A mechanical approach defines a trade from the moment you see the signal, to the moment, you hit your target, or your stop. This includes signal filtering, trade entry, money management, trade management, trade exit. Here's my mechanical method:
1. Take EVERY basic divergence that meets my basic divergence picture. (*** No cherry picking ***)
(I know I'm gonna be wrong 30% of the time, so the win/lose. fear/greed psychological aspect is pre-built into the method, it's no longer an issue)
2. Enter at the close of the trigger bar (On range bars, the entry price is known before the bar closes)
3. Put my stop behind the bar that just closed (On range bars , this is a fixed sized stop on every trade)
4. Put my target at 2 times the size of the stop. (On range bars, this is a fixed sized target on every trade)
5. Sit in the chair and watch, touch nothing until my target is hit, or my stop is hit, using an ATM
6. Repeat, exactly the same way, every single time.
The entire trade is methodical, signal, entry, trade management, exit. No zen meditation required.
Last edited by monpere; July 20th, 2011 at 04:27 PM.
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An exercise that someone posted somewhere on this forum: flip a coin. Heads you're long at the offer, tails you're short at the bid. Trade out of it. Try to make money. Then do it again.
The concrete help is that here is an exercise to help you develop market awareness. It's not Zen, it's just practice. Obviously I'd recommend doing it in Sim. It's the reality for pit traders. You stand in the pit, 5 bid at 6 like everybody else. The broker next to you sells you 15 at 5 and you take it because you're job is servicing him and he's giving you an edge he could give to someone else. Everyone in the pit is leaning on one 500 lot bid Goldman's broker is holding, and he's 50 feet away from you and he's going to ignore your attempt to sell him 15 because it will mess up his count when everyone tries to hit him at once. So even though you have the edge there's no guarantee you can scratch this trade. Do you see if another local will take the 15 lot off your hands? Do you offer 15 at 6 as loud as you can? If you do, along with a lot of other small traders, some big trader is going to sense that the pit is long and take out that bid. It all depends how you feel about the market, and you develop this feel by constantly being put in the position of not being in control of whether you're long or short.
"You don't need a weatherman to know which way the wind blows..."
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Yes the entry is also mechanical. It is defined with multiple steps of criteria that has to be met, but given that I only trade that setup (actually I trade 2 setups) I am so familiar with the setup that all those steps have now gelled into a 'picture' for me, that I can recognize instantly, and actually recognize as the setup or picture is forming, before it fully completes. Divergence generally announces itself multiple bars in advance. I will generally know I am probably going to get a signal several bars in advance, and on the trigger bar, I know exactly where my entry is going to be.
This is why I advise people not to trade 7 different setups, or continually analyze charts to see what patterns pops out at you. Just trade 1 or 2 setups, and know them inside and out. All you are doing when you are looking at a chart, is looking for that pattern, period. Be a stalker of these specific patterns, don't look for random patterns as targets of opportunity, they require to much effort in the heat of battle. This cuts down on the continual decision process you have go through for every type of trade, for each and every trade, thereby reducing the psychological effects of each trade. In general, I believe the less thinking you have to do while you are trading, the better. Do all your thinking before/after market, and build all that thinking into the method itself.
Last edited by monpere; July 20th, 2011 at 05:20 PM.
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I would like to put in a little thought into this conversation.
Firstly being a discretionary trader does not mean Zen or Buddhism, it is merely someone who analyzes the current market conditions and trades accordingly...ie a trader who only takes Long positions when price is above the 200 period MA
A pure mechanical trader is someone who will trade the setup with no regards to others indicators. A discretionary trader is also a mechanical trader, if you are not then you are simply speculating and that is dangerous in this game.
I will say this also, a beginning trader who is learning this craft needs to pick a setup and learn it so it is automatic and be able to trade if even if they are on the phone ordering pizza.
You will no be successful in this game if you are trying to learn every possible setup and you are trying to get every move out of a market. Learn to be pleased with consistent disciplined trades/profits and then you can call yourself a trader, until then you are a student.
This game is played from the neck up....
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Agreed, I think we are saying the same thing. The only thing is a mechanical trader will not take a sloppy double top divergence, unless he has a heading in his trading plan that says "ES 5 Minute Sloppy Double Top Divergence Entry, 51% Win Ratio @ 2:1 reward/risk: Enter short when...".
Anything that has not been verified historically to have an edge, and defined specifically how to be traded, is just plain out of the question. Why? That would be adding uncalculated risk to the method, if you haven't calculated your risk, you are gambling, whether you realize it or not, whether you understand it or not, whether you admit it or not. Maybe you are a good gambler, maybe you are not. Unfortunately, 95% generally find out they are not. I didn't like those odds, so I chose an approach that calculates my odds ahead of time, and will generally keep my performance close to those stats, by defining a trading process that is precise, measurable, and repeatable.
Last edited by monpere; July 20th, 2011 at 10:34 PM.
Here's a mechanical system I've heard good things about. "proFX". (edited: decided not to post the link after all after I read BM's post) If you want to you can look it up. I'll just say I've been trying to make my own mishmash of bits borrowed from other systems and trying to work, and so far it's a lot better than what I did before. I found being creative and trying to tweak things helps one understand their system better and possibly be more successful at it. For example, if the exit signal wasn't clear, maybe use this and that next time for a safer earlier exit to preserve profits..
Last edited by Cloudy; July 21st, 2011 at 10:14 AM.
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IMO, the last thing the OP needs is yet another "system" which he follows. What he needs is to write his own method, his own ticket. Eliminate all third party, external factors. Those external indicators or systems vendors aren't funding his account, he is. He needs to completely own and be accountable for his trading.
I've said this before but it seems most people don't listen. Please consider that I might, just might, know a thing or two after running this forum and seeing so many traders repeat similar mistakes that lead to blowing out their accounts.
Whether or not you craft a fully automated system, a mechanical system, or a purely discretionary system is up to you. Each of us has opinions on which ones work the best. That is primarily irrelevant as well. All the truly matters is what works the best for you, the person trading it, the person funding the account.
Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.
Need help? 1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first. 2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses. 3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make. 4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance. 5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers. 6) Help using the forum? Watch this video to learn general tips on using the site.
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Since I am in "recovery mode" I went back to the system I talked about a few posts back, a while back I tested it with about 200 trades and it performed fairly well. It is a mechanical system 90% The trigger bar has a precision set of entry rules. This morning at 8:15 E.S.T. it has a beautiful move on the 6e. I took a screen shot in MS-word.
Can someone tell me how to paste it here?