Doing things the easy way ("Shortcuts" in trading)

[pinetboltz]

while doing a review of my trades, i noticed that the times that i really struggled / obsessed over a position, it usually turned out to be fairly unprofitable (even if i managed to turn it into a small net profit after going back and forth multiple times, the opportunity cost in terms of wasted time and energy, not to mention missed trades elsewhere, usually made the whole deal quite low in ROI)

that got me thinking, what are some shortcuts that allow us to do things the easy way when trading?

for me, a few things that came to mind were:

1) going for the trade setups that are 8 & above (on a scale of 1 to 10 of attractiveness in my filter) - waiting on the sidelines for the really good play to come along, and not trying to pick up all the dimes and nickels, which don't add up to a whole lot anyways

2) avoiding all the stuff outside plain vanilla products - the wiley reference books made for some good theoretical reading, but seriously, i just don't have the guts in me to wager a substantial amount on something with potentially hidden non-linear payoffs (extreme convexities that only show up once or twice a year, at the most inopportune moments), and if i only make a small bet on those, it wouldn't make much of a difference to my overall results, so whats the point of having that distraction

3) focusing on the most important news items when reading financial publications, paying more attention to the facts, etc, and not getting sidetracked by op-eds, because the predictions have variable win rates and usually don't go into specifics of how to manage a trade

 

[beerntrading]

I'm definitely a fan of parsimony...i.e. The least amount of the most useful information. I consider opinion, but it doesn't make or break any position I take. I disagree with number 2 though. Options are attractive *because* of non-linear movements...that said, it took being on the losing side before I realized that the profitable side of them is (an appropriately hedged) short position. I just flipped which side of the position I take...to very profitable effect.

 

[Handle123]

Really, you think it matters at all where you get in? I have read about literally hundreds if not over a thousand systems in 39 years. Good entry allows to do cheaper than getting in late, but from what I studied through the years, all systems lack risk management as I have studied and developed on my own. You can perhaps 1% of the time get into a position with plus risk, meaning better than zero risk, but a well positioned trader whether on monthly or hourly trader seldom puts on huge percentage plays of one's account as that would not be smart. There is more risk in trading under 60 minute charts than longer timeframes by hedging and if done right, in the long run, it pays off better than without doing it.

 

[s0mmi]

You're falling into the same trap I fell into when I was still in the process of resurrecting my career.

You don't have any informational edge or statistical edge upon which to base your trades. You're just going off gut-feel.

informational edge: edge that brings you an advantage, alpha, over some sort of sound reasoning, logic or fundamental analysis you strongly believe in. If this was 2005, I would bring up the Schatz, Bobl and Bund outright charts -- whichever one was lagging on a 15-minute chart I would just play that singular leg in the direction of the other 2. This is what Paul Rotter used to do at one point (check his new interviews). Of course I have to do much more advanced stuff now because that old primitive method is for cucks, but you get the point. Placing trades based off sound fundamental reasoning will attain you an informational edge over the average player.

statistical edge: You either hand-researched or mass-researched the strategy over a number of runs. You know that betting a 10-lot in one case and 40-lot in another case makes sense because one strategy is 70% win rate but the other is 85-90% win rate. People who focus on this usually have a statistical background or technical approach to markets.

And let me tell you, going off "instinct" will be the nail in the coffin of your trading career and account.

Referring to your points:

1) Waiting on the sidelines for the good trades to come is precisely what every successful guy at my prop firm and others do. But, what is a 'good trade' to you? You don't even know if your good trade is a 55% win rate or 90% win rate. Do you have the research done? I don't have the tools available, so I go through it by hand. Christmas Eve last year I spent the whole damn day and night plugging away at charts, manually punching stuff into excel and grabbing visual data from CQG charts. It has to be done. No-one hands anything to you.

(All referring to Bonds and Bond spreads); I have some trades that are 85-90% win rate, with lower frequency, and others that are about 70% win rate. I put less bullets on the 70% win rate ones, and I bet much larger when the higher win rate ones. I went through my own trade pool and research through charts, spent an insane amount of hours, but you need to do this too.

The pay-off goal is something like, $500-2000 max for the 70% win rate, and about $5k to $10k for the higher win rate. Otherwise the game is just not worth it. I find that most people are betting similar amounts on trades because they don't have their homework done. They're just trying to wing it. Anyway it's no surprise that most prop firms in Australia have had an enormous culling in 2016 and 2017.

2) You'll never be confident to place any bet without research done. For the 2 guys I am backing as traders, their first piece of homework is to sit the f*ck down and bring me all the hand-collected ranges of spreads that I ask for. They tell me the high, the low, how it traveled on the session, if there was Tier 1 figures out that day (check www.ForexFactory.com), and what percentage of a reversion it may have had. And they tell me this for a whole year. They must research every single day individually first.

Before they click the button to place their first sim trade, they are already aware of what a big, normal or small move is. It doesn't matter if you're in a vanilla product or not, you really have to know what your market is about. Chart Research = King

3) This would come with time. But even then, there are nasty surprises. 2 hours ago we just got told that Trump might edge into North Korea, but the T-Notes and Aussie Bonds are not budging. A few years ago, I remember Turkey raised interest rates and it sent the T-Notes down a couple of ticks during the beginning of London open. This only comes with experience but, for the most part, trading is about the day-to-day grind and just executing the trades you planned and researched.

Good luck

 

[beerntrading]

I think my most important lesson is learning to be a good loser (note that I use present tense "is" not "was"). And I don't mean what your jackass coach told you in high school about finishing out the game you're obviously losing and outclassed in. Take the goddamn ball and go home!

The above wasn't, but this is all specific to options...
It works on both winning and losing trades. I constantly reevaluate my trades based on "Would I enter this trade today". If the answer is no I typically bail (not always...if it gaps and becomes worthless or is effectively a $0 closing transaction, there's no reason not to let it ride; also remember fee / commission / spread makes staying in a trade substantially cheaper than entering one). And more importantly, when you have a winner, again, ask yourself if you'd enter the same trade. If not, close it and notch you belt.

By keeping your losers at 60% rather than 100% on one side, and harvesting your winners while they're still winners, you dramatically increase your realized gain margin. Those two look like peanuts on any individual trade, but when they all add up, the effect on your marginal win is huge.

 

[pinetboltz]

I think my most important lesson is learning to be a good loser (note that I use present tense "is" not "was").


It works on both winning and losing trades. I constantly reevaluate my trades based on "Would I enter this trade today".

yep, early on i remember being very surprised when i first heard that the top traders by PnL sometimes average only 60%-ish on their win rates (eg. can you imagine if a doctor averaged only 60% right on diagnosis and treatments...that guy prob wouldn't even get through the licensing)

it's only after actually being involved in the game that i started to understand why - that it's a commercially-driven decision to limit drawdowns, or as marty schwartz put it, to focus more on making money and keeping it than on trying to be proven 'right' because ultimately the market doesn't care.

 

[beerntrading]

can you imagine if a doctor averaged only 60%

I suspect that's optimistic. The human body is very resilient (as is the American economy). We lived for hundreds of thousands of years (and some substantial periods with life expectancy in line with '50s-'70s USA) without Doctors. Even with a 1/3 effective treatment, 1/3 neutral, and 1/3 detrimental, the net outcome still makes doctors look good. If you find a way to do the same trading, you'll look good yourself.