A noob's learning curve

[Gotcha]

I just read the "don't use stops" 63 page thread.

WTH? Talk about a cluster F.

The masses stated to use them, but I will say I'm interested in using one of the other methods to possibly protect a position as well.

Ok.. now that I've gotten over my previous rant, I feel like contributing again. Reading anything here at ET has very limited value. Its partly because most people on here are losers, or worse, scammers, but also because any little shred of advice shared is only for the way they do things, and this issue with stops is a perfect example.

You see, when you get around to really researching lots of things, you will notice everything works, something between 40-60% of the time. Take breakouts, however you want to define them. I define them as price going higher or lower than some previous price from the previous day lets say. Some people say to chase breakouts, some say to fade them. If you analyze enough of these, you will notice that you won't find something that works 80% of the time. If it worked like this, you'd have a huge edge, and it also wouldn't last for long anyway. (a simple edge that is)

So taking a breakout trade is all about how you define it, and this includes how far it has to go in your favor to call it successful, and how far it has to go against you to call it a failed trade. The guys chasing breakouts and fading breakouts could very well both be making money, and this is because they take some and skip some, and lose on some but win on some. These parameters is what allows them both to make money.

So coming back to stops, you will see how over and over again, your stops are hit even though price eventually comes back to you, and you think of not using them, and then there is the one time it never comes back and you're blown out.

You're the only one though who can choose when this works and when it doesn't, based on your parameters. From what I read, there are guys who average into a losing trade, but they always also have a point at which they bail (ie. 3 scale-ins). This might mean their account is down 20 or 30%, which is big, but at least its not so big that they are ruined. And something like this should be very rare (or else this no stop rule or averaging down isn't a good strategy to begin with)

If you're just starting out, getting the direction right won't happen for you more than 50% of the time. To not use stops would mean that you have the direction right over 95% of the time, but perhaps your timing is off, or games are being played which will eventually subside, etc. But still, you would need to have a very high degree of certainty that the direction you entered is correct. Since you won't be at this level for years, stops are about the only thing that will save your butt. But perhaps you need to learn this lesson the hard way by losing lots of money which many traders go through.

This once again is another reason why looking for advice here is useless. The lessons have to be learned internally and intimately, not through reading.

 

[ADONAI1ST]

Thanks for the input. The worst thing about that thread was the whole "you can't trade futures" with a small account thing that a lot of people said. I'm starting to see that a small account is a problem in of itself.(possibly). Looks like I'll be using etfs and stocks, to build my account with.(possible options but I'd like to stay away from them if I can). Then if successful once I have a larger account move to futures.

Again, thanks for the input!

 

[Gotcha]

Thanks for the input. The worst thing about that thread was the whole "you can't trade futures" with a small account thing that a lot of people said. I'm starting to see that a small account is a problem in of itself.(possibly). Looks like I'll be using etfs and stocks, to build my account with.(possible options but I'd like to stay away from them if I can). Then if successful once I have a larger account move to futures.

Again, thanks for the input!

What do you consider to be a big account? Keep in mind that if you want to trade ETFs or stock, you need over 25k for the PTD rule. As far as I'm concerned, trading those has its own problems.

Consider a 10k account, so you're looking at futures. Now consider a 2 point stop which equates to $100. If you lost 5k, this means you would have lost 100 points in the ES. Now if your strategy has a 2 point stop, maybe it has a 2 point profit, or 4 point profit, or something else that you are shooting for. With a 2 point stop, you have 50 trades you can put on before you lost 5k (50 trades x $100 loss on each trade). But will you really not have any winners in there? Even if you take random trades, I would bet that you will have a fair number of winners.

The problem of course will be that as a new trader, you will think you know better, so sometimes you will get out of your trades before you hit the win, and sometimes you will get out early from a loser, before it hits the stop, thinking that you know better, but then it just turns right around and becomes a winner. So maybe you take a 1 point loss instead of what would have been a 2 or 4 point win. It is hence of course very easy to lose 5k, but much of this loss would be from you getting creative, and not following some stop/target plan.

Now of course I'm not saying that you should go in randomly, but what I am saying is that looking at this from a stats perspective, if you risk $100 and hence 2 ES points, its the same thing as buying 100 shares of SPY and lets them drop $1. Granted, it will take much longer, and trading a longer time frame is always easier, but it doesn't change a damn thing when it comes to stats. If you have more than 25k in your account, you can of course trade the SPY exactly the same way as you would the ES since they follow eachother so closely but just go in for like 25 shares, therefore, each time you're wrong, you're not losing $100, but lets say $20. This is most ideal, risking an amount of money that you don't care about at all. But once again, you need more than 25k in your account.

If you don't, you could also almost use options on the SPY with an expiry date that is very close, and just buy calls if you think its going up, or buy puts if you think its going down, and this simulates the ES quite well at about 1/5 of the money risk, but it of course has its own problems that aren't ideal.

In conclusion, trading futures with a small account isn't a sin, its just that you don't have much time to figure it out before you go broke. But when you consider that sticking to a stringent trade management scheme will keep you out of trouble, then its not an impossible proposition in my opinion. If you do lose 5k because 45 out of 50 trades didn't work out, you pretty much have an edge that you just need to trade in reverse because instead of going long or short like you did, the trick would be to go the other way and the trade would hit your profit vs. your stop.

We have no idea of course what your issues will be when it comes to trading. This is what needs to be figured out, but once you have a nice set of trades to work with and analyze, you can be one step closer. If you risk only $1 per trade with Forex it might not teach you anything about yourself. If you SIM trade with no stops and think you are doing very well, then the first time you put on a trade and are down 1k, will you still be able to hold this position like you would in SIM trading? This is what really needs to be figured out.

 

[Overnight]

(

...Today I learned how to take a crap in the toilet without missing the bowl...

For whatever reason I only caught that line in the thread today while going through it again. ROFL! (Gotcha, we need to talk, friend. Did you find the TP? (Lol, sorry for the brief thread derail, I just had to comment.))

 

[Gotcha]

(

For whatever reason I only caught that line in the thread today while going through it again. ROFL! (Gotcha, we need to talk, friend. Did you find the TP? (Lol, sorry for the brief thread derail, I just had to comment.))

LOL. Ya, I lost it that day. You know, its only because marketsurfer keeps coming back as someone else that I feel so suspicious. Honestly, these days, every new poster at ET has to be heavily scrutinized. I honestly don't know why I even bother coming here anymore. Its only spammers or know-it-alls that post without sharing anything actually useful, or something downright deceitful. I would love for new guys to be spared the bullshit, but perhaps its a necessary part of the journey. Being able to separate the bullshit from whats real is key. But when there is hardly anything real anymore here, its an impossible proposition.

 

[Overnight]

...Its only spammers or know-it-alls that post without sharing anything actually useful, or something downright deceitful. I would love for new guys to be spared the bullshit, but perhaps its a necessary part of the journey. Being able to separate the bullshit from whats real is key. But when there is hardly anything real anymore here, its an impossible proposition.

Gimme' a year and I hope to change that, sort of. I have a plan. (I'm NOT a Cylon!)

 

[systematictrader]

What do you consider to be a big account? Keep in mind that if you want to trade ETFs or stock, you need over 25k for the PTD rule. As far as I'm concerned, trading those has its own problems.

Consider a 10k account, so you're looking at futures. Now consider a 2 point stop which equates to $100. If you lost 5k, this means you would have lost 100 points in the ES. Now if your strategy has a 2 point stop, maybe it has a 2 point profit, or 4 point profit, or something else that you are shooting for. With a 2 point stop, you have 50 trades you can put on before you lost 5k (50 trades x $100 loss on each trade). But will you really not have any winners in there? Even if you take random trades, I would bet that you will have a fair number of winners.

The problem of course will be that as a new trader, you will think you know better, so sometimes you will get out of your trades before you hit the win, and sometimes you will get out early from a loser, before it hits the stop, thinking that you know better, but then it just turns right around and becomes a winner. So maybe you take a 1 point loss instead of what would have been a 2 or 4 point win. It is hence of course very easy to lose 5k, but much of this loss would be from you getting creative, and not following some stop/target plan.

Now of course I'm not saying that you should go in randomly, but what I am saying is that looking at this from a stats perspective, if you risk $100 and hence 2 ES points, its the same thing as buying 100 shares of SPY and lets them drop $1. Granted, it will take much longer, and trading a longer time frame is always easier, but it doesn't change a damn thing when it comes to stats. If you have more than 25k in your account, you can of course trade the SPY exactly the same way as you would the ES since they follow eachother so closely but just go in for like 25 shares, therefore, each time you're wrong, you're not losing $100, but lets say $20. This is most ideal, risking an amount of money that you don't care about at all. But once again, you need more than 25k in your account.

If you don't, you could also almost use options on the SPY with an expiry date that is very close, and just buy calls if you think its going up, or buy puts if you think its going down, and this simulates the ES quite well at about 1/5 of the money risk, but it of course has its own problems that aren't ideal.

In conclusion, trading futures with a small account isn't a sin, its just that you don't have much time to figure it out before you go broke. But when you consider that sticking to a stringent trade management scheme will keep you out of trouble, then its not an impossible proposition in my opinion. If you do lose 5k because 45 out of 50 trades didn't work out, you pretty much have an edge that you just need to trade in reverse because instead of going long or short like you did, the trick would be to go the other way and the trade would hit your profit vs. your stop.

We have no idea of course what your issues will be when it comes to trading. This is what needs to be figured out, but once you have a nice set of trades to work with and analyze, you can be one step closer. If you risk only $1 per trade with Forex it might not teach you anything about yourself. If you SIM trade with no stops and think you are doing very well, then the first time you put on a trade and are down 1k, will you still be able to hold this position like you would in SIM trading? This is what really needs to be figured out.

ADONAI1ST,, you should listen to what "Gotcha" is telling you, one of my accounts has 70k in it and i still dont touch futures, not only because of their larger size compared with others, but also because i cant standardize the position size to a fixed dollar amount to be in line with the other instruments,,,,

there is a lot of bad advice and scum bags here but thats not everyone, so when you get sound advice from reputable people like "Gotcha" make sure u read clearly and absorb it.

Also iam not sure why you say when you have a bigger account you want to move to futures, you shouldn't care whats being traded so long as ur strategy works, u should be trading whichever instruments your strategy proves its got its highest returns for every dollar invested,,,

 

[ADONAI1ST]

What do you consider to be a big account? Keep in mind that if you want to trade ETFs or stock, you need over 25k for the PTD rule. As far as I'm concerned, trading those has its own problems.

Consider a 10k account, so you're looking at futures. Now consider a 2 point stop which equates to $100. If you lost 5k, this means you would have lost 100 points in the ES. Now if your strategy has a 2 point stop, maybe it has a 2 point profit, or 4 point profit, or something else that you are shooting for. With a 2 point stop, you have 50 trades you can put on before you lost 5k (50 trades x $100 loss on each trade). But will you really not have any winners in there? Even if you take random trades, I would bet that you will have a fair number of winners.

The problem of course will be that as a new trader, you will think you know better, so sometimes you will get out of your trades before you hit the win, and sometimes you will get out early from a loser, before it hits the stop, thinking that you know better, but then it just turns right around and becomes a winner. So maybe you take a 1 point loss instead of what would have been a 2 or 4 point win. It is hence of course very easy to lose 5k, but much of this loss would be from you getting creative, and not following some stop/target plan.

Now of course I'm not saying that you should go in randomly, but what I am saying is that looking at this from a stats perspective, if you risk $100 and hence 2 ES points, its the same thing as buying 100 shares of SPY and lets them drop $1. Granted, it will take much longer, and trading a longer time frame is always easier, but it doesn't change a damn thing when it comes to stats. If you have more than 25k in your account, you can of course trade the SPY exactly the same way as you would the ES since they follow eachother so closely but just go in for like 25 shares, therefore, each time you're wrong, you're not losing $100, but lets say $20. This is most ideal, risking an amount of money that you don't care about at all. But once again, you need more than 25k in your account.

If you don't, you could also almost use options on the SPY with an expiry date that is very close, and just buy calls if you think its going up, or buy puts if you think its going down, and this simulates the ES quite well at about 1/5 of the money risk, but it of course has its own problems that aren't ideal.

In conclusion, trading futures with a small account isn't a sin, its just that you don't have much time to figure it out before you go broke. But when you consider that sticking to a stringent trade management scheme will keep you out of trouble, then its not an impossible proposition in my opinion. If you do lose 5k because 45 out of 50 trades didn't work out, you pretty much have an edge that you just need to trade in reverse because instead of going long or short like you did, the trick would be to go the other way and the trade would hit your profit vs. your stop.

We have no idea of course what your issues will be when it comes to trading. This is what needs to be figured out, but once you have a nice set of trades to work with and analyze, you can be one step closer. If you risk only $1 per trade with Forex it might not teach you anything about yourself. If you SIM trade with no stops and think you are doing very well, then the first time you put on a trade and are down 1k, will you still be able to hold this position like you would in SIM trading? This is what really needs to be figured out.

I was thinking I didnt need $25k to trade stocks and etfs because I didn't plan on making more than 4 trades a week. not at first. I believe I read the rule wrong. Your perspective gives me a lot to think about. I'm gonna start focusing on using stops at the exact points I know I'll use later.

It seems so much easier to just hold on for the most part and not panic and get out. Ive had beginners luck so far though and it's not been my money. I think the transition from sim to real would be a interesting topic to see how most people reacted that first year or so if they didn't get blown up. Seem like that's a big part of it, that and managing losses/risk/entry.

Thanks again!

 

[ADONAI1ST]

ADONAI1ST,, you should listen to what "Gotcha" is telling you, one of my accounts has 70k in it and i still dont touch futures, not only because of their larger size compared with others, but also because i cant standardize the position size to a fixed dollar amount to be in line with the other instruments,,,,

there is a lot of bad advice and scum bags here but thats not everyone, so when you get sound advice from reputable people like "Gotcha" make sure u read clearly and absorb it.

Also iam not sure why you say when you have a bigger account you want to move to futures, you shouldn't care whats being traded so long as ur strategy works, u should be trading whichever instruments your strategy proves its got its highest returns for every dollar invested,,,

I'm all ears....!

 

[Simples]

Believe it or not, but ET is kind of friendly compared to some other forums I frequented when starting this journey. Sure there are the regular trolling and eyerolling, but there is some access to people with long experience and you can search older posts for some nuggets as well.

Forums are kind of unstructured discussion, often referencing exernal sources that tend to disappear over time, so maybe we shouldn't hope for more in this format though?

My experience is limited, but it seems while there are many ways to trade successfully, there are even more ways to fail miserably. Ie. there maybe 10-20 steps you need to check for every trade, and if you miss one of them, one trade can fail horribly setting you back too much. So effort seems better spent becoming more consistent, safe and boring. However, the initiative to trade is the opposite: Everyone would like results, thinking they're trader genius from the crib. The worst thing that can happen is a lucky streak or bull-market, and then total devastation.

If you have very small account size, I don't personally see how you can trade actively (daytrading or too much swing during the week), without commissions taking you out in the longer run, or without leveraging and risking much more. The latter is a path to ruin, as you're taking on much more risk than necessary, ie. margin calls at any time, external dependencies and risking more money than you really have available. Not a good way to live when overdone at least. Preparing for losing is crucial in this business.

But always important to keep eyes open to possibilities. One thing newcomers often think is that a wide stop-loss (trigger or manual) is risking more. But with proper position sizing it's actually about risking same or less, with less probability of losing. And then everything may be combined, and with backtesting, you don't need to risk any real currency to find out and learn more. Any other advice may in fact be detrimental because the trader need to be able to maintain her own system.