An Attempt to Learn How to Trade Consistently and Profitably

[nattybumppo]

Duly noted. Can you point to any information/resources regarding USD/JPY or currencies in general. I may be spreading myself to thin with regards to time by trying to learn to much, since I currently have university/options at this moment. But I do not want to blindly see correlations but start understanding maybe economies/nations and their interest.

Longer term, exchange rates are driven by differences in bond yields set by central banks, but right now every major central bank is targeting yields near zero, so trends are very weak. Short term trading, such as intra-day, is driven by news announcements (mostly scheduled--see this econ calendar for example: Economic Calendar - FXStreet ), and by technicals (chart reading). Forex is widely regarded as the most technically driven of all markets. The money center banks reportedly put their best traders at the forex desks, so it is a challenging environment to trade in.

I personally recommend this book as an intro (the best I have read) to currency trading:
The Everything Guide to Currency Trading: All the tools, training, and techniques you need to succeed in trading currency: Borman, David: 0001440531390: Amazon.com: Books

Short term trading is all about market psychology. Fundamentals only matter for longer term holdings. Macro theory isn't going to help you much if you are day trading. It's all about support, resistance, price momentum, statistical noise (random price movements), short term reactions to news events (mostly scheduled), and traders at the NASD firms who have exclusive access to "level 3" software that allows them to see where the stop and limit orders are (although I don't know whether they can distinguish one from the other or not), and they WILL use their knowledge many times to try to force you out at a loss, especially when markets are slow (watch how fast the bids and asks are flashing) or when a lot of stops are clustered in one area of the chart. The Tokyo session is especially prone to gaming the retail trader, in my experience.

 

[nattybumppo]

You have to learn the product you trade inside out.
The reason why people trade it, how they trade it and who trades it.

It depends. The longer you hold, the more fundamentals matter, but for short term trades, it's mainly about technicals and news (including weather events for the ags and sometimes oil). Any instrument can be traded short term (a few minutes to a few days, or even a few weeks) with very little knowledge of its details. However, price moves somewhat differently in some markets, but that's a chart thing.

 

[nattybumppo]

This makes me chuckle. I have the same issue. I buy these shit companies a number of them mysterious ones out of China like IDEX that are most likely a house of cards but hey they bounce around with incredible juicy high implied volatility and I can cost base them down to close to zero buy selling inflated calls and entering after being assigned on selling a juicy put that they end up being good winners. I'd never put these turds in my IRA account (buy and hold) but from a trading set up they work. Ever read the quarterly filings for turds like IDEX and MARK their a shit show and will all end up on Hindenberg Report. Maybe it's a bunch of Robinhooders pumping these things up but an opportunity is an opportunity.

LOL, yes! Not just Chinese companies. Think of Tesla, GE, or HSBC, and a host of lesser lights. And "zombie" companies are all over the place these days. I have listened to interviews with shortsellers on youtube. Very interesting what they have to say. Fund managers don't care any more whether the companies they buy for their clients are financially unviable or even outright criminal enterprises (regulatory enforcement is a joke most of the time). I have heard some of these short sellers say out right that certain companies which they specifically named in their interviews are criminal enterprises, not merely badly managed, and they aren't afraid of being sued because the companies in question don't want their dirty laundry getting aired out in court.

 

[nattybumppo]

In investing you go with the herd, trading you move away from the herd, get off the beaten path.

I would say just the opposite.

BTW, most people jumping in the stock market today are not investors, just speculators. That's okay if they know what they're doing, but I suspect most of the robbin hooders and their fellow travelers are lemmings. When the market crashes again, they won't know what hit them.

 

[easymon1]

I am using this place to learn and consolidate how I trade and my trading plan in general.

https://elitetrader.com/et/threads/...solid-trading-plan.340340/page-4#post-5031706
https://elitetrader.com/et/threads/...t-right-here-baby.335635/page-18#post-5309309
https://elitetrader.com/et/threads/...solid-trading-plan.340340/page-2#post-5011924
patient, focused, disciplined

 

[MrMuppet]

1000 trades with the same plan is way more than enough to evaluate the effectiveness of your plan. But if you are trading by the seat of your pants, no number of trades will ever be enough to be meaningful. "Discretionary" does not mean trading without a plan. It just means you have some flexibility during news events, etc.

Winning trades don't mean jack squat if you are trading without a positive expectancy plan. If you just enter the market at random, you will win about half your trades by chance just because you were on the right side of the price movement. But WHY were you on the right side of the price movement? Blind chance? Or because you are trading with a plan that stacks the odds in your favor? In the first case, you will learn nothing from analyzing your winning trades. In the second case, you also will learn nothing (unless you deviated from your plan and won anyway--then you should kick yourself, since it is, in the long run, better to lose for the right reasons than to win for the wrong reasons). Instead of analyzing one's winning trades, a trader should analyze his trading plan (and his losses, but only to ascertain whether he lost because he deviated from his plan, or whether it was an inevitable loss that should be taken in stride).

If, over the course of more than 30 trades in which you strictly follow your trading rules, you are winning more money than is likely to occur by chance, and the bigger of your worst loss or worst drawdown on an intraday trade is not more than 3% of account size (bigger drawdowns are acceptable for longer term trades), then all you need to worry about is whether you are following your rules and whether your rules are still working (that is, that they have not ceased to be profitable as market conditions invariably change--some plans are more robust to variable market conditions than others).

Trading plans must include position sizing (bet sizing) rules, money management rules (for limiting losses), exit rules (when do I get out?--some overlap with money management rules here, but not complete overlap), and finally entry rules. (Like the openings in chess, entry rules get most of the attention, but they are not the most important element in the trading plan.)

In my humble opinion, I think it is a good idea for an inexperienced trader to cut his teeth on swing trading without leverage (or with options which have limited downside) and only attempt intraday (which is more challenging) after he has some success trading multi-day swings.

Sure sugar lump and how do you come up with a "game plan" in the first place? Let's say you know nothing about the market at all, how do you put it all together?

Scrape rules from the internet? Books? That's how you end up like everyone else here on ET. You have to sit down, trade small and see what works for you...and after 1000 trades you will br able to come up with a gameplan...your own

 

[attempt]

QUOTE: "NOTHING MADE SENSE as the markets were going higher, treasury was increasing gold was decreasing usd/jpy was increasing."

Makes perfect sense (not that markets always do, but they do in this case). When Treasuries move higher, that is an expectation of lower rates due to expected economic weakness. Expected lower returns on Treasuries makes stocks more attractive. Economic weakness also means "flight to safety," thus USD strengthened against JPY (Japan's exports will be hurt if its customers' economies weaken). Expected lower growth reduces inflation risk which reduces incentive to buy gold as an inflation hedge.

Hmmm I see, thanks I think I may not have the correct view on the correlations of markets on SPY.

@attempt, School and LEARNING to day trade at the same time--that's tough! During the school year, why don't you just trade very small positions on the weekly charts? Then you only have to check them once a week, but you will still be learning the basics. Market prices are fractal in nature, so the skills you learn on one time frame can be applied to another later on. Focus on learning now while keeping your losses and profits both very low, and you can scale up the size of your bets later, after you are consistently profitable with small positions. You will inevitably lose money during the learning process, so keep the amount you risk as small as possible. Maybe you could open a forex account and trade one mini-lot or one micro-lot. There's a lot of leverage in forex, which makes it dangerous for the inexperienced trader, but still one mini-lot only moves approximately a dollar per pip. It's a relatively low stress way to master the basics as long as you don't scale up your bets before you know what the heck you're doing.

I was thinking over the weekend I probably can't take these large swings in my account. I did say before that I would start with 1 contract, but I don't know why I didn't. I will start doing 1 contract starting Monday.

I understand markets are fractals and the markets is a metagame I remember reading a similar question to Keynes beauty contest. Here it is:

Pretty interesting game I picked 0.

Spoiler: Answer

 

[attempt]

@attempt, School and LEARNING to day trade at the same time--that's tough! During the school year, why don't you just trade very small positions on the weekly charts? Then you only have to check them once a week, but you will still be learning the basics. Market prices are fractal in nature, so the skills you learn on one time frame can be applied to another later on. Focus on learning now while keeping your losses and profits both very low, and you can scale up the size of your bets later, after you are consistently profitable with small positions. You will inevitably lose money during the learning process, so keep the amount you risk as small as possible. Maybe you could open a forex account and trade one mini-lot or one micro-lot. There's a lot of leverage in forex, which makes it dangerous for the inexperienced trader, but still one mini-lot only moves approximately a dollar per pip. It's a relatively low stress way to master the basics as long as you don't scale up your bets before you know what the heck you're doing.

With online school I have leeway to trade, markets except if I have test dates. I did always want to open a forex account, but I am not sure why I have not, most likely because I did not know which broker to go to. I think. For TD Ameritrade I can't trade forex because I am under capitalized.

 

[nattybumppo]

"I may not have the correct view on the correlations of markets on SPY." -- Ah, there's the problem with formulas or "laws" versus heuristics (flexible rules of thumb). Let's say oil goes higher. Depending on other market conditions at the time, this may be interpreted as either evidence the economy is strengthening, or evidence that rising oil prices are threatening to choke off the recovery! To understand what "the market" is thinking, you have to look at how prices are moving in other sectors too. It's as much art as science.

Markets are inextricably linked to the real economy, but the real economy acts more like a living organism than like a machine. To understand the economy (and the markets) to the extent that they can be understood, study up on "complex adaptive systems" or "science of complexity." From time to time (wait for a "sale"), _The Great Courses_ offers an excellent video lecture introduction to this field, which was developed by physicists at Santa Fe Institute only in the 1980s. If you buy it, take notes!

Things like VaR (Value at Risk) models (which assume a non-existent Gaussian price curve, as Nicholas Taleb explains in _The Black Swan_), rigidly mechanical systems trading with zero discretion, buy-and-hold, index investing (blind monkeys throwing darts at everything without any due diligence), the efficient market hypothesis (which is used to justify index investing even though index investing makes the market *less* efficient!) are all inferior tools because they think of the market as a machine that can be comprehended, measured, and fine-tuned.

In reality, the market is a complex, adaptive system, ever changing and with no rules that cannot bend. That is why every mechanical system eventually stops working and why the developers of these rigid systems are constantly at work programming replacements, and why flexible rules of thumb applied with discretion, common sense, and a constant readiness to adapt to changing conditions when appropriate will generally yield superior returns, especially as time goes on. It is also why there is no substitute for experience in trading (although experience is not everything--it's a thinking man's game).

 

[nattybumppo]

With online school I have leeway to trade, markets except if I have test dates. I did always want to open a forex account, but I am not sure why I have not, most likely because I did not know which broker to go to. I think. For TD Ameritrade I can't trade forex because I am under capitalized.

I suggest looking at firms that specialize in forex and will also let you open a small account and trade mini-lots or micro-lots. TDA does not allow microlots, only minilots. Trade with the smallest lot you can for practice. I use TDA (even though it's platform is not very user friendly for FX) because I like the flexibility of being able to quickly shift funds from FX to futures to stocks, but Oanda which specializes in FX has a huge number of FX accounts, so I suspect their barriers to entry are not very formidable. Maybe you can check them out. You need to get used to the leverage, and the "trickiness" of forex price movements, without risking very much money during the learning process. There is a broad consensus that it is the hardest market to trade, so if you can learn to trade it profitably, you can probably trade anything. FX also allows you to start with very small positions and scale up in small increments as your account grows--if you can ride the forex tiger. Many give up in frustration, and there are certainly easier markets to trade.

Go to Amazon and find a good book on position sizing (bet sizing). If you position too big for your account, it is only a matter of time until you go bust in any leveraged market (including real estate). If you position size well, even a very mediocre system that is only marginally profitable can eventually make you a fortune.