Giving up on day trading?

[crater]

Quote from Badeco:


I would appreciate hearing from experienced traders, in particular those that have been on this business for a longer period of time and I know they aren't many, whether it has been for them such a hardship to succeed in trading or maybe it is simply that you can not really consistently win the trading game?

Here is something for you to look at.

I do a lot of trading in Silver Miners and ETF's. Now, I AM NOT recommending this to you, since I know nothing about your situation, your goals, etc. But here is a picture of the early morning of October 13, 2010 drawn by a guy who has made a lot of money in Silver over several years.

1. There is a positive correlation between EURUSD and Silver prices. EURUSD is the Forex symbol for the Euro/US Dollar currency pair. When the numbers are rising, the Dollar is falling in value. This correlation will fluctuate, and sometimes disappear, but it's valid for now. DO NOT LOOK AT "CLOSING" PRICES LAST NIGHT. GET CURRENT INFO.

http://www.fxstreet.com/rates-charts/forex-charts/

2. EURUSD is rising strongly at 06:00 EST.

3. There is a correlation between the stock price indices in Europe, and those in the US. But first, look at the time difference. You need to know when their markets open and close but in Eastern Standard Time (adjust for other time zones). London is now on "Summer Time", like our Daylight Saving Time, so the nornal 5 hour time difference is still in effect. I have 06:10 now, so add 5 hours, giving 11:10 AM London. In Paris and Frankfurt, it's 12:10. Why is this important? Because you need to know that the stock market in a given country is OPEN, and has had time to stabilize after the usual early morning rush. When you have established that, you are ready to use the data from the exchanges in europe.

http://finance.yahoo.com/intlindices?e=europe

At present, there are 9 indices that are up between 1% and 2%. That looks like a rather strong opening in the US markets.

4. There is currently a correlation between the US indexes (DJI, S&P 500) and the price of Silver. That, too, changes from time to time, so watch it. If US indexes rise strongly, Silver will rise.

5. Now, I look for confirmation. I check Kitco often.

http://www.kitcosilver.com/charts.html

Silver has risen about $0.50 in the last 24 hours. It plateaued at about 04:00 EST (+5 gives 9 AM in London). That means that I will have to watch it carefully over the next few hours.

6. Synthesis: I anticipate a rather strong opening in US. I expect the Silver price to dogleg up a little more before profit takers move in. I will have sell orders already made out, and use them to book existing profits at the first serious sign of weakness. I will also be watching for any dip in prices, in order to buy again.

This kind of thinking is typical of my activities. I can't guarantee that it is THE BEST WAY, but it has provided my family with a few goodies.

So, Badeco, you can see that a lot of searching, a lot of reading, a lot of study goes into making the thing work. There is no simple answer. Having information on which to base your judgements is the key to the thing. not magic. And remember, don't try to make money. Try to raise your compounded rate of return per day.

crater

 

[Bakinec]

Quote from Badeco:

Hello traders,

I've been day trading full time for over 3 years now.
At this point in time I have experimented with multiple different models and strategies.

I've experimented with manual, semi-automated and fully automated trading systems for entering and exiting positions. I've traded stocks, options and futures and used different time frames for analysis.

I have to admit though that after over 3 years trying very hard, I am still unable to consistently win the day trading game. A system can work in some occasions but then in exactly the same setup it will fail and give back the gains. All in all, over time I've found it very difficult to generate revenues that would cover commissions and other costs and still generate profits.

See, that's the problem with a lot of traders.

Good thing I learned by painful experience early on that "systems", "strategies", and other such nonsense only serve to confuse a trader and lose him money.

KISS - the best system ever.

Look at a 1/5 min chart of the most popular futures or stocks. What do you see, how could you trade it?

 

[ProfLogic]

Quote from crgarcia:

I DID validate them!
Just search for my journals with REAL TIME TRADES!
Real time trades rule, everything else is after-the-fact photoshop BS!

The few trades you called absolutely did not validate your pathological claims of grand results. Post your statement and white out the account numbers. We all know you aren't bright enough to use Photoshop otherwise you would make such ridiculous statements about what I post.

Here is a link to a recent batch of reports for you to check out, if you are smart enough to unzip the file. (which we doubt)

https://download.yousendit.com/WTNMa3ZEb0JubHhjR0E9PQ

 

[NoDoji]

Quote from Gubinec:

KISS - the best system ever.

Look at a 1/5 min chart of the most popular futures or stocks. What do you see, how could you trade it?

That's what I did. I chose my preferred time frame, then studied charts at length until I found patterns X that resulted in price movements Y 60% of the time or better. I memorized these patterns both visually and descriptively, meaning I wrote down in words what was happening and memorized those descriptions until I got to the point I could see the pattern and immediately describe to another person what was happening, what was more likely to happen next, and why.

Getting from recognizing patterns on a static chart at the end of the day to recognizing the pattern forming in real time is a bit trickier. What I did each day is, I took a day's chart and scrolled the time window back until it looked just the way it did when I turned on my platform in the morning and the rest of the day's price action hadn't yet occurred. (I use an 8-hour time window on the 5-min chart and when I scroll back I can see the 8 hours price action leading into the moment I turn on my platform in the morning.)

I revealed one bar at a time until one of my high probability patterns appeared to be forming (the setup). At that point I knew that if price then did X, price action Y was more likely to follow than not. Price doing X was the signal to put on a trade. I quickly calculate where the stop loss will be placed, what a likely minimum profit target will be and if the risk:reward in that case is positive. If it qualifies, the trade is on when price triggers the entry.

Learning how to properly manage the trades required that I look into the 5-min price action via a 1-min chart so I could choose survivable stop loss placement, when to move stops to break even, when to take profits early, and when to let a winner run further than target.

Once you do all this enough times, then start trusting your setups in real time so you don't hesitate and miss out, then screw up lord knows how many times mismanaging trades because it always looks different at the raggedy right edge when price is actually moving back and forth, eventually the whole process becomes more and more routine, much like driving a car:

It's a nice day out (pullback long setup forming) and you want to drive up to the nearby mountain top (price should find support on this pullback, head back up and break to a new high), so you get in the car (place a buy stop just above this pullback bar's high), start the engine (price triggers a trade entry), fasten your seat belt (place a protective stop just below the pivot low), and head on your merry way without much conscious thought about it, until you either reach the mountain top (profit target attained), or something happens that prevents you from reaching your goal - you take a wrong turn and get lost (mismanage the trade), the car breaks down (setup fails and you exit break even), you get in an accident (stop loss is hit, but the injury is minimal as a result of it).

 

[ugz]

sounds like you tried too hard to find one thing that would really work for you.

 

[BeingProfitable]

Quote from crater:

Hello, BeingProfitable. Nice post -- very thought provoking.

I would like to pose a question to you on efficient markets. If my concepts are out of whack, let me know.

When we talk of efficient markets, we are assumiing a set of knowledge which becomes widely known to all investors, and which impels them to act in certain ways. Agreed?

But in the REAL world, if we look at n investors, traders and little old ladies, we will find not ONE set but many sets. There are bound to be similarities, such as those which tend to be relied on by scalpers as opposed to those which tend to be relied on by dividend seekers. So the number of unique sets would be somewhat less than n.

What does this do to the research in efficient markets? Instead of considering a single set, we find many groups of overlaying and interlocking belief systems, all of which (supposedly) get their information simultaneously. We get a vast, complex VENN DIAGRAM of market precepts.

Your thoughts?

If I understand you correctly, you are saying that given equal information, each group will percieve the information differently. In other words, each group gets the same information, but each group is going to form a different opinion on the information based on their belief system. Glass half empty, glass half full?

Is this correct?


Some more thoughts on efficient vs inefficient markets.

There is a tons of market related data and various methods to analyze the data in order to find correlation between previous events and future events. There have been many studies done where no method was found to predict future events from previous events thus the researchers conclude that the market are efficent and can't be timed. This is also the case with many new traders that have not found a method to predict future price movement. Thus they come to the same conclusion.

Now regarding those studies that have found some correlated patterns and thus make the conclusion that markets are not efficent. Most of these studies I'm aware of conclude that irrational human behavior is the best explination (Occam's razor), but the door is open for other possible reasons based on yet unknown information and analysis.

Based on my own experiences, I subscribe to the concept that the primal human emotions fear and greed, combined with hearding behavior drive markets to irrational levels creating booms and busts on multiple time frames. Thus is born the trend trader.

 

[pak]

I’ll take issue with u Hydro regarding “having an edge”…

First of all define this edge in trading-is it + 2%/4%/10%?
You can still easily lose WITH AN EDGE if u bet too big with a finite bankroll (like all of us)

Lets even assume thru backtesting/sim trading you have an edge…but my point is:
CAN you execute flawlessly-even after losing 3-4 in a row? 99% cant follow a plan-even a winning one.

MOST of you seriously underestimate the IMPORTANCE of the psychology of the trader and the powerful battles between fear & greed and the emotional effect losing does to all of us (our ego).

I stand by my statement about WHY people lose…

 

[konviction]

While day trading is hard to make a living at, I don't think it should be singled out. Trading in general is hard for reasons a mile long.

 

[crater]

Quote from BeingProfitable:

If I understand you correctly, you are saying that given equal information, each group will percieve the information differently. In other words, each group gets the same information, but each group is going to form a different opinion on the information based on their belief system. Glass half empty, glass half full?

Is this correct?


Some more thoughts on efficient vs inefficient markets.

There is a tons of market related data and various methods to analyze the data in order to find correlation between previous events and future events. There have been many studies done where no method was found to predict future events from previous events thus the researchers conclude that the market are efficent and can't be timed. This is also the case with many new traders that have not found a method to predict future price movement. Thus they come to the same conclusion.

Now regarding those studies that have found some correlated patterns and thus make the conclusion that markets are not efficent. Most of these studies I'm aware of conclude that irrational human behavior is the best explination (Occam's razor), but the door is open for other possible reasons based on yet unknown information and analysis.

Based on my own experiences, I subscribe to the concept that the primal human emotions fear and greed, combined with hearding behavior drive markets to irrational levels creating booms and busts on multiple time frames. Thus is born the trend trader.

HI, BEINGPROF...

A few more words at you.

You asked: "given equal information, each group will percieve the information differently". Yes, I think so. Here's an example. Let's say a large new open pit mining operation is floating a new issue of stock. Two different groups of investors voice their opinions on the stock. The Mining Interests, Heavy Equipment Mfgrs. and the like view the stock as a good bet. The Environmentalists, on the other hand, view it as a disaster. Here the value of the stock is not the central issue at all. The central issue it the strength of the BIASES of the proponents versus the detractors. The people here on ET who talk about Psychology may have a very good point. Your use of "Herding Behavior" probably sums it up.

----------

DEFINITION OF EFFICIENT MARKETS BY NYU PROF:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/invemgmt/effdefn.htm

What is an efficient market?

* Efficient market is one where the market price is an unbiased estimate of the true value of the investment.
* Implicit in this derivation are several key concepts -

(a) Market efficiency does not require that the market price be equal to true value at every point in time. All it requires is that errors in the market price be unbiased, i.e., that prices can be greater than or less than true value, as long as these deviations are random.

(b) The fact that the deviations from true value are random implies, in a rough sense, that there is an equal chance that stocks are under or over valued at any point in time, and that these deviations are uncorrelated with any observable variable. For instance, in an efficient market, stocks with lower PE ratios should be no more or less likely to under valued than stocks with high PE ratios.

(c) If the deviations of market price from true value are random, it follows that no group of investors should be able to consistently find under or over valued stocks using any investment strategy.


COMMENTS:

In the above, references are made to "Random" prices. I would like to present an example of a random price, but since even a limited definition of a random number would allow integers as long as, say, 1,412,782 digits or more, I have decided not to waste the bandwidth.

So, with a price of $10.50 at the close Monday, might we reasonably expect a price like $10^7???

Hogwash! PRICES ARE NOT, IN TRUTH, RANDOM.

They fall within a closely associated range, seldom going outside that range except in cases such as stock splits and buyouts.

I can go a bit further, and say for a fact that they DO NOT FOLLOW A NORMAL DISTRIBUTION CURVE OVER THE SHORT TERM. Try it out. You will find that over the short term, they are often highly skewed. And that is exactly what you need to consistantly make profits in the market. J. P. Morgan was right when he said "The market will fluctuate".

The upshot of this note is simply to affirm that the concept of efficient markets is silliness, rooted in a misunderstanding about a basic concept of math.

Now, the question as to whether these price deviations in the NYU definition are uncorrelated with any observable variable:

Suffice it to say that I would change the wording to something like: are uncorrelated with the results of any commonly used method.

----------

A Final Thought:

Correlations can easily HIDE RELEVANT RESULTS. We all have come to rely on correlations to disclose relationships between datasets. It is not difficult, however, to make up data in which an important relationship will be hidden by the low value (near zero) of the result. Thus, instead of correlations, I always do a scatter diagram and examine it for places where a relationship may exist even though other values would obscure it if they were considered as well.

Have fun,

crater

 

[crgarcia]

Quote from ProfLogic:

The few trades you called absolutely did not validate your pathological claims of grand results. Post your statement and white out the account numbers. We all know you aren't bright enough to use Photoshop otherwise you would make such ridiculous statements about what I post.

Here is a link to a recent batch of reports for you to check out, if you are smart enough to unzip the file. (which we doubt)

https://download.yousendit.com/WTNMa3ZEb0JubHhjR0E9PQ

I'm not a fool:
Zip files may contain a virus.

Is that all you have?
Trying to send me a virus, because you can't post arguments to validate frequent trading.
So we can safely conclude that deep inside, ProfLogic agrees with my posts.
Anyone else who agrees with my posts?