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Looking back I wish I had known the value of spending the first year building positive statistics from the strategies and setups I was learning. Instead, I spent maybe a month or two learning setups and then went into the live market with my account. Guess what happened?!
Now, many years later, I understand the value of having reliable strategies that are based on solid statistical results gathered over time. The catch is that in order to get statistics you have to be in the market, but if you spend money doing it, more likely you will have the statistics but lose most if not all of that first account. The learning curve for the system strategies you use or learn is not steep. It is their application in the real live market that is tough, and if you add the real cash loss, then it may seem daunting and frustrating to say the least.
One of the reasons for sim is to learn as much as you can about the technical application of your strategies. Another reason is to learn to follow the order flow and make good decisions for places to trade. Another reason is to learn to observe correctly the price structures, location, and characteristic of the instrument you intend to trade. There are other reasons, but the idea is to learn to trade well and reach some kind of quantifiable positive measurable performance that you can rely on. You need to believe in your technical performance.
When you go to cash, the difference in your trading will be your reaction to the psychological emotional aspects of your trading. Your reaction to loss and gain, missed fills, slipped exits and lack of inventory will supply an entirely new set of obstacles to overcome, and reducing the technical obstacles before you enter the market will go a long way towards giving you plenty of opportunity to focus on these new events.
Unfortunetly, many adopted strategies assume that you can already trade dispassionately. The frustration is rarely with the strategy. It is your inability to profitably apply those trading strategies in the live cash market that causes you failure. There are as many strategies as there are traders. Most of them work the best for those who devised them, and in varying degrees for those who adopt them. However, the common failure across the board is the traders inability to properly apply the strategies. Ideally by the time you devise your winning strategy you will have also devised the best way for you to trade them profitably.
Taking the time to reach and maintain a consistent and positive personal performance level in sim takes effort. If you take the time now, it can save you heartache and money when you go live cash, and may even allow you to get into the "spin your wheels" zone (break-even) sooner and with your account in tact. Once you get there, it is just a matter of time - improvement comes with experience. If you trade and learn under guidance with other seasoned, experienced and stable traders then you have a good chance to make progress quickly. If you participate in a planned trading course designed to get you to a good solid technical performance level before you risk, then the jump to live cash will be easier and the relationships you built with your trading buddies will also help you weather the more difficult learning curves of self control, patience, realistic expectation of win and loss.
Can you help answer these questions from other members on NexusFi?
In the beginning learning to trade can be a very costly, time consuming, and frustrating activity. Doing research with real cash on the line is very tough. That is why practical and educated traders first use the trade simulation program available with most trading platforms. This is a wise approach to observing and studying the market. Testing your strategies, ideas, and performance habits without risking real cash can be very useful and keep the initial costs down. If you devise some kind of restrictions and accountability measures in your sim trading, then you can emulate what may happen when you go to cash. However, nothing can take the place of real cash loss or gain, and your reaction to it. That is why you might also want to put in some time and accomplishment milestones so you do not get caught up in endless sim trading.
SIM syndrome is a common occurrence with many traders starting out. Without some kind of sim cut-off criteria it is very easy to fall into it. If you are a brand new trader, then remain in sim testing your ideas and strategies long enough to gather a few months worth or stats. Remember, that for every change in your strategies, you need to accumulate new statistical data. So be careful about continual revisions. Use sim to observe, describe, conclude and take action long enough to gather reliable statistics. Then the real test of your conclusions comes with action in the real live cash market. There is no way to simulate this. Once you go to cash, give your designed strategies enough time to work. Once again, setting a milestone measure will help you know when to stop trading the system and when to go continue. If you need to make a tweak, test it first in sim for few weeks, then get right back to cash.
Once you go to cash, it is important to resist the urge to return to sim and to tweak if you are experiencing draw down. Better would be to set a performance criteria that will give you a reason to stop cash trading and return to sim. You can set a minimum 25 or 50 trades for each revision before you give up on the strategy or make another significant change. In my experience, I have found that once a strategy works well in sim, most likely it will work well in cash, but will experience an initial loss of about 10 to 15% execution performance. Most likely it is you and not the strategy that contributes most of that loss; with maybe 5% of an adjustment in the actual strategy money management conditions. Most traders are unrealistic in the beginning no matter how good or poor their strategy. I know many traders who are fantastic scalping 5 ticks per trade, but when they try to get 20 ticks they fall to pieces. If your risk management is in keeping with your gain per trade, then you should be ok once you gain some real live cash trading experience. Confidence comes from results. You need time to give yourself a chance.
Another variation of SIM syndrome is the trader who trades more than 2 contracts in sim. To me trading more sim contracts is an exercise in self delusion. There is no sense to trading 10 contracts in sim. Since you have no real leverage present in the market, fills and slips mean nothing and could actually surprise you in a very bad way if you enter the market with 10 contracts cash after spending 3 months trading sim like this. Beware trade rooms where the moderators are trading 10 contracts in sim. This is a ridiculous and deceptively evil ploy many unscrupulous vendors employ to entice you into buying their game. I remember once I was attending a trade room (a long time ago) and there were 3 moderators all trading 10 contracts, same instrument, same trades, in sim. It was not until many years later that I learned how bad this example of trading actually was and how much it messed up my expectation. This is a very common pitfall many new traders are fooled with. Don't fall for this.
If you find yourself trading in sim for more than 1 year, then something is not working well. You may want to get help with fixing whatever is giving you grief. It could be the strategies, the risk management, the expectation, the approach or any number of the many issues we face as traders. Continuing to do the same thing over and over and expecting different results is ... well, you know the saying.
While trying to maximize your trade, do not fall prey to the illusion of trend in intraday trading. Many concepts and trading principles were formulated for larger day trading chart types. INTRA DAY trading is a different animal. It is very short term, immediate, and challenging. It is also full of many trading opportunities if you can wrap your head about what trading for money really means at this level. Scalpers rule. In all scalps there is the potential of sustained moves, but the structure of the market at this level is zigzag, stair stepping, trading ranges, and static pivot swing ranges. Learn to understand the concepts involved, and decide to trade for money each time you click the mouse. Risk reward is not finite at this level. Flexibility is key. Keep your trading no worse than 1 unit of win to 2 units of loss, and keep your win rate high. This means support/resistance and order flow play crucial roles in all decisions. Capital preservation rules all decisions, not being right or wrong. Losers must be kept small, winners need to be 1:1 or better, but do not turn small winners into bigger losers while trying to maintain the theoretical concept and not the reality of the evolving trade, or you are doomed to fail. The market already knows everything you do and more.
BEGIN WITH SIM.
Observe the market for 1 month.
Observe the instrument you are thinking about trading for another month.
Take notes during this period. Begin a journal.
Observe, describe, structure what you see using tools to identify patterns.
Define the patterns by name. Look for the most reoccurring patterns.
Observer those patterns and record each occurrence in detail - when, where, how - and what were you doing? And how did you feel? And what kind of day was it? Did you get a good nights rest? And were you ready to trade? And why are you here?
Observe, describe, structure, define.
After a few months of the above, start to take trades. Record their outcome. Do this for about 50 trades.
Try to repeat your actions each time. Record the results. During this next phase, consider a larger picture of the market you are looking at. Add additional information of volume, location of price, speed of price, time of day, and dynamic changes in direction.
Observe, describe, structure, define, conclude, trade. Record the results. After 6 months of this, analyze your results. If positive, define a structured plan you will call MY TRADE PLAN. For the next 3 months, trade that plan. Record and analyze the results. If positive, begin cash trading. If not, start at the top again until you can get to positive STRICT sim performance results for 3 consecutive months.
CASH
Take 50 trades without changing anything. Examine your results. If positive continue to follow your plan. Otherwise, examine and analyze your results and make changes. Return to sim and test any major change. Otherwise continue with the new tweak.
After 1 year of this, you are in cash or you are still tweaking your plan in and out of sim. You have some options to consider. GET HELP or CONTINUE TO LOSE MONEY or CONTINUE TO TWEAK.
A winning plan makes money. A loosing plan does not. If you are not making money, then you need a fix. If you are making money, but not as much as you would like.... welcome to the club! You are now a real trader.
Continue to grow. If you can spin your wheels then it is only a matter of experience until you grip the road and take off. If you start to loose again.....start at the spot marked CASH above.
Things that you will need to have are:
EDGE - this could be anything from lucky underwear to keen insight. Most commonly this is thorough understanding of how the market exchange system works. Regardless of your trade signal types, unless you have a defined formula based on price consideration foremost, there is no edge.
EXPERIENCE, PATIENCE, DISCIPLINE.
TENSION and STRESS RELEASE MECHANISMS. This could be exercise, whiskey, sex, fast cars, a mirror.
Things that will torment you:
Other traders.
Yourself for getting stopped out to the tick 3 out of 5 trades. Yourself for getting out of your trade without a profit.
Yourself for not getting filled and watching price take off for 40 ticks without an opportunity to get in according to your trade plan.
Yourself for following your trade plan in spite of price hitting S1 to the tick, going sideways for 5 consecutive equal size bars, getting a commitment bar to the upside but not taking the trade because it was not in your plan.
Yourself for not being flexible.
Yourself for not trading concepts and theories relevant to the market type you are trading.
Yourself for not making more money.
Yourself for not taking losers smaller than your winners, or not taking winners larger than your losers. Yourself for not following your trade plan.
Yourself for not knowing.
Yourself for being afraid.
Yourself for being impatient.
Yourself for being too patient.
Yourself, the other winning yourself, yourself from last loosing month.
The market.
The fix is to stop tormenting yourself and go back to the first paragraph. This is a numbers game. This is a capital preservation activity. This is the sum result of a designed approach with realistic loss and win ratios executed over a period of time.
Hope this helps. You can always get drunk on Saturday nights.
Thanks for the tips Jaguar! I'm new to all of this and really appreciate you passing on this advice. Sounds like a lot of this comes from hard won experience. Maybe it'll save us new traders a little heartache!
Study of the price bars on range bar charts involves locating dynamic support and resistance. It also involves location of price in relation to static support and resistance. It involves speed of the bar that is building, and the volume coming into the bar at each tick direction. It involves observing and identifying imbalances in order flow, as well as price bracket expansion and contraction. If you focus on these leading indicators (as much leading as is possible) then all other indicators will seem late to the party and you may find yourself removing most of them. Simple is best in most cases.
Quiting day trading means very little in the totality of your life.There was no guarantee that you would succeed in this business. The odds can be stacked in your favor, and just as in other businesses, stacking the odds in your favor in this business means finding your edge, and believing in it. But it was a venture capital activity, and you gave it your best shot.
Many traders come to the 4 or 5 year mark and realize that they are not as far along in their progress as they thought they would be. They face some hard facts about their performance to date, and all the money and time, not to mention efforts both emotionally and psychologically, that have been done in their desire to make their trading a viable source of sustainable income.
Many traders wanted to quit their day job, and trade for a living. In the beginning it started with the dream of big profits, and along the way changed to the struggle to just make few $100 a day, day after day.
When you quit you finally accept that you were never able to learn to trade like anyone else after all. You accept that you were never able to find a method or system that you believed in enough to trade consistently enough, let alone well. You accept that you left each method you learned when the draw down came, and most likely never returned to it. You considered it inferior because you had a month or two losses. You accept the fact that no mentor was able to help you fix your trading. You never discovered the magic indicator or system. All those secret methods you bought into were also sold to about 1000 other traders, and you spent the better part of a year fighting everyone trading that system for fills in the queue. You also accept that you are now unwilling to give it any more time or effort. You are now unwilling to spend another dime buying indicators, or trade room subscriptions, or other traders methods or systems. You also accept that the only way to proceed would be to strip down your charts, and start all over with the simplest most direct approach of trading price at location. It feels like you are still at the beginning or will have to return to the beginning again. If you are unwilling to accept these things, then you should quit. If you believe your inability to trade well was anyone else fault except your own, then you should definitely quit and try something else.
Well, I have some great news. You are right! You are right about everything. Quit, or don't quit does not matter. What does matter is taking all your experience - 5 years is a lot of experience - and just put the blinders on. Trade what you believe to be your understanding of all those things you now know to do. With this in mind, you may want to not do all those things you have already done. There will still be no guarantee of any future, and all the past is done with. This means your next step is probably going to seem very weird.
If there was one tool that would be the end all be all of all your efforts and the only helpful guide for you now, it would be the magic in your holy bible, often called your trading journal. If you have been keeping one, then all your answers are in there. If you have not been keeping one, then you have a very simple choice. Quit or start keeping one now if you intend to continue. It is kind of tough to repeat the same mistakes over again if you have been reading about them for the last 5 years. It is also tough to repeat great trading performance if you are unable to read about it over and over again.
Experienced traders know that risk-reward is more important than the number of winners a strategy produces. They also know that a single trade matters very little. A recurring error that many traders make when devising their strategy is paying more attention to the number of winners rather than the size of the winners compared to the size of the losers.
All strategies have peak and draw-down cycles. This includes intra-day as well as longer term. A common error many traders make is they base their daily loss limit and daily gain at a 1 to 1. Unfortunately, many traders hit their daily loss limit within the first 30 minutes of trading, or before. Without any kind of successful trading statistics to use as confidence to continue with the understanding that draw down often comes first, many traders accept this temporary condition and quit. They quit because they lack the confidence to continue trading with the expectation of hitting their peak - which has yet to come. This lack of confidence is understandable. Without something solid to base your confidence on, it is just bravado. Fearless over confident traders tend to get their heads handed to them on a consistent basis.
When I listen to many traders as they lead a trade session, I am amazed at the amount of phrases like "I thought", "I know", "it will do this", "they will now do this" and many similar phrases. They make me feel like maybe I am missing some crucial information?
To my mind, the only thing I do know is that I don't know what the market is going to do next. I can project my expectation based on my strategies statistical performance records, but that is it. I can take the signal entry with the expectation of positive outcome based on my strategy and my own performance level using that strategy. I can conclude based on my observation of price structure, location, order flow at support and resistance, and TOD; that price will need to do a certain thing before I am willing to commit to any kind of conclusion leading to a trading action on my part. But I never know, never think something particular, never assume anything, or form any opinion that is not instantly changeable. So, I am very cautious about the words I use. How about you?
This is the best post I have read in years. I spent a year and a half sim-trading in order to learn what you just explained in a paragraph.
Beginner day-traders take note.
