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Zen & the Art of The Small Account
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Zen & the Art of The Small Account

  #471 (permalink)
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aztrader9 View Post
Today I got up real early, I figured FOMC, inventory, etc would make for an interesting day and sure enough it was.

I was up early +16 ticks and then ran off a string of losers. I had a long bias in what was for me a short environment and so kept getting stopped out. The daily chart had broken previous resistance and so I expected to continue upwards to the next resistance level. So when I finally capitulated and went short, I was -24 ticks and then I caught a 30 tick winner to the downside. Funny thing, I had a target clearly marked on my chart for the short but decided to move my target up to be "safe". This left 20 ticks on the table and of course the original target was hit plus a little. +6

So now, I was conflicted, I still had the long bias, after all a new daily low had not been hit but my signals were telling me short, so I went with the long bias and kept getting stopped out but the short signals would have been stops as well. So after a few trades, -70 ticks. (this is where I broke my daily stop rule)

Then, prices failed to make a new daily low and I finally got a long signal. (These prices represented a 75% pull back on the daily high.....low risk trade) I entered long, but my stop below the swing low and held on. It took a while....almost an hour....but the 125%fib extension paid nicely. This also was confluence with the high point painted on August 4th. I exited the trade 3 ticks from the high of day.

The net effect was a +30 tick day. But overall I am counting this a net failure as I needed a miracle (100 ticks) to make my profit target for the day. I got it but should not count on this type of thing happening very often.

I also held through the news, my stop was below the swing and it held through the news and even though I had no idea what the number was, my experience says that after the news, prices tend to do what they were doing before the news which in this case was going up so I just held it. I was in the process of moving my stop up when the target of 100 ticks was hit.

Even though this was an exciting day and one in which I made money, I do not wish for a repeat anytime soon. I would prefer boring days in the sense that I don't need a hail mary to win the day.

I did however learn a valuable lesson about how to hold trades for longer than a few minutes or seconds. I held that one for 50 minutes, most of which was before the news and only 2 minutes after the news I was done.

I also learned that fib theory does work.....the low risk long I kept wanting and getting stopped out on would have worked had I executed it properly the first time. Will look better execution methods this week......but in practice only. I suspect it is a stop placement issue....unfortunately.



Been there a lot and done that a lot .. !!! Just my one cent from my personal exp .. Quit this habit while you are ahead .. because i have Done this in the past not once but quite a number of times .. and i can tell u few times u will get outta it on longer haul it will bite u very badly .. your progress overall is great .. m really happy for you .. Just do quit this habit asap .. for your own good ..

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  #472 (permalink)
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jinhar View Post
Been there a lot and done that a lot .. !!! Just my one cent from my personal exp .. Quit this habit while you are ahead .. because i have Done this in the past not once but quite a number of times .. and i can tell u few times u will get outta it on longer haul it will bite u very badly .. your progress overall is great .. m really happy for you .. Just do quit this habit asap .. for your own good ..

Actually, this is not a habit. I rarely do this. I think I can count on one hand the number of times in the past 2 years I've traded past my daily stop limit and have fingers left over. And I've never given back more than the previous day's winnings on the few times I have traded past my daily limit. No excuses here....BUT I knew prices were going back up.....I was just early to the trade.....several times...So not really sure if I should chalk one for the win column or the loss column. On one hand, the day was a winner and I read recently that if your system produces winners (mine does) then if you have a string of losers, keep trading, reduce size a bit until you are winning again then size up.....the idea being that the winners will overcome the losers and why quit just as you've gotten the losers out of your systems so to speak? There is some good logic there but not sure if I buy it just yet.

After some review of this mornings trades, the losers happened because I was anticipating what I believed would happen and not waiting for the actual signal. It did come and I did take it, but the trades before it were trades that should never have been taken. What I thought were signals were in fact, impatience and perhaps some fear there would be a V bottom and I would miss the ride up. Unfounded fear of course but fear nonetheless.

Today's ultimate lesson: Patience...the trade I was stalking did in fact appear, I was just impatient and fearful of missing it....The only way to have avoided the stop outs was to have taken a MUCH bigger stop position.....34 ticks to be exact which is (was) to much for me at the moment.....and then I would have set through the chop and false signals and probably exited the trade anyway.....once the actual signal came, the real stop would have been 19 ticks which is within my risk tolerance albeit a tad uncomfortable.

So some self justification here. I wanted to keep trading because I knew I was right. I had that feeling inside that told me to stay long....I've ignored that feeling to my detriment and I've resolved to pay closer attention. And at -70 ticks, I did not have the "quit for the day" feeling. Instead I had the sensation the trade I was looking for was coming up. I second guessed myself a couple of times in this area and reversed to a short position at two of the false signals. But once I figured out things were actually going in my favor, I stuck it out.....

Now a word about "false" signals. I am starting to believe there are no such things, only a lack of price action reading skill along with impatience/fear/greed. The falsies were NOT signals at all, quite the contrary, they were clearly in chop, and clearly against my method. The trades were completely my fault.

Huge learning experience today.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #473 (permalink)
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I hit my daily stop loss early......No false signals today...only poor trading.

Then a friend of mine asked me this question: What would you tell someone you were coaching in trading and what should you do differently based on the answers to this question?

Here is my answer:

Knowing what I know now, I would begin with:

1. Psychology. Do you have what it takes mentally?
a. Are you patient?
b. Do make decisions quickly and then stick to them once made?
c. Do you have a winning mentality with killer instincts?
d. Can you filter out extraneous noise? ie…news…other traders….losing streaks, promises of riches by the hucksters…..
e. Are you willing to delay your road to riches to apprentice with a winning trader for at least a year and not touch a single computer while being paid next to nothing?
f. Can you follow a rigid money management plan even on days when everything in your gut is screaming at you to break the rules?
g. Do you have a hobby that provides mental and physical stimulation to counter act the need for excitement in the markets?
h. Do you have marriage problems?
i. Do you have financial problems? In debt, recent failed business, lack of savings, etc…..
j. Can you absorb criticism that sometimes can appear to be harsh? And then learn from it?
k. Do you have clearly defined life goals in all areas of your life?
l. Is getting rich the sole motivation for learning to trade?
m. Do you play poker?
n. Can you keep a detailed daily journal of each trade, its rationale and then interpret the results over time?
2. Assuming the preponderance of the answers to the above questions are good, then building a business plan would be next and since this is very subjective, I’ll not elaborate on this.


3. Once the plan is complete, then begin learning how to execute.
a. Learn an instrument
b. Learn a chart or workspace if there are multiple charts for multiple time frames and or indicator set. (no less than 6 months)
c. Develop risk tolerance based on actual experience
d. Three months into this phase, begin sim trading until daily profit objective is met 4 out of 5 days a week.
e. 6 months into this phase, go live assuming d. has been completed successfully.
f. After three months of live trading, are you net positive? If yes, then proceed, if not, then evaluate where the disconnect is, take corrective action and perhaps return to sim for 1 month to find out if method still has the edge you expected or is it an execution issue.

This is a 12-18 month plan depending on how you approach the mentorship phase. If you do the mentorship phase concurrently with the business plan development, then its twelve months otherwise, 18.


Then this same friend called me later in the day and asked me this question: Who are you as a trader? The reason for the call was this: I apparently had been saying things lately that gave him cause to wonder if I was a scalper or a swing trader.....and for purposes of this discussion, scalping is anything less than ten ticks and swing trading is 10+ per trade. He knows I cannot trade with this type of conflict going on......and so I realized I had been talking about bigger profit targets lately. This could be the evolution of a trader but not sure at this point.


So started thinking about it. My set ups generate an average of 20 ticks per set up (assuming I don't manufacture setups out of thin air) and yet I was targeting only ten and then beginning to get frustrated when I knew there was more to be had per trade. I went through this exercise a few months ago about defining my trading style. Did I want to be done in an hour or do I want to sit in front of the computer all day. The answer was to be done quickly if possible....say 6-8AM. Then with my 10 tick targets I needed three set ups a day minimum and more if I screwed one up....time is now beginning to close in on me as my set ups can take a bit to manifest themselves. This begins to cause stress in terms of find a trade...any trade will do to get the ticks.

The answer of course is to target the average 20 ticks per set up and pay very close attention to stop placement and price action. For instance, today, using the 100% accurate hindsight indicator we all love so much, there were 5 trades with 100 ticks of opportunity before 8AM. And today was choppy.

So who am I as a trader? I am a short term trend swing trader. I trade with the short term trend, target 20 ticks per trade and I use Fibs as support and resistance. I trade from 6-8AM and whatever I have in the bank at that point is what I earned for the day. I use only one chart to trade from with only two moving averages to help gauge short term trends. ( I removed a third MA as it was for much longer term trends than what I need).

One area I now need to work on is risk reward ratio (RRR). I have it for the weekly ratio......I would like to see 4 out of five days profitable with the 1 losing day having a loss smaller than any of the winning days profit. In other words on a weekly basis, my losing day is small and the remainder of the days are very profitable.

What I don't have down is the daily RRR or the proper daily stop limit. Right now its 30 ticks for the daily stop which means my daily RRR is 1:1 and as long as I have at least three winning days per week in which I hit my 30 tick target, I am good. BUT with revamping the tick targets per trade, I need to figure out what the daily stop limit should be and my optimum per trade RRR. Ideally, it would be 2:1 which means the stop would be 10 ticks. But I suspect that many of the trades may require an initial stop of more than this. A twenty tick stop will keep it at 1:1 which I suppose is ok, but then the daily stop needs to increase to around 40 ticks if I am thinking right.

I've also experimented with using a trailing stop to lock in profits. My conclusion is this: They are useless unless you are tracking a 100+ tick target AND you are afraid of giving back a portion of it. Anything smaller than that and you'll just stop yourself out before the target is hit. If your set up is valid, forget the trailing stop. Give the trade some room to breath. For targets less than 20 don't even go BE at some pre determined point. just leave the stop alone. In today's trading, and using the hindsight indicator, not a single setup resulted in a stop out. (this is how I know my price action skills sucked today) Price action tried ONCE to tell me the trade was over but it never did. Had I used the trailing stop or went break even at some pre determined point, the trade would have scratched. Not a bad thing but not the optimum either.

Currently, I've had two losing days in the last 10. But some of those winning days are not the full profit of 30 ticks. And one losing day was only -4 with one day (today) being a full -30. So I am not unhappy with the results so far but I know I can be better and this is an attempt to evolve toward who I really am and best exploit my current skill level.

To those of you that PM'd me asking to see my set up, you can continue to use the one we discussed as it works just fine, I have just evolved to this point and it suits my personality and current abilities. Feel free to modify to suit your personality and needs. It will work for scalping or looking for the bigger moves. You'll just need to adjust your thinking from small to large scale and use the fibs appropriately.


Here's to knowing who the heck you are!


Cheers

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris

Last edited by PandaWarrior; November 4th, 2010 at 11:30 PM. Reason: clarified some thinking.....
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  #474 (permalink)
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I made some changes to the most recent posts and would like some input from successful traders.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
 
  #475 (permalink)
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No trading today

I was testing a revised stop placement theory today.....so no real trades.....but all the sim ones were stopped out except for one real late in the day.....no worries though as this was just the beginning of the test.....I may not trade live money for a few days.

One thing I have noticed is I do get stopped out a lot even on good trades. This tells me I have my stops to close and I accept that, BUT what I need to have down perfectly is the optimum stop placement. Watching today's price action, I used really large stops initially and as prices moved in my favor, I would tighten the stop using the next intermediate swing. This resulted in 100% stop outs early even though I had profit showing on almost every trade.

Had I left the stops in the original location, which I also experimented with resulted in stops then as well....chalk it up to a very narrow range. Once prices broke out of the range, then the stops left in their original location would have worked very well.

I think the moral of the story is this, if your stop is placed right and you have a valid signal, most of the time you should win....when you don't, it could be a sign to be careful as chop may have set in....wait for prices to break out of the range.

Lets face it, the only reason people lose money in this game is chop. All of us can follow a trend. Its knowing when to stand down that makes you successful. Preserve your capital.....Rule 1.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #476 (permalink)
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Stops based on volatility


peterg View Post
Ever consider a ATR Volatility Stop for your "holding" issue. As well it can depict momentum, support, resistance, stops, entries , breakouts..etc all from one indicator.

Its easier to let a computer calculate your stop, especially when its based on the volatility of the Average True Range of the current price action.

Its displayed as simple hash mark that follows price around. Are you familiar with this?

As far as chop goes...perhaps look to trade products that tend to trend more, or have more fluid easy read oscillating price action....

or scan the market for such conditions/price action that you'd like to trade...yes you have the freedom to decide what to trade.

Once again a computer does a lot of work for you;

so you can use your relieved brain to make the quick profitable decisions.

 
  #477 (permalink)
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peterg View Post
Its easier to let a computer calculate your stop, especially when its based on the volatility of the Average True Range of the current price action.

Its displayed as simple hash mark that follows price around. Are you familiar with this?

As far as chop goes...perhaps look to trade products that tend to trend more, or have more fluid easy read oscillating price action....

or scan the market for such conditions/price action that you'd like to trade...yes you have the freedom to decide what to trade.

Once again a computer does a lot of work for you;

so you can use your relieved brain to make the quick profitable decisions.

do you mean something like wilder's volatility system? or of course super trend does the job as well.

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  #478 (permalink)
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Yes Silvester... but settings matter. as does the read.


Silvester17 View Post
do you mean something like wilder's volatility system? or of course super trend does the job as well.

First, If one uses it on a range chart..its a different picture; and range settings vary according to product and its "nature."

Also there is a sensitivity factor of the ATR setting as well.

On your 1min chart at 9:40 with break out bar, the stop does not trail up until close of 9:42. There'e a little lag there, or a displacement +1 or +2 setting configured somewhere.

Additionally all the candles' tail wicks before 9:40 are a good 8 ticks from the stop level....the farthest distance from any other depiction on the chart.

That "basing" stop level down at 1204.25 for those six or so candles should be displayed at about the 1205.50 level, so there's a disconnect there or a gap up opening or data issue. Continuous session data helps here.

Once you get your settings dialed in, ultimately it comes down to how you read and use it.

Obviously for stops, right; which can also be used for reversal entries as a SAR concept (stop and reverse.)

What about targets? Use a "reflective" or "mirror" concept. The distance from the stop to the wicks of the candles often give and equal and opposite target distance on a break out.

Envision a Bollinger / Keltner envelope here, instead of the single side as displayed. Frame work! Point of Reference!

So when you see those horizontal stop lines "basing" and "capping" price events, the sideways action; be equally aware and concerned with the opposite.

e.g. When you see basing stop support long, that's a displayed given, your actually focusing on the overhead resistance.

Stop support is great, but if you cant get through a triple top test like at 9:50-58, especially after a breakout, then sell it and anticipate and equal measured move when you break the support stop at 10:03

Again when you see that red capping stop from 10:08-18, you not concerned with the red "stop"level...that's a given, your concerned with the triple support at 1207, that can't be broken, the origin of the original breakout.

When you see price compressing against broad basing stop support from10:30-55, at the 1210 level, previous breakout resistance now easily strong support, the "tell" is when the stop begins to "step up" for the test and break out,
The target is a simple equal measured move of the first from 1207, textbook.

On the most simplistic level volatility stop gives a point of reference to price, its current direction, volatility measure, and where its likely to reverse, accelerate and eventually target.

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  #479 (permalink)
Market Wizard
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peterg View Post
First, If one uses it on a range chart..its a different picture; and range settings vary according to product and its "nature."

Also there is a sensitivity factor of the ATR setting as well.

On your 1min chart at 9:40 with break out bar, the stop does not trail up until close of 9:42. There'e a little lag there, or a displacement +1 or +2 setting configured somewhere.

Additionally all the candles' tail wicks before 9:40 are a good 8 ticks from the stop level....the farthest distance from any other depiction on the chart.

That "basing" stop level down at 1204.25 for those six or so candles should be displayed at about the 1205.50 level, so there's a disconnect there or a gap up opening or data issue. Continuous session data helps here.

Once you get your settings dialed in, ultimately it comes down to how you read and use it.

Obviously for stops, right; which can also be used for reversal entries as a SAR concept (stop and reverse.)

What about targets? Use a "reflective" or "mirror" concept. The distance from the stop to the wicks of the candles often give and equal and opposite target distance on a break out.

Envision a Bollinger / Keltner envelope here, instead of the single side as displayed. Frame work! Point of Reference!

So when you see those horizontal stop lines "basing" and "capping" price events, the sideways action; be equally aware and concerned with the opposite.

e.g. When you see basing stop support long, that's a displayed given, your actually focusing on the overhead resistance.

Stop support is great, but if you cant get through a triple top test like at 9:50-58, especially after a breakout, then sell it and anticipate and equal measured move when you break the support stop at 10:03

Again when you see that red capping stop from 10:08-18, you not concerned with the red "stop"level...that's a given, your concerned with the triple support at 1207, that can't be broken, the origin of the original breakout.

When you see price compressing against broad basing stop support from10:30-55, at the 1210 level, previous breakout resistance now easily strong support, the "tell" is when the stop begins to "step up" for the test and break out,
The target is a simple equal measured move of the first from 1207, textbook.

On the most simplistic level volatility stop gives a point of reference to price, its current direction, volatility measure, and where its likely to reverse, accelerate and eventually target.

thank you very much for your detailed explanations.

I'm not using that kind of tool for my trading. just wanted to show how wilder's volatility indicator looks like. didn't even pay attention what kind of chart or settings I was using. but have to say, I'm very impressed how you handle it.

btw really like your location. that's where I met my wife and went back for our honeymoon.

 
  #480 (permalink)
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Silvester17 View Post
btw really like your location. that's where I met my wife and went back for our honeymoon.

I've never done it under a rock. What's it like?


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