How do I develop my day trading strategy?

[NeedToLearn]

Okay, so I have been trying to figure this game out for almost 2 years. It's been a painful process. Started in stocks as investments in 2012 (which wasn't bad obviously in this bull market) then got into options selling premium (worked for awhile but found out, I'm essentially standing in front of a steamroller, the hard way. 2015 August anyone?). Finally, I decided to get into day trading futures.

As a rookie, I did try bunch of indicators, candle patterns, Fibonacci patterns, etc etc. but was never able to make consistent profits.

My issue is, after having tried this and that, I realized I need to really develop my own strategy first but I do not know exactly where to begin.

Let's say I'm looking for a strategy that trades anywhere between 3-10 times per day and would prefer a hard stop, how would you do it? What type of chart would you use? (tick? renko? minute? etc.) How many different charts would you look at? In other words, what are the variables?


I remember one guy scalped the ES 40-50 times per day for 1-3 ticks at a time with 70-90% success rate. He mentioned a lot of it were break-even trades but still. He used tick charts and might have had 1 minute chart on the side but not sure if he used them (no DOM or orderflow). How would someone develop this kind of strategy?

I'd really appreciate some guidance on this matter as I feel rather lost in how to advance from here on out.

 

[Xela]

Let's say I'm looking for a strategy that trades anywhere between 3-10 times per day and would prefer a hard stop, how would you do it?

I trade between 3 and 10 times per day (always with a hard stop), so for better or worse, your parameter has drawn a post in response out of me.

Probably it will help you to read textbooks specifically designed to explain "How to develop your own trading system". There are several (not to mention parts of other textbooks not written specifically to answer that question). Both Van K. Tharp's Trade Your Way to Financial Freedom and Tushar S. Chande's Beyond Technical Analysis are potential starting-points, if you haven't read them. So - in a very different way - is Michael Harris's Profitability & Systematic Trading.

Personally, I'd also strongly recommend Bob Volman's books, for what you want to try to do.

I'd advise you not to be put off by the fact that many such books aren't aimed specifically at people wanting to trade 3 - 10 times per day, because "charts are charts" and they're fractal to a large degree, and you can learn a lot that wasn't written for your specific objectives but is still perfectly valid when applied to them.

What type of chart would you use?

Personally I would use relatively fast-moving constant-volume bars (and apply everything I learned from Volman and Al Brooks to them - but I'm biased on this question, because that's just how I happen to make a living, myself), and that's just what works for me - it might not be what you want, at all.

(tick? renko? minute? etc.)

Personally, I don't like tick charts because of the way they don't distinguish between small and large orders. I don't know enough about Renko to comment on it. I don't use timed charts at all. Again, this may be as much "personal preference" as anything else.

How many different charts would you look at?

I'd look at one instrument, but at several different time-frame/tick-count/volume-parameter charts for it: the one I'm trading from and one or two higher/slower ones, as well as being aware of significant levels of support and resistance from longer ones than those, too.

In other words, what are the variables?

I'm not quite sure what you're looking for, as an answer to that one(?).

I remember one guy scalped the ES 40-50 times per day for 1-3 ticks at a time with 70-90% success rate.

There are people who do that, certainly. It's very highly specialist and I think they're people with quite a lot of successful experience (probably for years?) before they try to do that. And for sure, very, very few of the successful ones are retail traders (and I strongly suspect that most of the ones who are, are ex-institutional traders, anyway). I certainly wouldn't fancy ES nowadays as the instrument of choice for that approach, myself, either.

I honestly don't know whether any of my comments above will actually be helpful to you, though ... but welcome to EliteTrader, anyway.

 

[wrbtrader]

Okay, so I have been trying to figure this game out for almost 2 years. It's been a painful process. Started in stocks as investments in 2012 (which wasn't bad obviously in this bull market) then got into options selling premium (worked for awhile but found out, I'm essentially standing in front of a steamroller, the hard way. 2015 August anyone?). Finally, I decided to get into day trading futures.

As a rookie, I did try bunch of indicators, candle patterns, Fibonacci patterns, etc etc. but was never able to make consistent profits.

My issue is, after having tried this and that, I realized I need to really develop my own strategy first but I do not know exactly where to begin.

Let's say I'm looking for a strategy that trades anywhere between 3-10 times per day and would prefer a hard stop, how would you do it? What type of chart would you use? (tick? renko? minute? etc.) How many different charts would you look at? In other words, what are the variables?


I remember one guy scalped the ES 40-50 times per day for 1-3 ticks at a time with 70-90% success rate. He mentioned a lot of it were break-even trades but still. He used tick charts and might have had 1 minute chart on the side but not sure if he used them (no DOM or orderflow). How would someone develop this kind of strategy?

I'd really appreciate some guidance on this matter as I feel rather lost in how to advance from here on out.

You've already answered part of your own question via someone that told you he's trading 40 - 50 times per day for a few ticks while in contrast you only want to take 3 - 10 trades per day.

Its simple, don't do what that guy is doing. That's the basic right there.

Yet, the rest of your question implies you don't know what the hell is going on. For example, if you prefer to use a hard stop...what's preventing you from putting in a hard stop ?

Another example, getting back to that guy...if you knew he was using "tick charts" to help generate 40 - 50 trades...why would you earlier ask a question about what type of chart would you use (tick, renko or minute?).

Its obvious you would not use tick charts because its what that other guy was using that you seem to not like what he was doing.

My point, concentrate on one thing. You could just concentrate on opening up you charts and determine on your own what types of charts you're comfortable with. Maybe you like 5min charts, maybe you like 15min charts, maybe you like 1hour charts, maybe you like bar charts, maybe you like candlestick charts, maybe you like line charts or maybe you may decided not to use charts...just DOM info only.

Just start there to figure out what type of charts you prefer to use instead of asking to be spoon fed although you didn't use those exact words. I guess I'm trying to say that you should determine what resources (e.g. charting) prior sitting down trying to put together a trade method.

After you decide on what type of charting to use (you did mentioned you've traded before)...figure out what you want to trade and then move forward from there on your own without someone telling you what you should trade.

 

[NeedToLearn]

I trade between 3 and 10 times per day (always with a hard stop), so for better or worse, your parameter has drawn a post in response out of me.

Probably it will help you to read textbooks specifically designed to explain "How to develop your own trading system". There are several (not to mention parts of other textbooks not written specifically to answer that question). Both Van K. Tharp's Trade Your Way to Financial Freedom and Tushar S. Chande's Beyond Technical Analysis are potential starting-points, if you haven't read them. So - in a very different way - is Michael Harris's Profitability & Systematic Trading.

Personally, I'd also strongly recommend Bob Volman's books, for what you want to try to do.

I'd advise you not to be put off by the fact that many such books aren't aimed specifically at people wanting to trade 3 - 10 times per day, because "charts are charts" and they're fractal to a large degree, and you can learn a lot that wasn't written for your specific objectives but is still perfectly valid when applied to them.






Personally I would use relatively fast-moving constant-volume bars (and apply everything I learned from Volman and Al Brooks to them - but I'm biased on this question, because that's just how I happen to make a living, myself), and that's just what works for me - it might not be what you want, at all.





Personally, I don't like tick charts because of the way they don't distinguish between small and large orders. I don't know enough about Renko to comment on it. I don't use timed charts at all. Again, this may be as much "personal preference" as anything else.





I'd look at one instrument, but at several different time-frame/tick-count/volume-parameter charts for it: the one I'm trading from and one or two higher/slower ones, as well as being aware of significant levels of support and resistance from longer ones than those, too.





I'm not quite sure what you're looking for, as an answer to that one(?).





There are people who do that, certainly. It's very highly specialist and I think they're people with quite a lot of successful experience (probably for years?) before they try to do that. And for sure, very, very few of the successful ones are retail traders (and I strongly suspect that most of the ones who are, are ex-institutional traders, anyway). I certainly wouldn't fancy ES nowadays as the instrument of choice for that approach, myself, either.

I honestly don't know whether any of my comments above will actually be helpful to you, though ... but welcome to EliteTrader, anyway.

Thank you for that answer! I will start with the books you recommended

 

[NeedToLearn]

You've already answered part of your own question via someone that told you he's trading 40 - 50 times per day for a few ticks while in contrast you only want to take 3 - 10 trades per day.

Its simple, don't do what that guy is doing. That's the basic right there.

Yet, the rest of your question implies you don't know what the hell is going on. For example, if you prefer to use a hard stop...what's preventing you from putting in a hard stop ?

Another example, getting back to that guy...if you knew he was using "tick charts" to help generate 40 - 50 trades...why would you early say what type of chart would you use (tick, renko or minute).

Its obvious you wouldn't use tick because its what that other guy was using.

My point, concentrate on one thing. You could just concentrate on opening up you charts and determine on your own what types of charts you're comfortable with. Maybe you like 5min charts, maybe you like 15min charts, maybe you like 1hour charts, maybe you like bar charts, maybe you like candlestick charts, maybe you like line charts.

Just start there to figure out what type of charts you prefer to use instead of asking to be spoon fed.

I asked about how I can start developing a strategy and im expecting to be spoon fed? Sorry if I offended you somehow by asking questions. I'm prepared to do the leg work but I would rather have some guidance from someone who has walked the path successfully to get there than to only find out 2 years later everything ive done was waste of time and energy. I never asked for your specific strategy but I'm trying to find out "how" I should work at it. One would suffer less damage and improve faster if an expert gave some tips no? I always find someone to learn from and develop my own style at any sport or subject since I'm not a genius or a super athlete.

I agree that I shouldn't try to copy exactly what others do. I only mentioned the scalper because I wanted to know what the "process" of developing such strategy is not because I wanted to do what he does.

I mentioned hard stops because that is what I feel comfortable with but I do not know how to properly place them so that my trades don't suffer immaturely.

Anyway, thanks for stopping by to give your thoughts here. Appreciate it.

 

[Sprout]

Start with understanding the basic grandularity of the markets - all price action can be distilled to ten price cases and eleven volume elements. These elements are within an interlocking and intra-nested fractal pattern. A complete methodology builds on those basic concepts. The market operates via an event based orientation spanning/jumping timescales.

Just reading about them won't change your perceptions, doing drills will.

Not excluding current company, the ET archives have deep rich veins of knowledge posted by those with decades of market experience.

 

[birzos]

Okay, so I have been trying to figure this game out for almost 2 years. It's been a painful process. Started in stocks as investments in 2012 (which wasn't bad obviously in this bull market) then got into options selling premium (worked for awhile but found out, I'm essentially standing in front of a steamroller, the hard way. 2015 August anyone?). Finally, I decided to get into day trading futures.

As a rookie, I did try bunch of indicators, candle patterns, Fibonacci patterns, etc etc. but was never able to make consistent profits.

My issue is, after having tried this and that, I realized I need to really develop my own strategy first but I do not know exactly where to begin.

Let's say I'm looking for a strategy that trades anywhere between 3-10 times per day and would prefer a hard stop, how would you do it? What type of chart would you use? (tick? renko? minute? etc.) How many different charts would you look at? In other words, what are the variables?


I remember one guy scalped the ES 40-50 times per day for 1-3 ticks at a time with 70-90% success rate. He mentioned a lot of it were break-even trades but still. He used tick charts and might have had 1 minute chart on the side but not sure if he used them (no DOM or orderflow). How would someone develop this kind of strategy?

I'd really appreciate some guidance on this matter as I feel rather lost in how to advance from here on out.

Sure. A 1% profitability success for traders, where you have 60mn trading once per day for low probability setups, giving a ~80% failure rate for 1-2% return per month. That means your 20% profits need to offset the 80% failures, so we take 3-5trades per day which on low probability would be 1mn charts, around one per hour. If you take a mid-probability strategy in a 60/40 range you will move to one per day, and high probability with a ~80% success rate is one per week, so you need to drop down to 100ms to have 3-5 high probability trades per day, this is what I trade these days.

Your scalper at 40-50 times per day with ~80% success seems on the high side, if that 80% is including breakeven it would be about right, so a mid-probability setup. Now the difficult part, unless you have years, ideally decades of experience the simple answer is, no. You need to adjust your expectations, push the timeframes out on your charts, or you need to push out your timelines for your training, not many people can trade at HFT timeframes, let alone make a profit. There are many combinations but all roads lead to Rome, however keep all indicators as default settings, you will have more important things to worry about, plus there is a Market Wizards about a scalper, it's an interesting read.

 

[Xela]

I mentioned hard stops because that is what I feel comfortable with but I do not know how to properly place them so that my trades don't suffer immaturely.

In that case, I offer two observations on this front, one general and one more specific ...


1. Be aware that however you end up deciding to do it, it will never be perfect: there will always be times (and maybe many times) that "some other method" would have been better on that occasion. This doesn't matter, and is normal. What actually matters is to have a relatively easy method of doing it that suits your own trading style and doesn't work out significantly worse overall than any other sensible method. (Sounds easy - but it may still take a lot of work, testing and analysis to come up with "your method"!). Whatever you do that's sensible, you'll still sometimes be stopped out prematurely on a trade which promptly reverses and goes in "your direction" after all - as we all are. A shame, when it happens, but you can often still mitigate the damage by re-entering.

2. I suggest that you don't use a fixed number of points/ticks/pips to determine your stop-loss: let the position of the initial SL be related both to the current volatility, and to your perception of currently relevant levels of probable support/resistance (which you guess from previous levels of S/R, especially levels of multiple touches and recent touches). An example of a way of doing this might be to put the initial SL for a long trade just under the most recently formed swing-low, and vice versa for a short trade: just above the most recently formed swing-high. I don't suggest that that's the "right way", but it's one way, and certainly a reasonable one for the kind of trading I think you probably want to try to do. In other words, "let the chart and TA determine your stop-loss" ( ... and maybe your targets, too?).

 

[wrbtrader]

I asked about how I can start developing a strategy and im expecting to be spoon fed? Sorry if I offended you somehow by asking questions. I'm prepared to do the leg work but I would rather have some guidance from someone who has walked the path successfully to get there than to only find out 2 years later everything ive done was waste of time and energy. I never asked for your specific strategy but I'm trying to find out "how" I should work at it. One would suffer less damage and improve faster if an expert gave some tips no? I always find someone to learn from and develop my own style at any sport or subject since I'm not a genius or a super athlete.

I agree that I shouldn't try to copy exactly what others do. I only mentioned the scalper because I wanted to know what the "process" of developing such strategy is not because I wanted to do what he does.

I mentioned hard stops because that is what I feel comfortable with but I do not know how to properly place them so that my trades don't suffer immaturely.

Anyway, thanks for stopping by to give your thoughts here. Appreciate it.

Your welcome.

This forum has an excellent search menu that you can use to see hundreds of history of posts that asked questions just like yours. Thus, you can see all the replies to those questions as if you were the person that asked them in the past. You will then see that the replies in this thread are very similar like as the replies in the past.

Simply, the replies so far in this thread are excellent...just like all the other threads in the past just like this one.

In fact, I highly recommend you read the post history of those that have given you good replies in this thread because they have a good history of good replies to others on other trading related issues. Thus, what they've said in the past that may not be important now...may be important at a later date.

As for my own reply...I intentionally was being a little sarcastic. Also, you didn't offend me...I have a thick skin or maybe a thick head too. Yet, I've been here a long time and I've seen questions like yours so many times that I've lost count. Therefore, I recommend you use that search menu here a lot especially when reviewing the post history of those replying to you...there really is some good info there in the post history of those that have given you good advice.

Good luck and trading isn't that easy because of the work involved. The work alone will make it feel like you have another full time job.

 

[motif]

Okay, so I have been trying to figure this game out for almost 2 years. It's been a painful process. Started in stocks as investments in 2012 (which wasn't bad obviously in this bull market) then got into options selling premium (worked for awhile but found out, I'm essentially standing in front of a steamroller, the hard way. 2015 August anyone?). Finally, I decided to get into day trading futures.

As a rookie, I did try bunch of indicators, candle patterns, Fibonacci patterns, etc etc. but was never able to make consistent profits.

My issue is, after having tried this and that, I realized I need to really develop my own strategy first but I do not know exactly where to begin.

Let's say I'm looking for a strategy that trades anywhere between 3-10 times per day and would prefer a hard stop, how would you do it? What type of chart would you use? (tick? renko? minute? etc.) How many different charts would you look at? In other words, what are the variables?


I remember one guy scalped the ES 40-50 times per day for 1-3 ticks at a time with 70-90% success rate. He mentioned a lot of it were break-even trades but still. He used tick charts and might have had 1 minute chart on the side but not sure if he used them (no DOM or orderflow). How would someone develop this kind of strategy?

I'd really appreciate some guidance on this matter as I feel rather lost in how to advance from here on out.

Buy the lows, sell the highs...still works.