Calling 'Em Like I See 'Em

Another thing I try to do is reverse-engineer what bad traders do.

We all know people that have blown out their accounts. It's really not that hard to do. Just keep holding on to your losers, and sooner or later, it'll happen. If accounts can consistently be blown out -- why can't they consistently be doubled?

Often you'll see someone post a trade here or elsewhere, and other traders will come on and say "What on earth were you thinking...?" and they're right. If it's so obvious this guy was/is wrong, then I want to be on the other side of this trade. Of course, this is often easier said than done, but reverse-engineering bad trades is a major weapon in my arsenal.

Mind you, I don't much like the word weapon. Many people tend to see trading as some kind of warfare. To me, at least, this mindset is detrimental. I'm just a peddler, looking to buy things for cheaper than I sell them.

Often, we'll say to ourselves: "When price gets here, I'll go (long/short)."

To me, this often is the basis of an entry. Why wait for price to 'get there' -- go along for the ride! I'm not scared of being wrong, but if it seems to me there's a high probability price will make it there, I'll first jump on the train, and then wait to see how I handle things once it does indeed get 'there'.
 
Another 'eureka' moment for me was when I realized I trade far better when I start my trades with only 1 contract. I'm never scared to put down 1 contract, and once I'm in, I no longer have the fear of adding contracts depending on how the trade is shaping up. I'm more prone to scale-in to a trade than to scale out. I've never clearly understood why this is, but more often than not, I exit everything all at once. Perhaps I should analyze this and figure out if that is indeed what I should be doing??
 
Quietrader-

I'm really enjoying your thread thus far. A wonderfully subtle demonstration of the "Know Yourself" theorm.

A clear promulgation of the idea that one must know his psychological and social makeup before one can begin to find the most appropriate role for him in the market.

Keep up the good work. Your writings are of much value.

Best,

Golablue
 
I know this is way after the fact. It is also going to seem far fetched. However, I offer no apologies.

Last night: Long 3 ER2 @ 756.50

Covered: 2:10pm @ 769.40

Profit: $3,840

I put a hard stop (contrary to what I wrote above) .1 below the low of the evening, 756.00. Needless to say, it was never hit. I just kept holding. The market seemed strong.

It came up to 770.00, then came down to the 767's, and I exited when it came back up to 769.40. As I watch now, it has made new highs. But I have no regrets for exiting when I did. It was a long trade that tried my patience to some extent. It was obviously not my best trade ever as far as $$, but I highly doubt I have ever pulled in 14 ER2 points in one extended trade. I am grateful.

As we speak, I am long 1 ES @ 1311.50 for the past ten minutes or so. It is not going anywhere for now. Should have stuck with the ER2.
 
Sold 1 ES 4:14 @ 1310.75. -$37.50.

Just in the nick of time -- I could have lost another 3 points if I had hesitated. (BTW, I hesitated until this point, and missed 1311.50 and 1311.25 as a result.

Total for today: $3802.50.

That last trade demonstrates why I enter 1 contract to begin a trade. I never really felt good about it, so I stayed with just 1. I don't like losing money, even if it's only $40. That's a few cab rides :) ! (I don't drive).

QT
 
Having that hard stop in this morning (I did not put it in until just before, or after RTH) was a sort of 'eureka' thing for me.

My wife, who knew about that position, and asked me how it worked out later in the day, pointed this out.

As I wrote above, I tend not to use hard stops. I'm pretty good at juming ship when I see things aren't going my way. And to be frank, having a stop makes me nervous.

It's not this superstitious thing, or that "they're" looking for my puny stops. There's something in me that just gets nervous when I see my stop sitting there. I'd rather take myself out. There's merit to this, and it has worked for me often.

There have also been times when I have placed hard stops, have them hit, and then had the market turn right back around and continue on its merry way, which is frustrating, especially when you are trading a bunch of contracts.

But what she pointed out (and it probably occured to me before she said it -- but she solidified the idea) "You probably wouldn't have been able to hold out that long if you hadn't had the stop there." (I'm not sure if she articulated it like this, but that was the gist.)

She's right. Having the stop there freed me up to stop worrying about "getting out of the trade before it turns into a loser" during the initial stages. Once the Russell started showing its strength up to 765, I just kept holding on. Although it turns out I didn't do too badly by exiting when I did, I theoretically could have held out even longer. I was scared I was getting greedy.

From now on I'm going to put a stop in for every trade. It doesn't mean I can't exit the trade, if I see fit, long before my stop is hit. That is exactly what I did on the end-of-day ES trade. My stop was @ 1309.75, and had I not jumped, it would have cost me another full point (almost forgot to pull the stop after I exited!). Having the stop there, I hope, once I get used to not being spooked by it, will give me an extra measure of confidence.

(BTW -- thank you Golablue for your kind words.)
 
Often I see people saying "The entries aren't as important as the exits/trade management once you're in the trade, etc."

For me, entries are critical; exits less so.

Let me explain.

If you can find "pain free" entries where the market never really goes against you, you're in a position to set your stop (see above) at or close to break even, and just let the trade ride. Often, you'll be stopped out for a scratch or a small loss. But quite often (you'll be surprised), the market just keeps going in your direction. If you're patient enough, you can catch some majorly profitable trades while putting very little at risk (see today's ER2 trade).

Pain free entries, contrary to what we often like to do, involves 'jumping on the train' with the momentum. A momentum play, while somewhat risky, gives either immediate confirmation, or a quick exit for a small loss.

I'm not saying there's no merit in catching pullbacks. Especially in 1) a market that's obviously trending (again see ER2 today) and 2) if you have a tool to give you a precise area in which to grab the pullback which will either confirm or deny immediately.

But how many times have you entered the market with a limit order at some price that you felt gave you some opportunity based on whatever analysis you're using, only to have it whoosh right through your limit price and before you know it you're down X ticks? Guess who's on the other side of that trade? The momentum traders. You may ultimately be right, and the market may still turn, even if you got the price wrong. But most likely, you'll either have been 1) stopped out for a loss by that point, or 2) you'll have been so spooked by the way the market blasted through your price that you'll get out at break-even, having made nothing.

Contrast this with the guy on the other side of the trade. He took you out, and immediately found himself in a profit situation. He might have 1) taken profits, 2) put a stop at break-even and gotten stopped out for a scratch, 3) put a stop at break-even and watched as the market continued to go his way for a great gain.

Even if you both break even, who's the better trader? Who's going to make more money in the long run?

Of course, knowing what momentum is is an art of its own. It's a lot easier to see on an X-trader dome than it is to see on a chart. This is one of the many reasons X-trader is an invaluable tool to me.

There are many others. Another one is its AMAZING simulator. I haven't used every simulator there is, but the X-trader simulator is fantastically realistic. I often am spooked out by just how real it feels, and have to check to make sure I'm not trading a real market. Its price feed, to be sure, is not as perky or as thorough as a real Exchange, but for playing. testing strategies, and alleviating boredom, it's #1.

(BTW -- totally off topic. When you post to ET, it used to be that what you put in the "subject" area was appended to your post in bold letters. Now it's not. Why not? Where have all the subjects gone? What's the point of a subject if you can't read it anyway? Mods? Baron?)
 
In the middle of that ER2 trade, btw, I managed to eat supper with my family. I wasn't too nervous. The markets were in an obvious up-trend. I checked every 10 or 15 minutes to make sure no major changes had taken place. After dinner, I also had some time to spend with one of my sons, which I did in my office so that I could keep an eye on my position. For all this, I am very grateful.
 
Thanks for the post. I also enjoyed reading your thoughts.

I wanted to ask why you did not reverse the ER2 trade when you exited. Do you prefer not to hold overnight?

b

(I did not enter a subject in this post)
 
Quote from tt1452:

Thanks for the post. I also enjoyed reading your thoughts.

I wanted to ask why you did not reverse the ER2 trade when you exited. Do you prefer not to hold overnight?

b

(I did not enter a subject in this post)
More...

1) Don't hold overnight.
2) No reversal signal.

Thanks for the interest.

QT
 
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