I'd like to become a better trader

[Laissez Faire]

Quote from NoDoji:

It's time to work, PO.

Yes, but would you agree that the most important work is done by backtesting and developing a strategy prior to entering a live environment?

Personally, I think trading in a live environment even if it is in the simulator is a waste of time if the foundation is not built in advance by backtesting market structure on historical data, learning how the market behaves and developing a plan for exploiting that. Then, the student can move on to a live environement.

Trying to learn in a live environment with price changing constantly, emotions pressing, etc, is simply not a good way to go about learning if the necessary foundation is not built. Further, it is not very effective use of time since by backtesting one can test one entire week or even more in the time it takes to sit through one entire trading day. Over the course of a few months, one can accumulate tremendous market experience compared to simply simulator trading each single day.

This is at least my experience spending quite a lot of time and effort struggling in a live environment, before poor results finally made me realize something had to be done. With the backtesting as suggested by NoDoji, I excelled much faster than I would have done had I simply continued and hoping things would change somewhere done the road.

Also, constantly struggling with emotions tells me that maybe the methodology is lacking? I think that is the cause far more often than not and that trading psychology may be an excuse for many traders.

So, where are you at, PO? Can you comfortably scroll a chart of historical data and trade it successfully day after day? If not, maybe it would not be a stupid idea to expend your efforts there?

Wishing you the best for 2012!

Regards.

 

[NoDoji]

Quote from Laissez Faire:

Yes, but would you agree that the most important work is done by backtesting and developing a strategy prior to entering a live environment?

Absolutely, but I'm under the assumption PO already did that because of the references to not following the plan. So now the work is to trade that plan and if having trouble with the plan, start writing things down or talking out loud to yourself or gathering a small group of fellow traders to Skype with, etc. to help keep yourself on track with the plan.

 

[Zen Student]

Quote from NoDoji:
Absolutely, but I'm under the assumption PO already did that because of the references to not following the plan. So now the work is to trade that plan and if having trouble with the plan, start writing things down or talking out loud to yourself or gathering a small group of fellow traders to Skype with, etc. to help keep yourself on track with the plan.

His plan doesn't work. No amount of trying to follow it will make him money. He can't stick to it because he knows it doesn't work.

Aside from talking to himself out loud, which I'm quite sure was intended as a joke, what would you suggest he do? Get a new plan or give up? Something else? Talk to a small group of fellow people who are having trouble following their plans too? In a support group? I think <a href="http://www.gamblersanonymous.org/ga/node/1" alt="group for traders">this group</a> might be a good resource.

 

[p3o]

Quote from Laissez Faire:

Yes, but would you agree that the most important work is done by backtesting and developing a strategy prior to entering a live environment?

I agree, could you please recommend a book that explains how to develop a system/strategy and backtesting it?

 

[Laissez Faire]

Quote from Zen Student:

Hello Blotto.

Quote from p3o:

I agree, could you please recommend a book that explains how to develop a system/strategy and backtesting it?

I don`t have any specific books that I can recommend on this from the top of my head, but the idea is very simple. I`ve read about it many places, but never really applied it until NoDoji made me aware of it once again on this board. You should look for some of her posts where she describes it in detail.

Rough draft (Not a linear process as you will go back and forth):

1) Study some books on technical analysis or whatever you want to use and learn the basic ideas.

2) Study historical charts, intraday, if you want to day trade. Lots of them. Look to see if you can find what you read about in the books. Maybe it`s there, maybe it`s not. Look for patterns that you can exploit. It could be as simple as deciding on trading only one single setup. For example, a triangle breakout.

3) When you have identified your setup and can observe it with ease on historical charts, you can start back-testing it by starting at the first bar of the day on the right edge and scroll to the right one bar at a time. Try to anticipate the next bar and look for the pattern you studied. "Trade" it and take notes. Rinse and repeat. Learn. Maybe you find that it is not profitable. Maybe that can be turned into something profitable. Failed patterns can provide entries as well.

4) After mastering step 3 and learning how to observe and exploit one or more market patterns on historical data, you can move on to simulator training. Now, prices are moving and it is a different ball game. Still, it is much the same. After mastering this level and trading consistently and realistically with low drawdown, move on to live trading with minimum size.

In between these steps and before you start trading with money and before your last serious period of simulator trading, you should have a written trading plan to guide your trading. It sounds easy, but it`s not. And it`s a lot of work.

Hope that was helpful.

 

[PO]

Quote from NoDoji:

It's time to work, PO. When you analyze the market at the time you turn on your platform, only analyze what you see, not what you think might happen (might go up, might go down). If there's a gap up overnight, write down three things price could do in the first 15-30 minutes after the open that would signal further upside and three things price could do in the first 15-30 minutes that would signal a deep retracement or even a gap fill.

Choose whether or not you want to trade any of those potential setups, then go for it. Once positioned, allow the trade to reach stop or target with no micromanagement UNLESS a reversal setup appears in which case you double your stop order and move the stop to the price at which the reversal would trigger (stop-and-reverse or SAR trade).

Keep a written journal in front of you and write down any thoughts that prevent you from trading a valid setup. Also write down any thoughts that are enticing you to trade before a bar closes, or while price is in no man's land (congestion/consolidation/barb wire/outside bars, etc).

If you're in a trade based on a valid setup, write down any thoughts you have about exiting early. Is there a good reason to do that, a reason that's part of your trading plan? If not, hold your ground.

The act of writing down those thoughts (by hand) forces you to stop and often recognize in advance that you're about to make an error that you generally regret every time you do.

Hope you are inspired to DO THE WORK; let us know how it goes.

Thanks ND, I actually do keep a journal of my trades, but I need to add my thoughts/emotional state of mind to it.

At the end of the day I review it and it helped me a lot already. I've noticed that I over-trade less when I keep a journal vs when I don't. It keeps me more disciplined.

 

[PO]

Quote from Laissez Faire:


So, where are you at, PO? Can you comfortably scroll a chart of historical data and trade it successfully day after day?

Yes I can. I can make money this way

My biggest problem is tight trading range days or tight trading range areas. - TTR

On historical charts time moves so much faster, that I have no problem avoiding TTR, on real time charts time is so much slower that I end up forcing trades.

May be it's because I loose the sight of a big picture. Big picture tells me it's TTR, but I'm sitting there, waiting, wasting so much time and forgetting the big picture. And instead thinking that I'm about to miss a big move. It's been so quiet, it must be coming and I get impatient, thinking that I know better and start trading imperfect set ups to anticipate a move.

I tried walking away, but that doesn't work because I do end up missing trades. May be I need to set up alarms for when the price moves out of the area of TTR.

Or may be I need to focus on something else, trade some other instrument, or read something and look on the chart only every 5 min.

I am trying to take only my set ups, but what happens is, I think, after staring at the monitor for a while and not making money I end up getting frustrated and I no longer think rationally. And bad set ups start looking good. I'm also trying to write down my thoughts, i'm hoping this will help.

How do you guys deal with that? Do you walk away or patiently sit there?

I'm going to reread the physiology of trading .

 

[Laissez Faire]

Quote from PO:
Or may be I need to focus on something else, trade some other instrument, or read something and look on the chart only every 5 min.

Are you saying that you enter trades because you are bored? I don`t think any amount of reading can prevent you from this bad habit, you just have to stop doing it. Not sure what else to say. Establishing dead zones in which you don`t trade and then use alerts while doing something else is not a bad idea. I`ve done it myself at certain times and I know that many traders do it, but usually I sit through the whole session.

Fair of missing a move is completely irrational with an instrument such as ES, but I`m sure you know that. It does pick up steam and momentum once in a while, but on average there is a lot of back fill which makes chasing very bad for your account.

How many instruments did you try out before you settled on ES? Why ES?

I think ES is one of the toughest markets to day trade and there are markets that may be easier for you to trade with less chop, more directional movement and momentum and most important, better R/R on your average trade.

Not saying it will solve all your problems, but I have heard of traders who did really bad with a certain approach only to discover that they really excelled in another market or with another methodology.

So, if you did not consider a bunch of other markets before settling on ES, I would give it some thought.

 

[ammo]

Quote from PO:

I am trying to take only my set ups, but what happens is, I think, after staring at the monitor for a while and not making money I end up getting frustrated and I no longer think rationally. And bad set ups start looking good. I'm also trying to write down my thoughts, i'm hoping this will help.

How do you guys deal with that? Do you walk away or patiently sit there?

I'm going to reread the physiology of trading . [/B]

sitting on your hands or not trading is as important if not more than trading,trading without a setup is when you give it back,post " is it a setup" on your monitor,ask yourself this before each trade if not,don't take it,no matter how much you make you will never be able to hang on to it til you master not trading

 

[NoDoji]

Quote from PO:

How do you guys deal with that? Do you walk away or patiently sit there?

I no longer walk away because I would miss the breakout when it finally occurred. I can't just patiently sit there because I'll either chew my leg off or start hallucinating setups where none exist.

My solution is to log into Skype where I try to interpret whether Jeff's dog is signaling a "buy" or a "sell", and Jer calms me down by repeating the Al Brooks price action prayer for avoiding silly losses: "Wait for clarity."

In all seriousness, a sound that alerts you when price breaks out of the range could definitely be helpful. How would you set that up, ideas anyone?