How do I develop my day trading strategy?

[NeedToLearn]

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.

I think he mentioned closer to 90% counting the break-even trades. If he starts slipping below 80% for the day, he takes a break as its usually him starting to make mistakes and losing focus.

I'm a little confused though, are you saying that all successful methods executed perfectly just ends up with the same return whatever the time frame?

 

[NeedToLearn]

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

Sure. Where is the high and where is the low? The good old mean reversion eih?

 

[NeedToLearn]

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?).

Thanks for this. I'm assuming the volatility here is referring to the length of current swings?

 

[fan27]

Why not master trading the daily time-frame first, and then move to shorter time frames.

fan27

 

[soulfire]

First off, what are your expectations? Are you aware of the high failure rate (90%+) of those who try, but ultimately fail at consistent profits via day trading? You need to ask yourself what you feel is different about you that will enable you to succeed in a field with such a high failure rate? I think too many people gloss over this fact too quickly and focus instead on dreams of making "easy money". As the saying goes, if this were easy, everyone would be doing this.

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.

All good things start with a plan - where you can focus on what your strategy is- from where your trading rules will come. It sounds like right now you are "dabbling" in multiple areas (stocks,options,futures,investing,trading) without a clear direction/plan.

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

You've been all over the board in trying out different investment/trading vehicles in a span of just 2 years. You are still a rookie, and there's no offense meant in that. It can take many years or even decades to become a proficient trader to the point of being able to earn a living- 2 years is a drop in the bucket. A better measurement would be how many hours have you put in learning/practicing? Most successful traders will tell you at least 10,000 hours were spent if not much more developing their skills.

The best part about learning about trading is also the worst part - you have no constraints other than to figure out a way to earn profits with a ton of different indicators and methods for you to consider. Your first task if you want to be thorough is check out all of them over a period of weeks and see if you have a preference over time. Trading simulations are great for this where you can test the waters without risking capital. Does this take time? Yep, and that's to be expected. Get rich quick and trading are only used together by scam artists trying to sell your something and the lazy/greedy looking for short cuts that are willing to buy.

You have to anticipate being on the hamster wheel of trying different things, without making any progress. The key is being diligent to keep working through your problems until you develop enough insight to get you off the wheel.

This is part of your trading plan development - taking notes of what worked, what didn't, and any connections you think you see. It can be monotonous and pain staking, but you are dealing with a free market that is essentially a moving target so it should be a given that it will take time to understand its movements to the point of being able to exploit them.

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?

You're putting the cart before the horse. Forget about looking for a particular strategy with a certain implementation. You have to answer the question "When should I enter/exit the market to generate a profit?" Once you are able to answer that question through your own extended research and trial/error, then you will be able to see about modifying it for a particular strategy.

Keep your mind open to find ANY solution, not specific strategies.

One person can swear by a certain method while another will call that same method bogus. What matters is you finding something that you feel comfortable with that you can hone and improve over time.

I can tell you that I read lots of trading books and they are a blessing and curse. They will give you structure to start out at the beginning when you don't know how to proceed, but they can also put up invisible walls that hold you back from developing the insight to create your own working method, rather trying to find a solution from the book. Book "solutions" can be a goose chase where they present past methods that no longer work or are subject to so much interpretation that you can't duplicate. That same can also apply to trading courses. The best solution is going to come from you.

 

[lawrence-lugar]

been trying to figure this game out for almost 2 years
painful process

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

really appreciate some guidance on this matter

Some of you people replying type long; gets crazy, Confusing, and boring.

Learn to Predict (and/or manage) the Future. That's it. That's the Secret...to Riches in the market.
Sounds very basic, but also very profound...the more one thinks and contemplates it,

You mentioned "consistent profits"...nothing in the market is essentially consistent.
You have to be prepared to experience relatively moody major swings in profits (and losses).

Those magical indicators you use to trade are a joke. Stop using them to seek endless Market gold.
Look at things from a collective, different perspective. -- Don't be a dumb steel pole, be a malleable soft flexible bar of taffy,

Indicators are like the Titanic crashing into the iceberg.
That could have slightly, possibly, been avoided...if things and variables and perspectives were different -- and more within your control and favor,

be an ET, ET
Free your mind.

 

[Muffhands]

Buy deep in the money calls (0.7-0.8 delta), 9-12 months out on stocks you like for the long term, or even on spy/qqq if you want less risk. and then you wait. That's it. Don't make your life complicated. You will reap huge gains without the stresses and complications of daytrading. The leverage will allow you to stay 50-60% cash for rolling/opportunities/fixedincome. Thank me later.

 

[birzos]

I think he mentioned closer to 90% counting the break-even trades. If he starts slipping below 80% for the day, he takes a break as its usually him starting to make mistakes and losing focus.

I'm a little confused though, are you saying that all successful methods executed perfectly just ends up with the same return whatever the time frame?

Breakeven isn't a win, but anyway. There are four return categories: 1-2%; 3-5%; 7-10%; 15-20%. The latter is how people become billionaires compounding $1,000 monthly over 15-20years.

The standard*, based on an exponential curve, is 1-2% return, you then have all the combinations, timeframe, probability, capital, experience, trades per day. A low probability 1mn trade will net one trade per hour with high losses, a 100ms high probability will net one trade per hour with high wins.

A 240mn high probability will net one trade per quarter with high wins, but you need more capital to offset the timeframe. On low timeframe I generate 3-5%, higher volume so put in less effort, and high timeframe 15-20%, all high probability.

The markets are perfected that whichever way you slice it, you will generate the same return range for a balancing combination. It is why the failure rate is so high, you have to find the combination of all factors that fit your specific circumstances.

Many will pass through the matching combination, but they are in such a rush to make profits, they ignore it because it doesn't match their expectations, the process is too slow, and they need to much capital with insufficient experience and technology.

We use a $100,000 piece of software to re-recalc per timeframe per instrument every 50ms, it's taken four months to make it production ready and one year of design. The #markets including those in the top1% will punish people with high expectations by stripping their capital, which is all the market participants care about.

All roads lead to Rome.


* Now, there is a group who can generate returns outside of the combinations, however their input is more than their output. This does not concern them, but it has a material impact on their life outside of trading, along with those they interact with. This is the foundation of most commentary in financials, the logarithmic curve, it is also a sure fire way to destroy your account if you are not in that specific group, which leads us full circle to #.

 

[digitalnomad]

Buy deep in the money calls (0.7-0.8 delta), 9-12 months out on stocks you like for the long term

DITM calls with .7-.8 delta? I'm no option whiz, but does this not sound right?

 

[wrbtrader]

First off, what are your expectations? Are you aware of the high failure rate (90%+) of those who try, but ultimately fail at consistent profits via day trading? You need to ask yourself what you feel is different about you that will enable you to succeed in a field with such a high failure rate? I think too many people gloss over this fact too quickly and focus instead on dreams of making "easy money". As the saying goes, if this were easy, everyone would be doing this.

All good things start with a plan - where you can focus on what your strategy is- from where your trading rules will come. It sounds like right now you are "dabbling" in multiple areas (stocks,options,futures,investing,trading) without a clear direction/plan.

You've been all over the board in trying out different investment/trading vehicles in a span of just 2 years. You are still a rookie, and there's no offense meant in that. It can take many years or even decades to become a proficient trader to the point of being able to earn a living- 2 years is a drop in the bucket. A better measurement would be how many hours have you put in learning/practicing? Most successful traders will tell you at least 10,000 hours were spent if not much more developing their skills.

The best part about learning about trading is also the worst part - you have no constraints other than to figure out a way to earn profits with a ton of different indicators and methods for you to consider. Your first task if you want to be thorough is check out all of them over a period of weeks and see if you have a preference over time. Trading simulations are great for this where you can test the waters without risking capital. Does this take time? Yep, and that's to be expected. Get rich quick and trading are only used together by scam artists trying to sell your something and the lazy/greedy looking for short cuts that are willing to buy.

You have to anticipate being on the hamster wheel of trying different things, without making any progress. The key is being diligent to keep working through your problems until you develop enough insight to get you off the wheel.

This is part of your trading plan development - taking notes of what worked, what didn't, and any connections you think you see. It can be monotonous and pain staking, but you are dealing with a free market that is essentially a moving target so it should be a given that it will take time to understand its movements to the point of being able to exploit them.

You're putting the cart before the horse. Forget about looking for a particular strategy with a certain implementation. You have to answer the question "When should I enter/exit the market to generate a profit?" Once you are able to answer that question through your own extended research and trial/error, then you will be able to see about modifying it for a particular strategy.

Keep your mind open to find ANY solution, not specific strategies.

One person can swear by a certain method while another will call that same method bogus. What matters is you finding something that you feel comfortable with that you can hone and improve over time.

I can tell you that I read lots of trading books and they are a blessing and curse. They will give you structure to start out at the beginning when you don't know how to proceed, but they can also put up invisible walls that hold you back from developing the insight to create your own working method, rather trying to find a solution from the book. Book "solutions" can be a goose chase where they present past methods that no longer work or are subject to so much interpretation that you can't duplicate. That same can also apply to trading courses. The best solution is going to come from you.

soulfire,

Nice post and love the user name. My great uncle has a middle name as "soulfire". He moved from the Dakotas to Chicago and finally to Arizona with his family.

Thanks for the reminder of him.