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COMMON SENSE
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COMMON SENSE

  #131 (permalink)
Market Wizard
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mfbreakout View Post
Hi Bobwest,

Good observation. I will like to touch upon on this notion of " stop trading".

" Looks like this trader got sunk by that, when his trading went off the rails and he tried to make back losses instead of stopping."

When premise of a trading method/approach is wrong putting on restrictions like stopping has no chance in the long term. It's in human nature to imrove. We start with 10 ticks, move onto 30 ticks, start seeing day trading what it is and move on to bigger targets/goals.

Traders who do not understand this keep blaming themselves not disciplined, breaking the rules and on and on. One can be trading successfully, for example, for a 10 ticks daily goal for months and in subconsious will start feeling as to what kind of moron he is that day after day he is stuck with the same routine, same approach etc.

Humans are designed to evolve. If one has built entire trading experience against human nature ( a.ka. trading like a machine)- sooner or later human nature will take over and BAM.

Such traders should focus on automated systems. Automated systems are constantly tweaked, enhanced, adjusted etc and thus take care of their creators inherent desire/need to improve and evolve.

Question a trader has to ask as to how he/she wants to take care of this need? Discretionary traders take care of this by constantly improving, adjusting vs acting like a machine.

Automated/Systems traders take care of this need by improving,tweaking their systems.

Problem with trader in the previous post is that he is going against his own very nature.

I had to read this twice before I got your point, and you're right. (I read it twice not because it wasn't clear, I just didn't get it at first.)

I have rules that tell me to stop (for the day) when I have a certain level or number of losses, but this is just putting on the brakes when something isn't going well -- limiting the damage.

But: "When premise of a trading method/approach is wrong putting on restrictions like stopping has no chance in the long term" makes sense. If I understand you, those restrictions were not going to work because he was going to want to move ahead as a trader, and if he didn't have an outlet for that desire, the limitations he had put on himself would eventually have to break down, and that's when he ran into trouble.

This makes a lot of sense to me. I never had thought of it that way.

Bob.

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  #132 (permalink)
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mfbreakout View Post
Following is from a trader ( i do not know the person). Key point which stood out to me is " 10 ticks profit goal".
For a discretionary trader it's a NO, NO. Why? because one is competing with computers. One is trading randomness.
No matter how discipline one is, no matter what kind of plans one has- one can not trade noise as a discretionary trader. Sizing up a trade, adjusting to market conditions etc. are all hallmark of a discretionary trader. The trader wants to act like a machine.

If one wants to act like a machine, one should develop an automated system and trade for 5 ticks, 10 ticks etc. all day long and all night long. This require all the capabilities of competing automated systems in the market to beat them. If one has resources to do that- all good.

Note: I am not implying that automated trading systems can only produce 5 ticks etc.



"So my current challenge is a variation on a theme of not 'sticking to my plan'. Rather than not sticking to my plan through frustration of it not working or boredom (which have happened in the past!) this time I have not stuck to my plan due to over-confidence and feelings of invincibility. For some time now I have had a daily target of 10 ticks and daily stop loss of 15 ticks. During July I traded very well sticking to my plan religiously but what I found was the overconfidence/ego thing started to creep into my psyche. With hindsight I can look back now and realise it was happening slowly every day incrementally. I had a long streak of winning days, I am not going to say how many but it was long. Part of my plan was to shut down my trading platform once my daily target was done, the reason for this is I like to preserve mental energy for another day. Sometimes it takes me 30 mins to hit my daily target other times 4 hours. On Wednesday of this week I decided to continue trading past my +10 ticks daily target. My mindset at the time was, 'I have only been trading 90 minutes' I am leaving so many ticks on the table here, I will just take prime set ups and push for more ticks'. This was going off plan. I went on to make +20 ticks for the day, twice my daily target. Driving home I felt invincible, I started to think about sizing up next week and what I would spend the extra money on. With hindsight I can now see how this was a marker for what was to come.

Tuesday - I was very tired, I had to be up at 5.30am to get the car to the garage, plus I was distracted the night before. So with hindsight my decision making abilities were not 100% even though I thought they were fine.

My first trade showed me a good profit of +6 ticks however for some reason I hesitated, I didn't take it and scratched it. Second trade at one point showed me +6 ticks, again I didn't take and ended up taking a -3 (!wtf!). At this point I am looking back in my journal and thinking, what the hell is going on I could have taken +5 on both these trades and have completed my daily target, platform shut down. But no. 3rd trade - great entry and I took a -4 loser, nothing wrong with this trade, just didn't pan out and I took the loser according to plan.

This is where in hindsight I got really pi55ed off with myself, I was riled and my decision making ability was impaired. i was -7 ticks on the day when I could have had my daily target complete. 4th trade was a good entry but I managed it badly and took a -5. I am now at -12 ticks for the day and pi55ed. With hindsight I should have shut down and ended there booking a -12 tick on the day. Coming off the back of a long streak of +10 tick days and a +20 tick day the day before a -12 tick day is fine in the grand scheme of things.

Then came trade number 5. I know I wasn't thinking straight as I cant even remember why I entered, my journal just says, 'poor entry', 'badly managed'. I ended up taking a -21 tick loser. wtf. wth. I finished the day on -33 ticks in absolute disgust. I had just wiped the majority of this weeks gains out.my daily stop loss of 15 ticks went out the window, why did I ignore this? ignore 15 why ignore 20 ticks. A 20 tick loss on the day would have been bad but not a disaster but -33 ticks wtf."

Hey

The above trader is me lol. posted that up on ET about 90 minutes ago. same username on ET as here on BM. If you guys have any advice for me please feel free to comment I will read and respond in good time (family commitments here). If the process helps anyone else than that's all good.

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  #133 (permalink)
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just for completeness here is the full post I made over on ET ' I thought I would share a current challenge I am facing which I need to work on. I don't think it is the last thing I will have to master as I don't view my trading like that, I don't think it can be 'solved' so to speak. There will always be things that need improvement or working on even when I am a 70 year old man placing a trade (quite a few decades away lol).

So my current challenge is a variation on a theme of not 'sticking to my plan'. Rather than not sticking to my plan through frustration of it not working or boredom (which have happened in the past!) this time I have not stuck to my plan due to over-confidence and feelings of invincibility. For some time now I have had a daily target of 10 ticks and daily stop loss of 15 ticks. During July I traded very well sticking to my plan religiously but what I found was the overconfidence/ego thing started to creep into my psyche. With hindsight I can look back now and realise it was happening slowly every day incrementally. I had a long streak of winning days, I am not going to say how many but it was long. Part of my plan was to shut down my trading platform once my daily target was done, the reason for this is I like to preserve mental energy for another day. Sometimes it takes me 30 mins to hit my daily target other times 4 hours. On Wednesday of this week I decided to continue trading past my +10 ticks daily target. My mindset at the time was, 'I have only been trading 90 minutes' I am leaving so many ticks on the table here, I will just take prime set ups and push for more ticks'. This was going off plan. I went on to make +20 ticks for the day, twice my daily target. Driving home I felt invincible, I started to think about sizing up next week and what I would spend the extra money on. With hindsight I can now see how this was a marker for what was to come.

Thursday - I was very tired, I had to be up at 5.30am to get the car to the garage, plus I had a minor argument with the wife the night before. So with hindsight my decision making abilities were not 100% even though I thought they were fine.

My first trade showed me a good profit of +6 ticks however for some reason I hesitated, I didn't take it and scratched it. Second trade at one point showed me +6 ticks, again I didn't take and ended up taking a -3 (!wtf!). At this point I am looking back in my journal and thinking, what the hell is going on I could have taken +5 on both these trades and have completed my daily target, platform shut down. But no. 3rd trade - great entry and I took a -4 loser, nothing wrong with this trade, just didn't pan out and I took the loser according to plan.

This is where in hindsight I got really pi55ed off with myself, I was riled and my decision making ability was impaired. i was -7 ticks on the day when I could have had my daily target complete. 4th trade was a good entry but I managed it badly and took a -5. I am now at -12 ticks for the day and pi55ed. With hindsight I should have shut down and ended there booking a -12 tick on the day. Coming off the back of a long streak of +10 tick days and a +20 tick day the day before a -12 tick day is fine in the grand scheme of things.

Then came trade number 5. I know I wasn't thinking straight as I cant even remember why I entered, my journal just says, 'poor entry', 'badly managed'. I ended up taking a -21 tick loser. wtf. wth. I finished the day on -33 ticks in absolute disgust. I had just wiped the majority of this weeks gains out.my daily stop loss of 15 ticks went out the window, why did I ignore this? ignore 15 why ignore 20 ticks. A 20 tick loss on the day would have been bad but not a disaster but -33 ticks wtf.

Friday - didn't trade as I had other commitments. Probably a good thing I took a little break given Thursday's performance.

Looking back the warning signs were there for me. Anyway this is my new challenge, how not to repeat this. lolol.'

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  #134 (permalink)
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Hi LondonKid,

I had sent you a private message something like following

Thanks for your post. It's a well written post and it reminds me of my struggles. I am going to use your post as refrence to see what other traders think.

I try to stay away from giving advice to any one trader. It's just based off my personal experience. I was given all kinds of advice and i did not pay attention to any. I guess we all come to realization on our own. I do however find general discussion helpful.

You said it well " If the process helps anyone else than that's all good.".

 
  #135 (permalink)
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Hi Bob,

" If I understand you, those restrictions were not going to work because he was going to want to move ahead as a trader, and if he didn't have an outlet for that desire, the limitations he had put on himself would eventually have to break down, and that's when he ran into trouble."

Correct. It's from personal experience. I have gone through this for many years. At one point i got tired of blaming my self and started to think what are some of the reasons i keep making same mistakes over and over again. Slowly, it dawned on me that putting restrictions on a wrong approach will not work. Maintaining a journal and as result interacting with other traders helped me in realizing some of the stuff. You have a fine journal and interaction via your journal etc. will speed up the learning curve.

That's the reason i started journaling again.


Last edited by mfbreakout; August 2nd, 2014 at 02:30 PM.
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  #136 (permalink)
Market Wizard
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mfbreakout View Post
That's the reason i started journaling again.

And I'm glad you came back to doing it.

Bob.

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  #137 (permalink)
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SIM trading

I am biggest fan of SIM trading around. How come i am such a fan?

There are many, many benefits of SIM trading which most traders are familiar with. For me the key benefit is that it provides a trader opportunity to test and push the boundaries. Figure out what's it like being out of comfort zone etc.
Unfortunately, traders use SIM exactly the opposite way.

I used SIM for years trying to straight jacket myself with all kinds of rules. I will SIM trade within so called RULES for months, come to live trading where everything works fine for a certain time ( some time a month, some time more)
and then inherent desire to improve etc. will kick in and BAM. We can only act as a machine for so long.

I will go back to SIM mode thinking i need more discipline and start the cycle all over again without realizing what kind of damage i am doing it to myself.

Now, i use SIM and LIVE trading what's it designed for. To break free of self made useless RULES and focus on RULES which are dictated my market structure/context. I would have never moved away from tight stop loss if i did not practice in SIM plus LIVE to see actually what happens rather than just doing what everybody else seems to be doing.

NOTE: I am not recommending anyone to move away from whatever risk control approach they are using. I am just recommending to try something beyond what's not working in SIM and see if it works for you. There is no need to keep self blaming one self for RULES which has nothing to do what markets are about.


Last edited by mfbreakout; August 2nd, 2014 at 03:09 PM.
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  #138 (permalink)
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mfbreakout View Post
Following is from a trader ( i do not know the person). I am using this as an example because i went through this for a long time. It is a well written post and reminded me of my struggles . This is not the entire post. Key point which stood out to me is " 10 ticks profit goal" and need to stay within very stricit rules/guidelines.

For a discretionary trader it's a NO, NO. Why? because one is competing with computers. One is trading randomness.
No matter how discipline one is, no matter what kind of plans one has- one can not trade noise as a discretionary trader. Sizing up a trade, adjusting to market conditions etc. are all hallmark of a discretionary trader. The trader wants to act like a machine.

If one wants to act like a machine, one should develop an automated system and trade for 5 ticks, 10 ticks etc. all day long and all night long. This require all the capabilities of competing automated systems in the market to beat them. If one has resources to do that- all good.

I certainly do impose on myself very strict daily profit and daily loss amounts (which were broken on thursday lol). In my case 10 ticks daily profit target and 15 ticks daily stop loss. I have been giving consideration to change this to 15/15 but that's a different story. My strategy contains some elements which have strict rules and some elements where there are no rules. For example one of my strict rules is I do not trade against a strong trend, not until I am sure it has reversed. Taking my profit is completely discretionary however the stop loss is strict.

It is true that I am trading against computers but I am also trading against point and click traders like myself. I am interested in discussing why acting like a machine is troublesome. Sometimes trading it does feel like I am trying to be a 'machine' or have machine like qualities. Two of the best traders I have bet have been machine like in their discipline and I don't think this is a coincidence. I know I will never go down the automated route, it's just not for me. July was intra week profitable for me, last week and Thursday's adventure meant that I finished the week on +7 ticks.

This reminds me of a repeating conversation I had with a prop trader friend of mine. He would be really angry and I would ask him what's wrong. He would say 'I just worked all morning for nothing'. I would always reply 'at least you didn't lose money'. This would then make him angrier and he would say 'but I didn't make anything'. He was so conditioned to making money that not making money would drive him crazy.

a few days would pass and then we would have virtually the exact same conversation. lol.

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  #139 (permalink)
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bobwest View Post
This is really a great point. I see people scalping for like 4 ticks a trade, and sure, there are some who can do it, and apparently consistently, and some are even live when they do it (which is not the same as playing sim at all.) But, for the most part, I think it really is going up against the machines, who are simply going to do it better than you, whoever you may be.

There's also the psychological side of trading, which you have but the machines do not. Looks like this trader got sunk by that, when his trading went off the rails and he tried to make back losses instead of stopping.

These really small trades are just too tricky for me, and you have to be very, very accurate, while the market just has to twitch a little to make you wrong and in a loss.

That's the way it seems to me, anyway. Again, a great point.

Bob.

You are right you have to be very accurate and it is very hard to be a discretionary profitable trader on shorter time frames (and longer for that matter). You are going against automated traders who likely have multi top tier phds running them, the ones that dont work stop and get replaced by other algos who have a positive expectation. This makes it very competitive especially on shorter time frames.

I learnt this from someone else who I wont name here as it's irrelevant but I 100% agree with it. If you have 1 or 2 lapses of discipline per day that is enough to make you losing trader. Normally if you have one lapse i.e. dont take your profit where you expect price to go you will get away with it and continue on to have a profitable trader. Do that twice and overtime I believe you will lose. In terms of bigger lapses like not adhering to your stop, one of those per day is enough to bleed your account over time and make you a losing trader. The margins for success in this business are very thin imo.

I believe it is much harder to make it than most people think. One career trader I spoke to last week was talking about the grad intake to his company. He said not one of the graduates who had started in the last 3 years are still there. In the past he said usually 1 in 10 stay past year 1. Of these 3 go on to make good money and 1 goes on to make very good money. This is one of the London prop firms - not an institution where they have more of an edge and could use it pre-volker.

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  #140 (permalink)
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" For example one of my strict rules is I do not trade against a strong trend, not until I am sure it has reversed."
Rules like these are universal and need to be followed without exception.

"I am interested in discussing why acting like a machine is troublesome".

It's just a matter of personal style. For example, Crude Oil futures have an ATR of around 160 ticks. Under certain conditions it moves 80 ticks or so in a straight line. I am interested in those 80 ticks.

If ATR of CL is 160 ticks, i want to put stop loss 100 ticks away. For CL to move away from ATR 100 ticks, some macro shift, events needs to be underway like Gulf war etc. An experienced trader keeps track of these conditions and trades accordingly.

Having a 100 ticks stop loss does not mean that if massive buyers show up pushing ATR, i just sit and see if my 100 ticks stop loss gets hit. On seeing massive buyers, i just get out of the market. There is always a probability of THIRD FORCE showing up. Under certain situations it's more likely to show up than others and that's where position size etc. comes in.

Let's say, i have determined that CL is ready to move down to 99 after breaking 100 level. I short at 99.80 and put stop loss at 101.10. if price go to 100.20 before going down to 99, i have no problem as long as there is no massive buying. I have no way of knowing if CL will reverse from 100.20, 100.31 etc or straight down from 99.80. Price moving up or down without changing the set up i am trading has no impact on me.

Now, if i had put stop loss at 100.01, CL goes to 100.07, stops me out and then going down to 99 - that's would be a shame. It used to happen quite often to me so i had to make adjustments. If test and personal experience shows that 90% of the time ( except when events like Gilf war is underway) that my 100 ticks stop loss will not get hit it's a trade i take everytime and manage a trade with position size, scale out etc.


Last edited by mfbreakout; August 2nd, 2014 at 04:07 PM.
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