so obvious to the big guys that they will unavoidably get spooked and faded and have all sorts of games being played around these levels preventing the use of minimal stops.
Perhaps there are some traders that can analyse order flow so well that they know a level will hold or break, but they still need to leave quite a bit of wiggle room for stop hunting and the other ways that these levels get played with before holding/breaking. Needing even more room for error if trading the break out from these levels as opposed to the reversal due to slippage, volatility etc.
Given this information I decided that logically these levels are just too static in their nature to provide entry points where you can consistently be right whilst risking just a few ticks.
So now my observations focused on ways to enter the market at dynamic points where very few people are observing, and price would immediately move enough for me to move my stop to break even, without missing the majority of a move by getting chopped out at break even, or the market being so volatile that slippage becomes an issue.
A little bit off topic here. Why do I keep hearing people say entries aren't as important as trade management? This just doesn't make any logical sense to me when I try to fit that theory into what I have learnt about probabilities and risk/reward, and their affect on your ability to compound an edge, when studying poker theory and basic statistics. (BTW my end goal would be to compound my edge to a point where the size I'm trading would require an extremely liquid market like the ES or much larger time scales/currencies)
I guess this entries not being as important idea could get thrown around a lot because the majority of traders don't have the time to develop a complete entry strategy focused on achieving the absolute minimal risk possible, and you can still make money with fuzzy entries and great trade management. I dunno really, why wouldn't you want both???
How far do I need price to immediately move before putting a stop at net break even without getting chopped out of the move, but still leaving enough room to cover the spread and comms with a reasonable R:R?
4 ticks? Not enough as after covering costs this is really only 1 tick wiggle room to avoid the chop.
6, 8, 10 ticks?
In the markets I observe, with retail costs, and market orders, this probably needs to be about 8+ ticks to allow a few ticks wiggle room whilst still getting out at BE net of costs. I considered scaling in and out as an option but if you can find points where price will reverse with high accuracy, and immediately move in your favour, then scaling just seems to worsen your R:R for no reason.
I came to the conclusion that I'd probably need to be looking for entry points where price was likely to immediately reverse to allow tiny stops, but would also move with enough momentum to allow me to cut my risk to break even asap without the issue of chop, and still catching large moves. (I ruled out trading breakouts due to likely slippage and difficulty of back testing accurately over a huge sample size, whereas reversal/retracement points in back testing and practice are more likely to be accurate and not affected by volatility induced slippage)
Now I know what I'm looking for is what most other traders don't see, easy right....
Each of the paragraphs above cover many many hours, days, weeks, months using back testing trying to find the next logical step, and each had their own Aha moments.
I did get to a point last year where back testing and realising I was wrong about a theory no longer caused me mental pain. I eventually enjoyed being proven wrong because I knew that every time I was wrong was an opportunity to find out why and potentially spot something that nobody else can see. I think this is why I love testing and don't care too much about trading right now - I've shown myself with a small account that I can be very profitable with minimal risk. But being profitable isn't what drives me, being right drives me, and the pursuit of perfection. Even with poker I spent countless more hours working on theory, and creating my own methods, than I did playing. I hate gambling, which is the inevitable destination if you want to be at the top in the current poker climate, but I loved the journey.
A little bit off track there again, but this blog is really for my benefit so I will wander off on different tangents.
Where was I. Trying to solve the unsolvable. Btw most of my observations are regarding day trading as I intend to take and destroy the TST combine soon to start my journey in live trading for a living, but I also test each idea on larger time scales knowing that ultimately if you want to make billions running a hedge fund, then it isn't going to be done day trading the emini's.
"looking for entry points where price was likely to immediately reverse to allow tiny stops, but would also move with enough momentum to allow me to cut my risk to net break even asap without the issue of chop, and still catching large moves"
Now what are some dynamic entry points where price reverses at a very high frequency? Fib levels, pivots, trendlines????
Daily Fib levels and pivots are very similar to S/R levels in that many people are looking at them. I did extensive testing using retracements to dynamically drawn fib levels after a strong price move and found some very profitable strategies, but also found that price would often move beyond these levels to a point of support/resistance or trendline further out.
This then made me think that I want to find a thrust in price that will retrace and reach the last possible sticking point before continuing the move. A retracement to a previous swing point would rarely happen on the strongest moves and is visible thus susceptible to being played, and could signal a lack of momentum,which I had already decided was required to enable my stop to be moved to break even quickly without getting chopped and missing the move.
It appeared as though retracements to the widest trendline would provide a point to get in with minimal risk, without sacrificing momentum. Trendlines however, similar to S/R levels are very easy to see, and therefore be liable to being spooked, if they are well defined with several tests. So I then thought that getting in at the first touch of a trendline would be a good option if I could confirm momentum somehow. The benefit of entering at the first touch of a newly forming trendline is that it is reasonably dynamic, whilst still providing a definite entry point where risk can be minimised if it holds.
The first touch of the trendline formed by a new 123 (I'm not sure if a 123 is what they're called, but basically I mean: Price thrusts, retraces, and then thrusts to a new high or low beyond the extreme of the original thrust), has the benefit of being the last sticking point before retracing to the retracement swing point of said 123. As I had observed that price retracing back through this newly formed trendline to the previous swing point could show a lack of momentum, it made sense that if I could define strong momentum, and price reached the newly formed trendline of the 123, there was a very high probability that this trendline would be an extremely strong sticking point.
That last paragraph is terribly written but it's tricky to describe a setup in words. So, if price breaks the described newly forming trendline of the 123 then momentum isn't strong enough. But if momentum were to be strong enough then the newly formed trendline would very likely hold, and should be dynamic enough to not warrant stop hunting and spooking by the big money. Add all those things together and I start to fulfil some of my checklist requirements:
- Dynamic but definable reversal entry point
- Unlikely to be spooked or watched by the majority
- Goes with the current momentum
- Provides an opportunity for a tiny stop but also a huge potential move
Now one big problem with just looking for this setup is that without defining strong momentum, the trendline often will not hold. The second big issue is that the entry point on this trendline from a 123 that starts a new trend will be counter to the existing trend, or will occur inside a range.
So how do we now define that the previous trend has run out of momentum, or that the trading range is set to break out, ensuring that we will have the requisite momentum on our side to ensure the setup holds, and price isn't going to just retrace through the entry trendline to the next logical sticking point???
This was the question that took the longest for me to answer out of all the observations I had ever made. It's basically asking when will a trend reverse before it shows obvious signs of reversing, or when will a range breakout before it breaks out? If the trend has already shown signs of reversing, or the range has broken out, then this entry setup doesn't exist.
So I know the first touch of a newly forming 123 trendline, in a new trend direction/inside a range, is the setup I am looking for to enter with minimal risk. But if you look at a chart it seems as though you can only see these entries long after they have happened and the new move is already on it's way.
If we were to enter on this setup on a trend that is already happening, then either there will be a wider trendline further out which could be the next logical sticking point, thus reducing the probability of ours holding. Or if our entry trendline does coincide with the widest trendline from the existing trend, then this line would be visible to all and liable to be spooked.
Seeing as both of these negative things are what I'm looking to avoid in my checklist for entering with the tiniest risk, it means we cannot enter with an existing trend that hasn't broken the widest trendline. Now if the existing trend breaks it's widest trendline and forms a range, then we could enter inside this range in the same direction of that previous trend.
You might then think, oh i'll just wait for a strong trend to break it's widest trendline, form a range, and then enter on the first touch of the first trendline formed by the 123 that breaks out of the range. The problem with this idea is that when the range of the existing trend breaks out, price will almost never retrace to the trendline of the 123 that formed during the breakout, because the momentum will be too strong, and the angle of said trendline too shallow.
Defining momentum before it happens.........
How do we do that? Maybe volume can give us a clue? Maybe we can define the strength of a trend by looking at the velocity/strength of the 123's that form it? Maybe the relative strength/velocity of our entry 123 can provide an answer? These were a few of the things that I tested to help me find my own answers.
Hopefully this won't be my first and last post of the past decade. When I get around to doing the TST combine I might journal my progress here if it's not too distracting. If not I'll pop back here when I've made my first billion. I don't talk with anyone about trading so it might be nice to find some people to share the journey with - I'm a bit of a crazy recluse though lol.
I enjoyed skimming your post--thanks for sharing your story.
Yes!
The love of money may be the root of all evil, but if your primary reason for trading isn't to make money, you should sim trade for fun, and do something else for money, something which would be easier, and not incur risk of loss. People talk about trading to grow, for the challenge, etc.--those things may happen but trading is too stressful and has too much risk to do it for fun. If it's for the game, then play with game with monopoly money.
No one can be 100% reliable, and it's up to you to determine how much you wish to risk. Of course we always want to be right on a trade; but we have to realize that it just doesn't work that way. If you get 8 out of 10 right, why waste your time finding out "why" a trade didn't work? Markets are not purely deterministic, so it's silly to even think that way. I had a couple of trades going great today that all of a sudden went against me. On another day they would have turned out perfectly, but today they didn't. Why waste time trying to answer a question which has no answer?
Actually, very often the most simple ideas are the ones that work the best. Of course, you will have a greater chance of success if you can be on the other side of people who are caught the wrong way, but it need not be a crazy brilliant idea that no one else would ever think of, in order to work. In fact, your success after you take the trade will depend on whether others will be willing to pay a worse price than you did, so you need "latecomers" in order to succeed.
Why not just get out of the trade when it looks bad?
My guess is that most people who have traded for a while have an intuitive feel for whether a trade will work or not. Not all the time, but a good portion of the time. When you observe the market and legitimately observe something which tells you that the trade is no longer one you feel will work, whether the trade has already worked or not, the best thing to do is exit. Learn to trust your instinct, and act upon it. If it fails you more often than not, then the issue is with your objectivity. But why put a stop in the market so that you can move it to breakeven, and watch helplessly as you get taken out of a trade? That's a newbie move, and one that others rely on you to make if they want to make money. The use of stops and especially moving stops to "lock in profits" is a great way to play the game to lose.
I have tried to work live intuitive feel into my trading in the past but found that doing so is just too subjective for me and presents a huge problem when back testing and creating a strict definable trading plan. I like to back test my ideas over very large sample sizes and instinct for me is just too hard to quantify. Most of my intuitive progress is made during back testing - at which point I try to quantify what the feeling or instinct was and then work this into my plan so that it can be back tested and confirmed as a viable addition to the plan. Many of the traders that I know of as being successful from reading interviews and those that have maintained status as senior traders at TopStep have strict trading plans and realised their biggest gains when they removed feel from their live trading strategy.
I do find that for me looking for spots where the market will immediately move to allow me to limit my risk to zero, without stopping me out, has led to my biggest improvements in strategy development. The whole point isn't to watch helplessly as I get taken out of the trade. If this does happen then I analyse why it happened and again try to factor this into my future setups. I don't move my stops to lock in profits, I move them to immediately limit my risk to zero. Minimising risk immediately whilst maximising return is a great way to improve R:R and the ability to compound my edge whilst reducing large equity swings. Admittedly this part of my strategy was initially influenced somewhat by the constraints I would face working for Topstep, but has now become an integral part of how I find trade setups. Trying to be a scratch trader is recommended constantly by the TST guys and many others so I'm not sure that it's a newbie move if it doesn't limit your potential return over a large enough sample.
I don't have to trust my instinct to know when I should exit a trade in real time as I have already found and tested setups that immediately move into profit by enough to limit my risk and I view that as a big asset when it comes to testing over a large sample size. I've been able to find these spots that occur over and over again where the market will move enough for me to limit risk to break even and still have the potential to catch a large move. I've got no idea when a big move will occur with a high frequency, but I do know when there is enough momentum for me to enter at a final sticking point in a retracement and have the market immediately move enough to cover costs, and still leave enough wiggle room to avoid getting stopped out if and when the bigger move does occur. You could consider scalping these high frequency moves of a few ticks but the costs of the spread and comms make this a terrible R:R proposition. If however you manage a trade well when the bigger move does happen, and already have your risk limited to zero, then the R:R can be incredible.
I guess I am also influenced a lot in this respect by my background in online poker - the sample sizes needed in the current online climate to confirm a winning strategy are huge and have made me vary wary of relying on any results based on a small sample. Working full time also means that I just cannot spend the time in the market to test whether my intuitive instincts for live trade management are correct often enough. Again I'm not saying this doesn't work well for a lot of other traders but it's something I ruled out early on specifically because I cannot confirm and back test sufficiently my ideas using this method.
I probably do manage my trades in a similar way to intuitive traders once I have limited my initial risk as described above and the trade is underway, but even then my plan dictates specifically what I should be doing based on large sample testing. There is no ambiguity regarding when I enter, when I limit risk to break even, and when I exit a winning or losing trade. If you can quantify and test an instinct to develop specific rules then not doing so seems like it would just open you up to making mistakes in real time that could have been avoided had those instincts been back tested and specifically planned out. Maybe deep down I'm part robot lol - but we all have to trade in a way that suits our own personality - mine being extremely risk averse and uncomfortable with ambiguity.
Thanks again for your reply. It really made me think about why I do the things I do.
Over the 22 trading days I had a 96% win rate, with just one losing trade of $300 when I stopped following my plan momentarily. I can't remember anyone passing with no losing trades so happy to possibly break a record there
Just got LTP now and then on to the real deal.
My trading plan now has developed nicely since my last post 2 years ago.
Not sure what other info to give. I'll update more during LTP and when live but feel free to ask any questions, or for me to post any other stats.
My trading plan focuses only on price and volume with regular OHLC and volume bars. I enter on a pullback at the end of a trend, catching the last section of the move before it bends at the end.
A lot of my strategy focuses on the different rates of change between price moves, looking for a fast but controlled rise or fall in price with slow pullbacks. You can draw trend/support/resistance/supply/demand lines to help get you started but you'll eventually be able to see the lines that matter to you without physically drawing any.
Keep it simple. Have an idea, observe, draw lines, make an assumption, backtest your observation until you find instances where it doesn't work, observe why it might not have worked by drawing lines and looking at volume and larger timeframes, make assumptions, backtest them until they fail, rinse, repeat, rinse, repeat.
Eventually a trading plan forms, but it's never static as every loss is an opportunity to find a way to improve your plan if you keep following the scientific method.
Congrats on your trading. Your journey kind of sounds similar to Al Brooks, in that you eschewed all vendors and indicators and did your own price action observations for at least a decade. If you ever write a book on your findings, I hope it'll be easier to read and more effective than what's currently out there on PA.
I'd definitely recommend just looking at 5m charts for liquid futures and just backtest your ideas by eye. There should be thousands of hours worth of work if you want it and plenty of data test your ideas.
It took a lot of back testing to find what to exclude when looking for a predictable pattern, leaving me with the profitable basic strategy I've discussed in my posts. The extra bits that I haven't discussed and increase the profitability further are things that I couldn't really communicate effectively. This extra bit is the language I use to describe what I'm seeing when I'm back testing. If for example I say I'm looking for a slow pullback, my definition of a slow pullback will have dozens of caveats developed through back testing.
Something like:
Not a slow pullback if:
- the angle of the pullback is steep
- etc etc etc
Then within these caveats for slow pullbacks I will have back tested the other bits of language.
For example I will have similar lists for how I measure angles and define steepness. I've made thousands of lists defining the language I am using to describe what I see. Then when I am comfortable that an observation is almost always correct I will delete it from the list, and then it, and all of its caveats, just become part of my own trading language.
Now I've pretty much deleted all my lists and sub lists and am left with a trading plan of just a few sentences. Each keyword in my plan however has dozens of now unwritten caveats that have become instinctive
