I get accused of a lot of things on forums, so I thought it best to stay mum.
Day-Trading 2.0 for small traders
- Thread starter jjrvat
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I get accused of a lot of things on forums, so I thought it best to stay mum.
IN MY INBOX TODAY:
Find the Edge
Stockscores.com Perspectives for the week ending March 30, 2008
Do you know what is going to happen to the stocks you own on Monday? Can you go through your portfolio one stock at a time and describe how those stocks will finish the trading day? Up? Down? How much will they move? What would you rather bet $1000 on, your ability to make these predictions or your ability to predict what will happen to an ice cube left on the hood of your car in the middle of a hot summer day?
Expressed in these terms, all rational people will agree that there is uncertainty in the stock market, that predicting where prices will go is not a matter of science the way predicting how ice will melt is.
Therefore, we must all remind ourselves that the stock market can not be predicted.
Some of you will have trouble agreeing with this last statement because we think that we can predict where stocks will go, that is the reason we trade the market, to make money from our predictions.
But no one can predict the market with absolute certainty. Therefore, you have to stop looking at trading one trade at a time. Imagine what would happen to the casino owner who looked at their gambling business one bet at a time. The casino can not predict who will win the Superbowl or what the next card drawn in a game of Blackjack will be. And so, they don't try.
What the casino does, and what you as a trader should be doing, is trading the probability of what will happen. The casino makes money because they know what will happen over the next 1000 hands of blackjack. They can balance the odds of a football game in their favor. They have an edge.
The question is, do you have an edge in the market?
Are you trading a strategy that assures you a profit over a large number of trades? If you are serious about making money in the market, you should be able to define the expected out come of your trading strategy in the same way that a casino can predict their profitability from millions of dollars wagered in the pursuit of 21.
How do you calculate your edge? Simply:
((Profit of a successful trade times the probability of a successful trade) - (loss of an unsuccessful trade time the probability of an unsuccessful trade
As an example, a trade that has a 30% chance of making $5000 and a 70% chance of losing $1000 has an expected profitability of $800.
Here we see how even a trade that has the odds stacked against it is worth taking because it has a positive expected outcome. If you make this trade enough times, you will average $800 in profit per trade.
This means we need to set out on a study to determine the probabilities of profit and loss for a trading strategy. Establish a set of rules and then test them over a large sample of trades to determine the expected value of the trade.
But, if we find a trading strategy that has a profitable expected value, are we assured of success in the same way a casino is assured a profit hosting games of blackjack?
No. In blackjack, there are rules enforced by the casino. The player must give the casino their money if they go over 21. They must give their money if they have a hand that is lower than the dealer.
In trading, there is no one to enforce your well tested trading rules except you. In the heat of the trading moment, when you must decide whether to exit the trade at the stop loss point or hold out for a turnaround, it is only up to you. When you have the choice of selling for a profit or continuing to hold until you get the sell signal your strategy was tested for, it is only up to you.
And you, assuming you are a normal human being, are likely to break your own trading rules.
Why?
Because you avoid pain and pursue pleasure. You lack confidence in your strategy because of your recent experience. You think you can use your better judgment based on what you are seeing you now. You lose your focus.
These are the things that turn the relatively simple pursuit of making money in the market in to a frustrating, mind numbing and stressful process. Who is at fault?
Only You.
Find the Edge
Stockscores.com Perspectives for the week ending March 30, 2008
Do you know what is going to happen to the stocks you own on Monday? Can you go through your portfolio one stock at a time and describe how those stocks will finish the trading day? Up? Down? How much will they move? What would you rather bet $1000 on, your ability to make these predictions or your ability to predict what will happen to an ice cube left on the hood of your car in the middle of a hot summer day?
Expressed in these terms, all rational people will agree that there is uncertainty in the stock market, that predicting where prices will go is not a matter of science the way predicting how ice will melt is.
Therefore, we must all remind ourselves that the stock market can not be predicted.
Some of you will have trouble agreeing with this last statement because we think that we can predict where stocks will go, that is the reason we trade the market, to make money from our predictions.
But no one can predict the market with absolute certainty. Therefore, you have to stop looking at trading one trade at a time. Imagine what would happen to the casino owner who looked at their gambling business one bet at a time. The casino can not predict who will win the Superbowl or what the next card drawn in a game of Blackjack will be. And so, they don't try.
What the casino does, and what you as a trader should be doing, is trading the probability of what will happen. The casino makes money because they know what will happen over the next 1000 hands of blackjack. They can balance the odds of a football game in their favor. They have an edge.
The question is, do you have an edge in the market?
Are you trading a strategy that assures you a profit over a large number of trades? If you are serious about making money in the market, you should be able to define the expected out come of your trading strategy in the same way that a casino can predict their profitability from millions of dollars wagered in the pursuit of 21.
How do you calculate your edge? Simply:
((Profit of a successful trade times the probability of a successful trade) - (loss of an unsuccessful trade time the probability of an unsuccessful trade
As an example, a trade that has a 30% chance of making $5000 and a 70% chance of losing $1000 has an expected profitability of $800.
Here we see how even a trade that has the odds stacked against it is worth taking because it has a positive expected outcome. If you make this trade enough times, you will average $800 in profit per trade.
This means we need to set out on a study to determine the probabilities of profit and loss for a trading strategy. Establish a set of rules and then test them over a large sample of trades to determine the expected value of the trade.
But, if we find a trading strategy that has a profitable expected value, are we assured of success in the same way a casino is assured a profit hosting games of blackjack?
No. In blackjack, there are rules enforced by the casino. The player must give the casino their money if they go over 21. They must give their money if they have a hand that is lower than the dealer.
In trading, there is no one to enforce your well tested trading rules except you. In the heat of the trading moment, when you must decide whether to exit the trade at the stop loss point or hold out for a turnaround, it is only up to you. When you have the choice of selling for a profit or continuing to hold until you get the sell signal your strategy was tested for, it is only up to you.
And you, assuming you are a normal human being, are likely to break your own trading rules.
Why?
Because you avoid pain and pursue pleasure. You lack confidence in your strategy because of your recent experience. You think you can use your better judgment based on what you are seeing you now. You lose your focus.
These are the things that turn the relatively simple pursuit of making money in the market in to a frustrating, mind numbing and stressful process. Who is at fault?
Only You.
lol...so true TRO--one problem I find with myself is that I don't always trade the system--sometimes I sit back with a bad feeling about a trade--those are usually the ones that fly in my direction without even a bump (in fact, just this morning one did that to me--didn't even hiccup for like 30 or so ticks!)--then I get frustrated and decide that I'm going to trade no matter what bc I lost soooo much profit by not trading on the last one, make a trade and sl...sometimes I'll get to the end of the session and look back over my trades and realize that I took all the losers...lol and let all the winners go. Better to trade the system you have for the entire session without feeling, just on price analysis--then evaluate it's results, especially after you have traded it for over a month...good to see on again...pkchilly.
I have been on here as a reader the whole time.
Defending my "honor" on the forums was becoming a full time job. I would rather be coding and trading.
The less I post, the less I have to defend.
Simple!
Defending my "honor" on the forums was becoming a full time job. I would rather be coding and trading.
The less I post, the less I have to defend.
Simple!
Hi jjvrat
as you asked I post a screenshot of something that happened to me today as you can see there are two pictures in the left one you can see a change in slope + close above HMA17 = enter a trade
the right one same charts a few seconds later, the price goes against me and then when the bar I've entered in closes the slope reverses and hadn't change at all!
what i did here is that i waited for my stop to get hit. what, happaned eventually,
what would you do in this kind of situation? would you not enter until the bar that changes the slope close? becuase that can be too late espcially in range bar charts... or would exit immdietly when you'll see you're wrong and not wait for you stop to be hit?
anyways as you can see this is a failing trade that you won't see if you'll look at the chart in the end of the day, and that problematic when you want to build a system based on historical data.
BTW this is a 0.1 range bar chart of the SPY.
as you asked I post a screenshot of something that happened to me today as you can see there are two pictures in the left one you can see a change in slope + close above HMA17 = enter a trade
the right one same charts a few seconds later, the price goes against me and then when the bar I've entered in closes the slope reverses and hadn't change at all!
what i did here is that i waited for my stop to get hit. what, happaned eventually,
what would you do in this kind of situation? would you not enter until the bar that changes the slope close? becuase that can be too late espcially in range bar charts... or would exit immdietly when you'll see you're wrong and not wait for you stop to be hit?
anyways as you can see this is a failing trade that you won't see if you'll look at the chart in the end of the day, and that problematic when you want to build a system based on historical data.
BTW this is a 0.1 range bar chart of the SPY.
Hope you dont mind my 2 cents.
Have you tried experimented with entering as soon as the price crosses the HMA (not waiting for the close).
or even a 3 bar reversal, which would have got you in earlier again.
I will admit though, they would produce a lot more false signals, but the earlier entries may offset that .
Have you tried experimented with entering as soon as the price crosses the HMA (not waiting for the close).
or even a 3 bar reversal, which would have got you in earlier again.
I will admit though, they would produce a lot more false signals, but the earlier entries may offset that .
I would only recommend doing this if price action agrees with your trade--believe me, I've tried, and wanted it to work...lol...but in the end I agree with amitman--over the long run, it can't be used as a trigger. That being said, I do believe there is something to be said for watching what the market has been doing related to a wma/hma for the past few hours of trading and then allowing that to influence your trading mindset--but each trade still needs to take price action into consideration.
jjrvat, I don't want you to think I've been neglecting your comments--I've been giving them deep thought and continue to do so--I'll post comments soon as I continue with my testing of a wee bit longer time frame...again, THANKS for the wonderful feedback!
pkchilly
Amitman,
Donât get me wrong, you seem a bit confused but I donât quite understand what you are looking for (before you mention choppy times, how to recognize potential change of direction and now triggers?, failures?, exits?, whipsaws?). Although your chart doesnât say much (totally out of perspective for the analysis), it may help me to conjecture what are the possible issues behind it:
â¦.you can see a change in slope + close above HMA17 = enter a trade:
1. Is this your trigger? Why? (I posted a random example of a 0.1 rng SPY in the context of timeframes analysis with a Hull 25, did you take your trigger from that chart?)
... what i did here is that i waited for my stop to get hit. what, happaned eventually:
2. Where was your stop? Why?, Is your stop the same as your trigger? (a change in slope + close below HMA17)
Are you also using the HMA17 for High/Low Wave analysis? Or just price analysis of H/L. I mean is your HMA a Price Analysis Indicator? or a indicator for triggers, exits and failures (Timing)? or both?
3. In your example and regardless of your entry was the price making HH / HL? and if not;
4. Was this âfailedâ trade a real failure (price kept going down until broke last low) or was a whipsaw (your timing was wrong?) or an error in your analysis or a mistake in your trigger?
...the price goes against me and then when the bar I've entered in closes the slope reverses and hadn't change at all !!!
...anyways as you can see this is a failing trade that you won't see if you'll look at the chart in the end of the day, and that problematic when you want to build a system based on historical data.'
5. Of course you wonât see this âfailedâ trade at the end of the day⦠it was never plotted !!!. If your âtriggerâ isnât in your chart it means that you are not trading what you see and you are trying to outguess the market. This is a fact, regardless of what trigger you use and the qualities or flaws your âchange in slope + close above HMA17 may haveâ.
6. As you now the slope reverses after you entered because you are not waiting for the close of the bar:
For the âslopeâ of HMA to change to positive:
HMA(0) > HMA(-1);
HMA(-1) < HMA(-2),
Sadly in terms of timing the HMA(0) is only fixed on the close of the current bar â¦
...what would you do in this kind of situation? would you not enter until the bar that changes the slope close? becuase that can be too late espcially in range bar charts... or would exit immdietly when you'll see you're wrong and not wait for you stop to be hit?
7. First, I trade price not indicators. When a trade goes against me and itâs in a long timeframe I usually close the trade before (of course depends on my exit strategy) if I am âscalpingâ fast instruments my stops/profits get hit before I can even click the mouse again on the DOM (I am exaggerating itâs not always like that but you get the point) .
8. Look âceteris paribusâ ("all else being equal") meaning if you supposedly have a âvalidâ trading plan, indicators, timeframe, etc:
- If your chart is a failed trade (price failure), move on itâs the cost of doing business the most you can do is improve your exits⦠reduce risk
- If this is a repetitive failure, you should look at your instrument, timeframe and time of the day your trading
- If macro direction is ok, wave analysis is ok and timing for entries, exits and whipsaws fails once in a while (but you have a consistent win/loss ratio) you can tweak it a little bit but not too much, remember will always have a cost of doing business
- If macro direction is ok, wave analysis is ok and timing for entries, exits and whipsaws consistently âfailsâ you might be trading indicators and not price. If this is the case and if you want why dont you post this chart without marking anything in it so we can discuss in detail and also I can use it as an example for my last posts on indicators.
jjrvat
Donât get me wrong, you seem a bit confused but I donât quite understand what you are looking for (before you mention choppy times, how to recognize potential change of direction and now triggers?, failures?, exits?, whipsaws?). Although your chart doesnât say much (totally out of perspective for the analysis), it may help me to conjecture what are the possible issues behind it:
â¦.you can see a change in slope + close above HMA17 = enter a trade:
1. Is this your trigger? Why? (I posted a random example of a 0.1 rng SPY in the context of timeframes analysis with a Hull 25, did you take your trigger from that chart?)
... what i did here is that i waited for my stop to get hit. what, happaned eventually:
2. Where was your stop? Why?, Is your stop the same as your trigger? (a change in slope + close below HMA17)
Are you also using the HMA17 for High/Low Wave analysis? Or just price analysis of H/L. I mean is your HMA a Price Analysis Indicator? or a indicator for triggers, exits and failures (Timing)? or both?
3. In your example and regardless of your entry was the price making HH / HL? and if not;
4. Was this âfailedâ trade a real failure (price kept going down until broke last low) or was a whipsaw (your timing was wrong?) or an error in your analysis or a mistake in your trigger?
...the price goes against me and then when the bar I've entered in closes the slope reverses and hadn't change at all !!!
...anyways as you can see this is a failing trade that you won't see if you'll look at the chart in the end of the day, and that problematic when you want to build a system based on historical data.'
5. Of course you wonât see this âfailedâ trade at the end of the day⦠it was never plotted !!!. If your âtriggerâ isnât in your chart it means that you are not trading what you see and you are trying to outguess the market. This is a fact, regardless of what trigger you use and the qualities or flaws your âchange in slope + close above HMA17 may haveâ.
6. As you now the slope reverses after you entered because you are not waiting for the close of the bar:
For the âslopeâ of HMA to change to positive:
HMA(0) > HMA(-1);
HMA(-1) < HMA(-2),
Sadly in terms of timing the HMA(0) is only fixed on the close of the current bar â¦
...what would you do in this kind of situation? would you not enter until the bar that changes the slope close? becuase that can be too late espcially in range bar charts... or would exit immdietly when you'll see you're wrong and not wait for you stop to be hit?
7. First, I trade price not indicators. When a trade goes against me and itâs in a long timeframe I usually close the trade before (of course depends on my exit strategy) if I am âscalpingâ fast instruments my stops/profits get hit before I can even click the mouse again on the DOM (I am exaggerating itâs not always like that but you get the point) .
8. Look âceteris paribusâ ("all else being equal") meaning if you supposedly have a âvalidâ trading plan, indicators, timeframe, etc:
- If your chart is a failed trade (price failure), move on itâs the cost of doing business the most you can do is improve your exits⦠reduce risk
- If this is a repetitive failure, you should look at your instrument, timeframe and time of the day your trading
- If macro direction is ok, wave analysis is ok and timing for entries, exits and whipsaws fails once in a while (but you have a consistent win/loss ratio) you can tweak it a little bit but not too much, remember will always have a cost of doing business
- If macro direction is ok, wave analysis is ok and timing for entries, exits and whipsaws consistently âfailsâ you might be trading indicators and not price. If this is the case and if you want why dont you post this chart without marking anything in it so we can discuss in detail and also I can use it as an example for my last posts on indicators.
jjrvat
my trigger is when the I have a green bar that close above the HMA and at least Most of it is ABOVE the HMA i enter above it's high
why is this my trigger? first I found range bars to be the clearer charts of the SPY and HMA slope change to be the most accurate and reliable trigger this came from my personal experince and from your posts, which I might say made a lot of sense, so why not go with it? also entering where I enter almost always makes sure that I'm entering after the new wave had started or a little time before.
I also use a code which paints bars in white when the slope changes up and in black when slope changes down (see chart below to understand) this also halps me to determine my entry.
the HMA17 is also my H/L waves analysis and determines ONLY my entry my exit and stops are based on fixed prices which is 20c for profit and 15 cent for the stop. why these numbers?
for the profit target because the normal hight of waves in the SPY range bars is about 30-40 cent and since i don't enter right on the start of it (I can't outgeuss the market) so 20C seems pretty logical. 15C for stop is for two thing: 1) assure me about a 1:1 r/r ratio (after commish and slippage) and i found that if the price moves 15C against me almost all of the time it will either break the last low or the slope will change again so i thought this is a good stop.
as you'll see in the chart below price analisys was good. this was a failure in the means that it did break the last low but since the wave was so short (as you'll see in the chart) i deciced to enter the trade after it (which was succesful)
you're absolutely right but as I mentioned waiting for the bars to close would be too late becuase the wave had already made a decent move and entering now would make me risk much more in order to get much less...
I don't find any problems with my price analisys but I do find some problems with enteries and exits I'm trying to find which enteries will not enter me too soon but not to late and I really don't know yet, I'll admit, how to define my stops and exits and I might add that all your wonderful posts (really) about price analysis did not say much about how to determine targets and stops and most of the example you've posted for entries and exits had such a poor risk/reward ratio (the stop was very big and the profit was quite small considering) that I doubt you really trade like this
anyways this is the same charts from before but in larger prespective the red arrow mark the the whipsaw I've posted earlier,
and as i mentiond white candels mark the start of a wave and black ones mark the end of them (this paint is computer made and It's much like the multicolor HMA just on candels)
as you can see waves are pretty clear
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