Exp traders ... 5 Fatal Flaws of trading

[Jreality]

Thanks. I'll check that out. I have charting software with MESA. I think the key is going to be how to determine when NOT to take a trade. I've experimented with moving averages and I've found them not to be profitable when trying to trade them in strictly a mechanical manner. In other words, when I experimented with moving average crossovers for daytrading, if you took every single trade offered with strict rules the system isn't very profitable. If it were, then someone would program it into a computer and simply take buy and sell signals without having to think much about trading. Those systems work until they don't work. Like I said before, I suspect that one needs to look at other things to decide when NOT to take a trade, such as the overall trend of the day, or how far the /ES has moved, and where the S/R lines are. It would be hard to prove or disprove a system worked unless it were strictly mechanical and could be programmed into a computer with backtesting. Maybe the discretionary aspect of knowing when to AVOID taking a trading signal (like moving average crossover) is key to being profitable.

J.

Quote from iusandman:

I trade the 2500 tick chart. I use a MESA adaptive MA. A basic description from the internet:

The MESA Adaptive Moving Average (MAMA) adapts to price movement based on the rate of change of phase as measured by the Hilbert Transform Discriminator. (Stocks and Commodities, Dec. 2000, p. 19).This method features a fast attack average and a slow decay average so that composite average rapidly ratchets behind price changes and holds the average value until the next ratchet occurs. The complex calculations of the MAMA can be seen above. For a more detailed description of MAMA, see "Mesa Adaptive Moving Average", Stocks and Commodities Magazine, August 2001.

I've attached a link to todays chart:

http://www.sierrachart.com/userimages/upload_2/1258416484_57_UploadImage.png


I use a two point stop and four point target. I trail up the stop to BE+1 tick at 2 point profit. I do not scale out.

There is no way to get around whipsaw. It just has to be calculated into your plan i.e. your PE.

Once the fast leg of the MESA crosses I place a limit order at the fast arm value.

Hope that helps. I'd be glad to help anyway I can. You may want to also look at the MESA under a 5min chart. The 2500 usually produces 4-5 trades a day and the 5 min gives 1-2 trades/day.

Thanks!
Chris

P.S. The light blue/red thin line on the chart is an ATR volatility stop which I use just to confirm my entry only requires the 2 point stop. If it indicates more I pass on the trade.

 

[Jreality]

Once the fast leg of the MESA crosses I place a limit order at the fast arm value.

Do you place it on the most recent closing fast arm value? Do you raise the limit order price if the fast arm value moves up on the next bar and you were not filled, or do you just not take the trade?

 

[deadbroke]

my own conceptual understanding of "outperformance edge"

one little video clip from Channel 7 gave me the edge to break all the herd rules in one-call-closing a deal. In and out the door with a signed contract within 50-mins. as opposed to 120++ min., closing average during this period exceeded 100% due to the deluge of customer referrals.

That's why I now know that just one technical tidbit like TZ said, a pattern, an indicator setup, specific price action phenomena etc., etc., could be that auxiliary engine that makes the difference. I just got to find it.

And back then, money management? .. wtf? there wasn't any. But the floodgates opened regardless and almost drowned me in wherewithal. Lasted 2 years, then the industry hit rough times and the gig was up.

And if one takes a look at TZ's expl of Money Management - it dispenses with the liability of reading a thousand books on this subject because "conceptually" it hits home instantly. It can now be applied.

 

[abattia]

Quote from iusandman:


Here's the link:

http://tradermike.net/2004/05/trading_101_expectancy

Thanks for this reference.

Reading this, and the other links referenced within, was useful.

 

[iusandman]

Quote from Jreality:

Thanks. I'll check that out. I have charting software with MESA. I think the key is going to be how to determine when NOT to take a trade. I've experimented with moving averages and I've found them not to be profitable when trying to trade them in strictly a mechanical manner. In other words, when I experimented with moving average crossovers for daytrading, if you took every single trade offered with strict rules the system isn't very profitable. If it were, then someone would program it into a computer and simply take buy and sell signals without having to think much about trading. Those systems work until they don't work. Like I said before, I suspect that one needs to look at other things to decide when NOT to take a trade, such as the overall trend of the day, or how far the /ES has moved, and where the S/R lines are. It would be hard to prove or disprove a system worked unless it were strictly mechanical and could be programmed into a computer with backtesting. Maybe the discretionary aspect of knowing when to AVOID taking a trading signal (like moving average crossover) is key to being profitable.

J.

I ONLY trade from 9:30 to 11:30 and 2:30-3:30 ET. This historically shows the highest PE for me. That is the key to all success IMO. You MUST be willing to record at a minimum 50 trades to determine if the system is truly profitable. This must be forward testing in real-time (not backtesting). Also the real key is NOT the method, it's how you mange the trade. All you need is to AVERAGE ione point a day to make a nice living. Traders often forget this and get locked into the tunnel vision of having or wanting to kill the market every day. If you are willing to slowly let your acct grow so that you can eventually trade 10 contracts with less than 3% risk of the acct on any trade (determined by stop size), with just that one contract you will average 500.00/day. This happens rarely though as most overtrade, trade even after daily target met, trade larger than 10% of their acct all of which eventually leads to blowing the acct..

If you do a google search of the historical best performing systems in trading throughout history you find two hits. !. MA systems (crossover) and 2. Donchian channel. The key again is money management and time frame traded.

Of course this is all just my opinion. I am passionate about it because it has worked for me. But that's just it, every trader must find what they believe in for if you don't then it will never work. If you don't believe in the system you'll eventually abandon your rules which makes the whole methods validity null and void.

Whatever you choose take those 50 trades RELIGIOUSLY and then go back and calculate the PE. If you fudge even one trade it must be thrown out.

Once you've collected that data and it shows a positive PE two things will happen 1. you'll be able to relax and trading will be much more enjoyable 2. you'll believe in your method and will thus follow it without deviation.

Good luck!
Chris

 

[deadbroke]

Quote from deadbroke:

Experienced traders (and all others too), please read the "Five Fatal Flaws of Trading" and tell me if you agree or think it comes up short and if so, what else might you add ...

Thank you

http://www.elliottwave.com/freeupda...27/Five-Fatal-Flaws-of-Trading----Part-I.aspx

http://www.elliottwave.com/freeupda...9/Five-Fatal-Flaws-of-Trading----Part-II.aspx

My personal conclusion is to not bother anymore with such "beautifully put" rules and guidelines dished out by armchair analysts.

I'm going to treat this job as I did any of my previous sole proprietorships - dedication and earn a respectable living is a given. The obstacle of 95% failure rate is known up front, so this must be overcome pronto.

The Money Management component (risk in trade, stop, TP, %ofCap, initial bankroll, overhead cost control, set aside portion of profits for this, that or other ..... etc., etc.) is now so clear to me that I could myself write a 1000 books on the subject.

But the main driver is the "outperformance edge" - this force makes discipline, methodology et al totally redundant. The EDGE brings enthusiasm into the equation and the latter easily bests RULES of any kind. And from personal exp. I know that EDGE, like Love and Inspiration, comes softly and might not even have anythng to do with Technical Analysis. The door is left wide open.

Thanks to everybody in the thread for helping and tolerating my "on the job thinking out loud"

Most of all thanks go to TraderZones. He'll never make it to my Ignore List and for that matter nobody else will either.

 

[NihabaAshi]

Quote from deadbroke:

...But the main driver is the "outperformance edge" - this force makes discipline, methodology et al totally redundant. The EDGE brings enthusiasm into the equation and the latter easily bests RULES of any kind. And from personal exp. I know that EDGE, like Love and Inspiration, comes softly and might not even have anythng to do with Technical Analysis. The door is left wide open.

Thanks to everybody in the thread for helping and tolerating my "on the job thinking out loud"...

You're spinning too much now with those statements. The fact is that your trading plan components are not suppose to compete with each other via the statements like...

Quote from deadbroke:

...The EDGE brings enthusiasm into the equation and the latter easily bests RULES of any kind...

It's almost like you have a 20 chapter book called successful trading and you've decided to remove 19 chapters (money management, position size managment, discipline, market experience, proper trading platform, proper trader workstation, proper capitalization et cetera) and just read one chapter called outperformance edge.

Simply, the components of your trading plan must work together like pieces of a puzzle fitting together to see the big picture. Thus, they are not in competition with each other via your recent quotes because they are on the same team.

Team work and if you don't understand that...you will never reach your trading goals.

That's your trading plan and I've never talked too nor heard of a profitable trader that doesn't have the above. Therefore, the conversation seem to change by you (not sure where at in this thread) in that you're trying to determine which is more important...Why

It doesn't matter which is more important and don't let some article get you going in the wrong direction.

What matters is that all those components in your trading plan work together (team work) and the outperformance edge will eventually fail miserably if you try to use it as a surogate mother for those other pieces of the puzzle via your redundant statement because markets do change (several times each year) and if you have minimized those other critical components...

You will not be able to adapt when markets change. Once again, don't ignore nor minimize those other components via sabotaging a trading plan via competition like some beauty pagent

Good luck, good trading and continue your research.

Treat your trading like a business and you'll be ahead of most.

Mark

 

[deadbroke]

Quote from NihabaAshi:

You're spinning too much now with those statements. The fact is that your trading plan components are not suppose to compete with each other via the statements like...



It's almost like you have a 20 chapter book called successful trading and you've decided to remove 19 chapters (money management, position size managment, discipline, market experience, proper trading platform, proper trader workstation, proper capitalization et cetera) and just read one chapter called outperformance edge.

Simply, the components of your trading plan must work together like pieces of a puzzle fitting together to see the big picture. Thus, they are not in competition with each other via your recent quotes because they are on the same team.

Team work and if you don't understand that...you will never reach your trading goals.

That's your trading plan and I've never talked too nor heard of a profitable trader that doesn't have the above. Therefore, the conversation seem to change by you (not sure where at in this thread) in that you're trying to determine which is more important...Why

It doesn't matter which is more important and don't let some article get you going in the wrong direction.

What matters is that all those components in your trading plan work together (team work) and the outperformance edge will eventually fail miserably if you try to use it as a surogate mother for those other pieces of the puzzle via your redundant statement because markets do change (several times each year) and if you have minimized those other critical components...

You will not be able to adapt when markets change. Once again, don't ignore nor minimize those other components via sabotaging a trading plan via competition like some beauty pagent

Good luck, good trading and continue your research.

Treat your trading like a business and you'll be ahead of most.

Mark

I thought the thread was done, Mark but since you bring up such good points ...........


>>>> It's almost like you have a 20 chapter book called successful trading and you've decided to remove 19 chapters <<<<


Its worse, Mark - I had 60+ books - all gone except for one. No newsletters, no gurus, no taking tips, no following CNBC advice. All gone. Totally solo from day 1 at ET for my internship.


>>>> money management, position size managment, discipline, market experience, proper trading platform, proper trader workstation, proper capitalization et cetera <<<<

IMHO only proper Cap & pos. size are important to me and are part of my blood, so no worries here.

The EDGE throws everything else, especially discipline and 1000s of rules and cliches out the window.

How do I know this to be true for me?

A quick glance at every single successful biz/job I've had - common denom. that separated me from others was an edge that I had or found or developed. Discipline? Totally redundant when you can't wait to wake up and do the job again and again and bring the bacon home. Rules? Poof! Totally unnecessary.

Another real life EDGE shown in next post

 

[deadbroke]

sorry for the long post (might be mistaken for Jack Herschey?)


Another real life EDGE .....

Early 1980s almost broke, leased a stretchy (limo) for $400/week ins. incl purely based on an idea, an observation that the California TCP limo license requirement was not going to be enforced. Instantly this meant that I could bypass being a robot (by soliciting my own clients) working for a limo company and instead go freelance and thereby earn much bigger bucks. Nobody else was doing this. = EDGE 1

All my buddies said I was nuts, that no self-respecting passenger would go with an unknown, unregistered, unlicensed bum .....

They were wrong. Businessmen loved the idea of me beating the system, gave me astonishingly good tips over and above the already inflated price and then even booked me for the return to airport trip.

EDGE #2 (language skills, soothing to a foreigner upon arrival in a foreign land) was serendipitous - occurred at the International Terminal - previously I had only used these skills for scoring pussy, but now ....

I'd pack in a German couple, a Swedish couple etc. and nail about $500 per trip to Disneyland to and fro done in about 2+ hours
and then repeat. 50% of the time I'd get a new return passenger arranged by the previously bribed Disneyland Hotel doorman.

The Japs were the best. I only knew 10 words but got them everytime. Downtown LA I'd charge $150, they'd give me $300.

The language thing was getting so ridiculous that even with Arab businessmen, I'd see them getting hassled by cabbies for $30-50, I'd just walk up, say Salaam Malekum (only knew about 5 words) and say I'll take you there for $1000. They'd smile and say, let's go. They didn't care about the price.

---------------------------------

So where were the RULES and DISCIPLINE?

There weren't any. I couldn't wait to go to work everyday, 7 days a week.

Money Management? None. There was so much coming in I couldn't spend even a quarter of it if I tried hard.

Initial starting Capital? $250 + my word for the lease

Position size - fill up the tank, I had to make at least that much + the lease.

So you see, the IDEA, EDGE #1 did it all, dispensed with all liabilities, Edge #2 was just icing.

When/Why did it end? 1984 Olympics.

 

[NihabaAshi]

deadbroke,

Thanks for the message...it's not often I read something interesting that makes me chuckle here at EliteTrader.com

Hope your trading today went well.

Mark