Exp traders ... 5 Fatal Flaws of trading

[TraderZones]

Quote from deadbroke:

Thanks Chris. Glad you found it good. I wish I was as lucky but I'm not.

Truth is I posted this article due to my personal disgust with all (except pure TA) the books I've read on trading - AND this article smelled just as bad to me but I wasn't sure because of the recurring theme - sagely demeanor. They all seem to have some truth in them, yet when one gets down to application, failure occurs swiftly.

But I too am glad I started this thread because I felt I could get to the bottom of these so-called RULES by going directly to actual traders not salaried analysts who get paid even when subscribers get hammered.

And it gets even more bizarre - TraderZones, who is a recommended Ignore List resident by sooooo many here is IMHO the one I've learned the most from and singlehandedly has cleared up a heck of alot about the subject matter of this thread.

There's a minefield everywhere in this profession.

The main problem is, there are a lot of paper/sim traders here who would rather be spoon fed and given happy meals and be told that simple methods are fine. They get angry when someone bursts their bubble or doesn't throw praise all over an idea what has already been debunked by many. A few of us would rather throw harsh reality in the face of newbies, that simple backtesting, simple indicators,and a lot of other useless stuff is the last place to start. Trading is a profession like becoming a doctor, it is not an ATM machine where you press a button every time you want riskfree cash to come out.

 

[iusandman]

Quote from TraderZones:

The main problem is, there are a lot of paper/sim traders here who would rather be spoon fed and given happy meals and be told that simple methods are fine. They get angry when someone bursts their bubble or doesn't throw praise all over an idea what has already been debunked by many. A few of us would rather throw harsh reality in the face of newbies, that simple backtesting, simple indicators,and a lot of other useless stuff is the last place to start. Trading is a profession like becoming a doctor, it is not an ATM machine where you press a button every time you want riskfree cash to come out.

TraderZones:

I would share from my perspective that trading [mechanically speaking] is very simple. If you use a simple MA strategy with NO other indicators you will do fine. Having said that the trader MUST learn to accept a loss as part of the business. As long as you are managing it as a business with each "transaction" averaging greater than your "cost" of doing business i.e. losing trade, they will do fine. Where most fail that I see is eventually they abandon their plan/rules to avoid the loss and wipe out weeks/months of profitable trades.

I am actually a physician by training (anesthesiologist). When I first jumped into trading I read every book I could get my hands on. In med school, success was directly correlated with the hours you spent studying/reading so of course I though this would be the key to success with trading. It took me a year to realize and recognize that trading demands an "internship" year [minimum] of practical application [somewhat like you stated]. I had to learn the hard way that it does not matter "why" the market moves. The only variable that matters is how you manage that move i.e. entry/exit.

As an aside: there is a 14th century English logician often quoted in medicine during our training to help us understand when/why to order tests. His name is Wiliam of Occam and his tenet [or "Razor" as it is called] is simply "entities must not be multiplied beyond necessity" in other words if you take all variables involved in a problem or situation and make them of equal importance then the simplest explanation/method is best. It took me a little over a year of active trading to realize that using a MA with simple S&R is the simplest/most effective approach for me. It removes all other variables that are in reality redundant. Of course money management and rigidly following my plan/rules is the real key to long term consistent results. Here is a link on Occam if interested"
http://en.wikipedia.org/wiki/Occam's_razor

Anyway that's just my story. It may or may not help others here. Trading is truly a very individualistic profession. I do firmly believe though that if one remains persistent they will eventually be successful.

I would hope others on here would be more supportive. This is a very challenging profession and it helps all those involved to give a little and be kind. We've all been there at one point. That is not directed at you just other posts I've seen that are needlessly inflammatory.

Good trading!
Chris

 

[TraderZones]

Quote from iusandman:

TraderZones:

I would share from my perspective that trading [mechanically speaking] is very simple. If you use a simple MA strategy with NO other indicators you will do fine. Having said that the trader MUST learn to accept a loss as part of the business. As long as you are managing it as a business with each "transaction" averaging greater than your "cost" of doing business i.e. losing trade, they will do fine. Where most fail that I see is eventually they abandon their plan/rules to avoid the loss and wipe out weeks/months of profitable trades.

I am actually a physician by training (anesthesiologist). When I first jumped into trading I read every book I could get my hands on. In med school, success was directly correlated with the hours you spent studying/reading so of course I though this would be the key to success with trading. It took me a year to realize and recognize that trading demands an "internship" year [minimum] of practical application [somewhat like you stated]. I had to learn the hard way that it does not matter "why" the market moves. The only variable that matters is how you manage that move i.e. entry/exit.

As an aside: there is a 14th century English logician often quoted in medicine during our training to help us understand when/why to order tests. His name is Wiliam of Occam and his tenet [or "Razor" as it is called] is simply "entities must not be multiplied beyond necessity" in other words if you take all variables involved in a problem or situation and make them of equal importance then the simplest explanation/method is best. It took me a little over a year of active trading to realize that using a MA with simple S&R is the simplest/most effective approach for me. It removes all other variables that are in reality redundant. Of course money management and rigidly following my plan/rules is the real key to long term consistent results. Here is a link on Occam if interested"
http://en.wikipedia.org/wiki/Occam's_razor

Anyway that's just my story. It may or may not help others here. Trading is truly a very individualistic profession. I do firmly believe though that if one remains persistent they will eventually be successful.

I would hope others on here would be more supportive. This is a very challenging profession and it helps all those involved to give a little and be kind. We've all been there at one point. That is not directed at you just other posts I've seen that are needlessly inflammatory.

Good trading!
Chris

the "supportive" people generally do not know how to trade, and freely offer advice that is useless . Many of the serious traders fled this site. One's "inflammatory" is another's criticism of fluff and trash. A lot more critical commentary and a lot less could save a lot of trader wannabes years of wandering and frustration. This and other trading sites brim with beliefs and opinions, as opposed to hard evidence and statistical proof.

The main reason newbies lose (and join the 95+% thought to lose their money), is that a freight train worth of useless books, ideas, systems, paper traders and others keeps pumping through the system.

The first thing a serious trader needs to do, is filter out the overwhelming majority that is muck. Before they will ever get near things that might have use and interest.

 

[NihabaAshi]

Quote from TraderZones:

the "supportive" people generally do not know how to trade, and freely offer advice that is useless . Many of the serious traders fled this site. One's "inflammatory" is another's criticism of fluff and trash. A lot more critical commentary and a lot less could save a lot of trader wannabes years of wandering and frustration. This and other trading sites brim with beliefs and opinions, as opposed to hard evidence and statistical proof.

The main reason newbies lose (and join the 95+% thought to lose their money), is that a freight train worth of useless books, ideas, systems, paper traders and others keeps pumping through the system.

The first thing a serious trader needs to do, is filter out the overwhelming majority that is muck. Before they will ever get near things that might have use and interest.

Dude...please stop.

You're the same one that violates EliteTrader.com spam rules via trying to sell your trading system here at ET for 250k dollars and then got mad when we asked ET management to close your 250k system threads. In addition, you've been warned in the past about posting links to your fee-base website in that failed journal you had here when you were known as rcanfiel...a fee-base website that eventually went belly up soon afterwards when you couldn't find a forum stupid enough to let you spam it to newbies.

Your hypocrisy and contradictions is very scary...almost psychotic.

Further, I do remember a few polls here at ET many years ago where traders stated what was the main reason for consistent losses...

I do remember a majority (not minority) voted the following:

* Discipline problems

* Poor Money Management

* No Trading Plan

If you don't believe me...go ahead and start your own poll here and at other various forums to see that the reasons do not change regardless to market conditions. Yeah, we get it...you're an expert in backtesting, system designing, coding et cetera that hangs around here trying to probe newbies with that father figure facade about protecting the newbie trader.

Isn't it time for you to go chase away other spammers down in the feedback section to ensure that there's no competition when you post your own spam.

Mark
(med-school drop out)

 

[Jreality]

What moving averages do you like to use for daytrading, and on what timeframes, and how do you use them for trading. Do you buy pullbacks to a MA if the intraday trend is up, or do you use some other method? How do you prevent from getting whipsawed on a choppy day? How do you know when to exit?

Quote from iusandman:

I would share from my perspective that trading [mechanically speaking] is very simple. If you use a simple MA strategy with NO other indicators you will do fine. Having said that the trader MUST learn to accept a loss as part of the business. As long as you are managing it as a business with each "transaction" averaging greater than your "cost" of doing business i.e. losing trade, they will do fine. Where most fail that I see is eventually they abandon their plan/rules to avoid the loss and wipe out weeks/months of profitable trades.

.......

It took me a little over a year of active trading to realize that using a MA with simple S&R is the simplest/most effective approach for me.
Chris

 

[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.

 

[iusandman]

Quote from Jreality:

What moving averages do you like to use for daytrading, and on what timeframes, and how do you use them for trading. Do you buy pullbacks to a MA if the intraday trend is up, or do you use some other method? How do you prevent from getting whipsawed on a choppy day? How do you know when to exit?

I posted above but also wanted to share two excellent videos on MA strategies from CBOT:

http://accordent.powerstream.net/008/00102/cbotarchives/070607_person.wmv

and

http://accordent.powerstream.net/008/00102/cbotarchives/070614_person.wmv

--Chris

 

[deadbroke]

Quote from iusandman:

Here is a link to three videos Jeff Quinto did for the CME group. I think they are very well done. At the end Jeff gives an example of his trading plan and offers a simple template you can download.

As I wrote in my post earlier, following my rules CONSISTENTLY was the key to consistent profits. One way you may want to look at it is that if your system has been shown to be profitable over 50 trades i.e. has a positive profit expectancy, then each trade you take is profitable by the amount shown in your PE calculation. You just have to hold to your targets and stops that you used to get your positive PE.

Check out the videos when you have a chance.

Link
http://www.cmegroup.com/education/ts.html

Cheers,
Chris

P.S. I agree regarding trading books. Only ones worth anything are Reminiscences of a Stock Operator and the Wizard series. My $.02 anyway

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

Chris, I have nowhere near the actual trading experience you have, so I've yet to get upto 50 trades to determine any sort of expectancy, but your advice on targets and stops is sound. Grateful. Thanks.

The videos are on my list for this weekend work. Thanks for rec.

Reminiscences of a Stock Operator .... heresy for me to state that this book did nothing for me. No disrespect intended, Chris.


Along with other books (lost count) they all went to a charity book club donation. Even Robert Prechter's books met the same fate (& these are TA books, I must be mad)

Haven't yet read the Wizard series. On my list.

There is only one book that I would never part company with and still need to read a dozen times as a study like a college textbook

Edwards-Magee's .... Technical analysis of stock trends, 9th edition aka TAST9, a heavy cumbersome book to cart around when traveling.

 

[iusandman]

You bet! Keep up the good fight and it will happen.

Here is a link to a decent blog that has a good post about expectancy and it's calculation. What really helped me was that once I completed those 50 trades religiously following my rules, I was able to see that overall the expectancy was positive. What this means is that even with a mix of losing trades in that 50 the overall net is positive in the long run. It can help tremendously in dealing with the psychological issues encountered with a loss on an individual trade.

Here's the link:

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

Good trading!
Chris

 

[deadbroke]

Quote from NihabaAshi:

Lets put it this way, if you're consistently profitable without a written trading plan...

Don't bother with it.

However, if you're not consistently profitable...won't hurt to have a written trading plan. Also, be careful about all that so called edge stuff via backtesting or simulators because it's a known fact most traders that think they have an edge can't do the same in real money trading conditions.

Thus, in those situations where there was an edge in backtesting or simulators...something obviously was not in balance (re-read my prior messages) when traversing from the tests to real trading.

In fact, just go to any online forum and you'll find many traders say they did all the testing and had a positive expectancy (an edge) but then blew up their accounts when they traversed into real money trading.

Did they really have a positive expectancy edge or were they missing those other important pieces I mentioned that's needed for successful trading??? something for you to think about when you reach that road.

Mark

Mark, a written trading plan + a primary, still evolving method is my engine. I don't have to worry about auto, computerized backtesting or signal sellers or any such thing - I'm cursed with having to think things thru' so all testing of the past is pure manual labor sans emotion.

Why TZ's outperformance edge concept got home to me ..... explained in next post with a life example