Back to the Basics

Good Trades, Bad Trades. Winning Trades, Losing Trades.
Many people think that a winning trade is a good trade, and a losing trade is a bad trade. This can be a very unprofitable and naive view.
A more successful way to look at your trades (IMHO) is to view a good trade as any trade in which you followed your trading plan precisely. Of course, you must also have confidence that your trading plan is sound, and will be profitable over the long term.
A bad trade is any trade in which you did not follow your trading plan, regardless of whether the trade was profitable or not. This is a very important point. The most dangerous trades are trades in which you did not follow your trading plan, but managed to close out profitably. Why are these dangerous? They reinforce the idea that you can 'wing it', or ignore your stop-loss limit, or wait a little longer for the market to turn when your system tells you to GET OUT! By ignoring your system, you have failed. By ignoring your system, you have lost your structured plan which ensures that you can trade reproducibly day after day without emotion. In short, by not following your well thought-out trading plan, you have given in to the emotion of the moment. This is a dangerous and losing path to follow.
Conversely, by following your plan, you have eliminated emotion from your trading. Over time, you can modify your trading approach to reflect your increased understanding of the market and to build in the lessons you have learned from your previous winning and losing trades. However, you will modify your trading plan when the market is closed after carefully reviewing your reasons for the change. You will not be giving in to emotion by changing your trading plan 'on-the-fly' during the trading day on a whim.
Hopefully, this concept is clear. A 'losing' trade can be a 'good' trade. Simply follow your plan.
 
I find the NYSE Tick indicator to be one of the most reliable weapons in my trading arsenal. The Tick is a simple measure of upticking vs downticking stocks on the NYSE. When used correctly it is very powerful.
Most people, when using Tick, simply apply it as an overbought, oversold indicator. The general idea is that anything over +1000 is overbought and anything under -1000 is said to be oversold. This however is an extremely broad application. In normal market conditions these numbers work well, but at certain times they will change. For example in a strongly downtrending market, we usually don't see oversold reactions until about -1200 Tick, and on the upside around +500 we start to see overbought reactions and bring in selling. The overbought/oversold application is valuable, but you must keep market conditions in mind.

A more consistent way to use Tick is by following intraday charts. I normally use a 2-minute and 5-minute chart. You can use this in much the same way you would follow a chart. Look for support, resistance and intraday trends. When Tick comes to an area of support or an area of resistance it is very helpful to time your entry accordingly. When we look at the trend our concern is which way is it going. Are we seeing higher highs and higher lows, lower lows and lower highs, or is it sideways, ranging broadly between areas of support and resistance. If it is uptrending we might be more aggressive with our positions on the long side of the market, and less aggressive in going after shorts, or visa versa in a downtrend. When the tick is sideways we would be in a scalping mindset, or setting on the sidelines waiting for a breakout in either direction as our confirmation to where the easiest money is to be found. The third way of using Tick is the closest thing to a living cash cow.
 
Brandon,
As I write, I am sitting at my new job as a prop trader in NYC. Trading for my second day ever!! The strategies that we implement here are "proprietary" (whatever that means) and by that I mean we use filters to help us find trades. As I am new, I am only supposed to focus on certain filters and not do much trading on news. In reality everyone around me is trading on news, and other stuff but guess they are more experienced, eventhough most of them lose. I guess my problem is that I am having a hard time finding good entry points. It is ironic that you have most recently left the post above about using intra-day tick charts because that is exactly what I have been trying to do myself. I have been looking at the 1-minute tick chart and 5-minute tick chart. I try to look for support/resistance levels and then make a call based on that. In retrospect it is easy to see these levels, but in real-time it is not so easy. I am dying here....I want to put in trades, but my discipline is telling me not to because I cannot justify them other than the fact that I want a little action and do not want to be bored. What are your gleanings? Please help.
 
Great thread Brandon!

Excellent points on the technical and psychological aspects of trading.

Something I have found is that when one has another income besides trading it makes following the rules much easier.

Realizing it is a game where you must have an edge ,and then let probabilities take care of growing your account.When one is in a position of having another income it is easier to accept that each loser really doesn't matter(as long as a reasonable win$/loss $ ratio exists) and ones methods have a positive expectancy.

I'm not sure as ones account grows this will always be necessary. I guess it depends on how much your position size increases.If your position size increased very little relative to your trading account size the length of a losing streak could be longer without crippling the account thereby taking much of the emotional pressure off.
 
Micheal :

You are right.

Believe it or not, I do think in points and only write in terms of points in my journal.

For some reason when I'm discussing it with others I speak in dollars.Maybe there is some psychological flaw hiding in this slip?:)
 
Quote from Brandonf:

I find the NYSE Tick indicator to be one of the most reliable weapons in my trading arsenal. The Tick is a simple measure of upticking vs downticking stocks on the NYSE. When used correctly it is very powerful.
Most people, when using Tick, simply apply it as an overbought, oversold indicator. The general idea is that anything over +1000 is overbought and anything under -1000 is said to be oversold. This however is an extremely broad application. In normal market conditions these numbers work well, but at certain times they will change. For example in a strongly downtrending market, we usually don't see oversold reactions until about -1200 Tick, and on the upside around +500 we start to see overbought reactions and bring in selling. The overbought/oversold application is valuable, but you must keep market conditions in mind.

A more consistent way to use Tick is by following intraday charts. I normally use a 2-minute and 5-minute chart. You can use this in much the same way you would follow a chart. Look for support, resistance and intraday trends. When Tick comes to an area of support or an area of resistance it is very helpful to time your entry accordingly. When we look at the trend our concern is which way is it going. Are we seeing higher highs and higher lows, lower lows and lower highs, or is it sideways, ranging broadly between areas of support and resistance. If it is uptrending we might be more aggressive with our positions on the long side of the market, and less aggressive in going after shorts, or visa versa in a downtrend. When the tick is sideways we would be in a scalping mindset, or setting on the sidelines waiting for a breakout in either direction as our confirmation to where the easiest money is to be found. The third way of using Tick is the closest thing to a living cash cow.
More...

I really don't share many people's particular enthusiasm for the TICK. In my experience it's an indicator that lags the Es by a couple of seconds, so anything you can get from watching the tick, you get earlier by watching the Es. Trading divergences on the tick has a succes rate of 50%, i estimate , so that doesn't give you much of an edge either, imo the TICKI does a better job of enhancing entries and exits.
 
Brandon,

As a seasoned professional I find the knowledge you are sharing under this topic (but also in general), very helpful and stimulating, even if its just a review of basic concepts for me. I therefore congratulate you on your efforts to share your market knowledge with others on these boards, for free.

I believe the point here is to look for what we can GET out of these posts, rather than bicker as to whether you are promoting your site or not. Afterall, what's the harm with that, since you are giving back to the community of EliteTrader.

Those who do not wish to read you can just put you on ignore.

But please keep posting for the rest of us, I'm sure many active and silent (like myself most of the time) members are reading and enjoying your posts. Both newbies and more experienced.

Loukas
 
Quote from Brandonf:

· Most traders wash out in the first year, and the failure rate for new traders is thought to be as high as 90%. Why?
o No Business Plan:
§ Trading is a business not a hobby. If you do not treat it as a business you will fail
§ You must have measurable goals
§ You can only achieve success by deliberately setting out to achieve it, and you can’t become a great trader without deliberately deciding to do so
o Lack of Discipline:
§ Getting into trades without a clear setup or plan (entry price, target price, protective stops)
§ Chasing trades they were late seeing, getting in too late
§ Holding losing trades beyond the original protective stop level
§ Selling winning positions too soon and not waiting for the target price to be hit when nothing about the trade technicals has changed
o Lack of Money:
§ Commissions, Slippage and mistakes chew up new traders’ accounts before they have had enough time to become effective and experienced. This is magnified exponentially if the trader’s beginning port is under $20,000.
§ $40,000 is the minimum starting port size, $100,000 is preferred. $100,000-$150,000 is optimal after the trader has proven profitable at smaller port sizes and has slowly worked his quantities upwards after being successful at several increments.
§ There is a negative psychological cost to managing a small port because you are naturally protecting it rather than focusing on growing it.
o Inexperience
§ Not many traders get to 1000 trades and are still in business, so the key is to get the experience you need by paper trading as long as the learning curve is still steep.
§ An aspiring trader can not be bashful funding their education, provided you have done the homework necessary to ensure that who you are learning from is worth listening to.
§ Losses are certainly a part of learning, since trading is so much learning how to lose properly as it is about making winning trades, but the traders who make it are the ones who kept their learning expenses cheap.
o No Support System:
§ No mentor, no teacher, no way to easily avoid mistakes made by other traders before them
§ Lack of training and real world examples in current market conditions
§ Daily interaction with others striving toward the same goals
o Lack of Focus:
§ Trading too many types of equities and not becoming an expert in any one kind. You need to gain an edge by focusing attention in very specific equities and setups.
§ Trading too many different setups that may work in some conditions but not others.
o They Don’t Stay Neutral:
§ They get too emotional about their trading whether it’s excitement, boredom, fear or greed. It’s hard to tell if a good trader is up or down for the day, because they are simply executing their focused plan and acknowledging a businessman’s risk while they do so.
o They Don’t keep a Trading Journal
§ How can you learn from your mistakes if you don’t document the decisions you made both good and bad on every single trade?
§ How can you review the past to help you with the future?
§ How do you know what approaches or techniques have changed if anything to make you more or less successful than you were in the past?
More...

just to put it all in a constructive and creative manner see attached.
 

Attachments

If you make a map of success it will help you get there faster and keep you on the right track as you are on the road. Setting goals is important in all aspects of life, trading included, if you are to be successful.
By setting goals you identify the things you want. Not only that, but you identify how you are going to get what you want.

Grab a pen and paper now and determine the following things.

What do you want to accomplish with your trading this week, this month, this year and in five years.

Why do you want to achieve these goals.

What steps are you going to take to reach these goals.

What are you doing right now which is preventing you from reaching these goals.

Review this often to keep them fresh in your mind.

Brandon

PS, I'm supposed to be on something of a vacation right now, so I won't be spending too much time here. I see a few questions and I will get back to them as soon as I return (Monday night)
 
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