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Despite what you think about Trading In The Zone, and the way Mark Douglas presents trading psychology, he is on nearly every traders recommended reading list. I have read Disciplined Trader, Trading In The Zone (twice), Listened to Trading In the Zone (twice), and just completed his Workshop cassette course The Path To Consistency. All the time enjoying his philosophy on the whole trading psych theme, thinking 'energy dynamics, that is really cool stuff', and chuckling to myself as I relate to the old 'bitten by the dog' beliefs example. BUT then I finish it all, go back to my choice of trading weapon declaring that I will complete his Trading Exercise one of these days. Sound familiar? I have not yet read of one person who actually purposely did the exercise, in isolation from their trading.
In summary - MD says Trading is simply a matter of pattern recognition and execution. That is what "trading" is. Everything else is complicating things. The goal of the trading exercise is to fulfill a sample set of the action of 'trading' - without any conflicting thoughts whatsoever, so that you recognize a specific pattern, and execute. For the purpose of the exercise it is not essential that it is a profitable system even. The system itself is where most of us probably got stuck, not wanting to trade blindly on something that won't make us .
But if you're like me, you might be losing money regardless cause you aren't taking trades you should, taking profits too quick on the ones you do, and out and out feeling like an ass for doubting the whole trading psychology thing in the first place So might as well put those $$$ to some use.
Now something you might not know is the core trading plan MD gives for the purpose of the exercise is:-
Use a simple stochastic system. Suggested using (in 2001) -
2 min bar chart or 100 tick for dow, 300 tick for emini
Start off with it Specifically set to a 16 period lookback. With a smoothing of 3.
He suggests you might have to play with it for your instrument etc but recommends futures due to the minimal risk.
He suggests a 1 point stop, and 1 point target. If the stochastic crosses while in a trade, take whatever profit /loss and reverse position.
Trigger is close of the bar with the lines crossed, enter on open of new bar
Get a sample size of 20 executed flawlessly (flawlessly being no conflicting thoughts when executing and not just entering the order on time)
This stuff is new to me as I never use derived indicators like this. I will probably watch a short demo on this simple system and see what parameters I should use on the Bund. But I get the point - use Whatever can give you buy and sell signals and is simple. The purpose is to recognize the signal and act on it. Forget whether it is going to compound the account as I doubt any stochastic can do that on its own anyway.
Since recently switching to day trading, I can finally relate to a lot of the trading problems talked about in these books - afraid to pull the trigger, holding onto losses, taking profits too soon etc. For the previous 3 years of trading I would look at swing charts of EOD data only, enter as the swing and trend was confirmed, with contingent orders for stop loss and profit targets. I couldn't see what all the fuss was about. Anyway so despite my current quest to master the Bund scalping off the DOM, I am going to have a bit of faith and finally do the Trading In the Zone exercise and try get my head straight.
The variations MD suggests for the system would filter out a lot of the signals based on enter only if a swing top / bottom is broken etc. I wanna trade actively though as my main reason for not doing this exercise 2 years ago was that it would take me months or years to complete with my trading. I hope to complete a sample set tonight. Will post my plan and outcome, and if anyone has a recommended system comparable to this, in particular for the Bund I am all ears.
Put your stop one point below your entry price, and take profits one point above your entry price... Risk = Reward for sake of the experiment. You could probably make it 2 points, 1 tick, 2 ticks.. you could probably take 2R profit instead as long as its mechanical.
I am experimenting with 2 ticks stop, 2 ticks profit right now in Bund. Using default settings for fast and normal stochastic. Sheesh - I am going to be paying some commissions tonight!
For practical purposes I guess so. He doesn't delve into any more specifics on the cassette tape than what I said. With the basic stochastic system, I am assuming to just use bullish and bearish crossovers as signals to buy / sell at market if the crossover is till in effect on bar close.
Entering off the DOM for example i am lifting the offer if the crossover is still in effect on bar close, and then entering a limit order 2 ticks above that price for profit and 2 ticks below it. Surprisingly I aren't getting chopped up when running it on SIM now.
He did mention as an addition you could put stop below an 'isolation bar' whatever that is. I assume he means if the crossover occurs during a bar at a new low / high you use the top or bottom of that bar + one tick for stop. Then calculate your reward off that.
I am trying it out now on SIM in NInjatrader and it is too easy to just automate the orders with ATM, which would remove emotion out of it and make it an exercise in clicking the mouse only. In fact so far that is all the exercise is proving - See the crossover -> wait for bar close (usually at same time) -> press the mouse. Maybe money on the line will change it hopefully.
EDIT: ON SECOND THOUGHT - because I have never a) used technicals or b) traded mechanically - I thought I would see what Ninjatrader would ideally produce for such a simple system. The result is a bit too expensive to start this exercise tonight. Without having a mechanical plan that at least breaks even and doesn't cost hundreds in commissions I might as well go out for a nice meal. Maybe someone can step in here too help out with their systems skills / or optimization skills for the stochastic???
My temptation is to instead trade as I am already - off the DOM, and instead of taking purely discretionary trades on order flow - mechanically trade predefined levels. Fade 'em. Hate to do a 180 but after spending a couple hours trading off the stochastic alone in SIM I don't think that that is a good idea. Would definitely carve up a few dozen trades in a couple of hours, and be wrong on most of them.
I just finished rereading TitZ and honestly it is probably the most valuable book in my trading library.
However, I think that currently your time would be better spent brushing up on learning the technicals if that is what you intend to trade down the road. If you are learning technicals simply for this exercise, forget about the setup that Mark Douglas recommend and focus on trading your existing setup without emotion. Mark Douglas recommends an edge, but if you have been trading price action or whatever, then you have an edge already and dropping your edge to try his edge would defeat the purpose of the exercise subconsciously.
I agree. Feel a bit silly for declaring I AM GOING TO DO THIS - then as soon as I start doing it I realise its not going to work unless I am overcoming the emotions and thoughts that occur when trading my way. Using this technical I found I was blindly clicking the mouse every time a crossover had occurred trying to have some faith that technicals won't lose me too much money.
The fact MD was proposing such a simple system might help some, who like me, thought that the exercise sounds good - but they need a holy grail system first.
MD also delves into it afterwards - that if the sample set of 20 is profitable... then take another 20. Implying that you are using a system that is how you plan on trading. He definitely implies that it doesn't matter what trading system you use for the exercise though, as long as you have a mechanical method for entering and exiting trades.
He also believes that you must first trade mechanically, then subjectively, then intuitively. Since I jumped straight to the latter, I will need to apply this concept to mechanically entering at my discretion .... OR find a mechanical trading style in the mean time. I purchased the FT71 webinars today to get an insight into market profiling which might give me some levels I can work with in my existing trading, plus create some sort of mechanical method from. Price based indicators scare me.
I know where you are coming from, trust me. When I encountered a drawdown a month ago, I regrouped and watched a bunch of seminars, including an old ft71 seminar. I have seen quite a few successful retail traders that use Market Profile and so I purchased a book on Market Profile. After rereading TitZ though, I realized that the best thing to do is let the book sit there. It is a great book and I will read it down the road, but I do not need it right now.
To make an analogy, it is hard to commit 100% to making a marriage work if you won't stop seeing your mistresses. In the same vein, how can you really commit to a setup if you subconsciously know that you have 3 others that you have paid money for and/or are itching to try? You need to have unwavering belief in a logical setup, and effectively destroy your 'back-up plans'.
There is no doubt that all the of the setups you have are planning to trade have a definable edge. The traders that are most popular using these edges are successful and have made millions. Clearly it works for them, the question is now, will it work for you. I think you need to sit down and write out what you believe about the market. From there, you can eliminate the extra setups and commit 100% to one set up and making it work. Below is a link to a video that allows you to do that. It features someone who has:
a) Founded a prop trading firm that managed $10,000,000 - 12,000,000 in client assets
b) Currently coaches professional traders for a living
c) Hosted a webinar on futures.io (formerly BMT)
. 
So might as well put those $$$ to some use.
.... OR find a mechanical trading style in the mean time. I purchased the