Gang,
Let me first explain where I'm coming from and what I'm trying to do. The following turned out little bit incoherent but I hope you'll get the message.
When I first got interested in trading the markets, I wanted to use a scientific approach. First I would try to come up with ideas based on common sense then I would test my ideas in detail Basically, I thought I can come up with a rigid system that I can follow. I spent countless days, weeks, months backtesting systems based on classical and custom written indicators. Some systems turned out profitable but once I included slippage and commissions, the equity curve immediately went south. Well, I wasn't successfully in coming up with a 100% mechanical system. Today, I believe that it's impossible to come up with a 100% mechanical non-arbitrage type system. Of course, I think some people are making good $$$ in arbitraging between derivatives of similar products. But the margins are tight and probably these are big institutions with minimal execution costs.
I was gaining more insights from the markets as I risked real money every day. I realized that looking at the intraday candlestick bar forming in real-time is completely different than looking at the completed bar afterwards. What makes this difference? First thing is we can't predict the market. Our mind sometimes tricks us and forces us to see some patterns. In hindsight, sometimes charts look very obvious. I think the key here is what our brains are pre-occupied with at moment. You are forced to see what your unconscious wants you to see.
I started trading first stocks, then get obsessed with AMAT, QQQ, QQQ options, NQ, ES and finally EurUSd futures. These are kind of different markets but basically they are all driven by human emotions. The chart patterns are all very similar. In the microscale, I noticed that my trading is also effected by my emotions. I can't eliminate emotions from my trading so I have to learn to live (trade) with them.
Why do I trade:
1) I want to make money and I want to make lots of it. But for now, I'll be happy with enough money for a modest lifestyle.
2) I don't want to have a boss to tell me what to do next.
3) Everyday is different. Trading is very challenging and I simply love this whole process.
Here's my latest thoughts. I'm trying to understand why somedays I make good $$$ even though the intraday charts look like a chopped up mess and sometimes, I lose good $$$ in a smoothly trending market. Am I simply gambling believing that I have an edge in the market? If I were gambling, then I wouldn't be able to make decent money in some of the VERY choppy days. I think the bottom line is my mental state. IT LOOKS LIKE I'M NOT TRADING THE MARKET BUT I'M TRADING MY MENTAL STATES. The clearer my mind is less prejudices I have and I can follow the twist and turns of the market better. The thing is one has to do completely opposite things if the market is trending or it's in a range. And one needs to accept the state of the market to milk $$$ from it. If I get fixated on something and become stubborn than the losses add up. So the key here is to have hard $$$ daily limits on total losses and quit for the day once that limit is reached. It's very simple. So basically, the market does its fluctuations and I trade my mental states coupled with my equity curve. So the only thing I need to do for my trading is to keep my mind clear and obey my money management rules.
Basically, I kind of do trend following for my equity curve.
Money management rules can be very simple like "I'll quit for the day if I lose 5% of my equity". Regarding clearer minds, this can be done with simple things like regular exercise and meditation.
I absolutely have no prejudices as to what the market will do tomorrow morning. I don't care if I see that EurUsd is at 1.4 or 1.0 when I wake up. Actually, I would be happy. Most likely if I held a position I would be on the other side of the market and be bankrupt (stops wouldn't trigger for some reason). The markets usually make unexpected moves at the most unexpected times and hurt most people involved in it--some of course make a lot of money too but they are the minority.
I accept the fact that trading is a form of gambling and I get a rush out of it. I don't deny it. But I also believe that I have a small positive edge unlike the typical casino games.
Time to go to the gym and reset my mind
Chinook
