Newb to trading, a little help with the basics long post

Quote from makosgu:

Allright Nwb... I like your attitude and especially your work ethic. .....
LOSSES
This is probably the toughest issue to deal with especially for a nwb. My worst loss on any single position is commision + a single tick. I feel that it is absolutely imperative to know that losses need never happen and thus the single most powerful trade is by far a wash/breakeven. Reason being is that losses only occur once the market moves back past your entry point, thereafter, losses accumulate. Any loss that accumulates after your entry is a Profit in the opposing position. Thus why hold onto anything that is losing? You'll find that Hope/Fear directly stem from the inaction to wash/breakeven. People fear the market moving back and thus exit too early, and hope that the market comes back so that there losing position can then become a winning position. Getting rid of these useless trading emotions can be regarded as an edge. I don't believe in edges but do believe that there is no place for these emotions. Some handle the emotions well and thus can manage large losses without too much heartache. The sooner one can deal with these trading emotions, the better. Personally, a wash disables both of these emotions.

With a wash. Imagine the worst case, a crap load of consecutive bars with the same exact range open and close. This is the worst case and your broker thanks you for the accumulated commission. However, no one else gains in this scenario either (well at least not on the immediate fractal, the sub fractal is possibly profiting unless your sub fractal is the T&S/Tape :cool: ). In this scenario, losses will be entirely to accumulated commission which IMO is always better than trades that continue to move against your entry. It's my belief that not washing is exactly like a deer in headlights. The deer (the trader), sees the market heading directly at them runs them over, and then past them. The damage is now done. Washing just gets you out of the way immediately. Most seam to get run over HOPING that the movement is only briefly against them (ie. a market accident). The failure to get out of the way was due to their fear of not having profited amongst other reasons, and suddenly the emotion turns into a hope of not having to realize a loss. Too many of these scenarios is bound to leave one a CRIPPLED trader (ie. blowout). Fortunately, should your worst case trade be a wash/breakeven, then you find that the above described worst case wash scenario is brief (a few bars). Then what... Ans. Profits immediately up ahead...

I hope that you may find some useful information in my comments...

Kindest Regards,
G33M4K (non-BEginner)
More...
Nice post, especially the losses part. Very well put. My experience exactly. :) And jomama, I like your willingness to learn and work at this and especially ask questions. Don't let anyone here discourage you and keep you from trading, but do listen to their words of caution. Good luck to you.
 
To the newb I would suggest two things. One is with the PDT rule and a full time job you might think about looking at weekly charts. You actually can get into some really nice trades.

My second is something that really helped me a lot. Learn about position sizing. This is where you risk the same dollar amount on every trade based on how far your stop is. This can get as complicated as you want, but here is a simple version. For the sake of testing a strategy I would use no more then %.5 of your account equity as what you risk, and would suggest %.10. You will need a cheaper broker so commissions don't kill you. Then figure out how many shares you can take on a certain trade that you lose only that amount ie a $1 stop you trade 100 share but $2 trade 50. On some stocks it might be as few as 10 shares. Who cares you are building a track record. You won't lose that $1000 nor will you make money, but you might learn how to trade and have a nice proven track record.

Also $700 is a huge amount of money if you only had a few thousand to trade with. I blew my self out a couple of time with an ameritrade account three to five years ago, but I learned a lot of crap that it could've been very costly to learn thinking I could day trade full time for a living.

Unfortunately Goodpunk6's journal I suppose shows that costly method of learning. Read that.
 
Ok Makosgu - I will see if I can do it on daily data, but doubt it based on my experience.

Im sure you know what an R-ratio is - if you take a 1 tick loss on average but 10 tick gains your reward to risk ratio is 10. Problem is you may lose 10 trades for every winner if you if have only a 1 tick stop.
 
Quote from nzbryant:

Ok Makosgu - I will see if I can do it on daily data, but doubt it based on my experience.

Im sure you know what an R-ratio is - if you take a 1 tick loss on average but 10 tick gains your reward to risk ratio is 10. Problem is you may lose 10 trades for every winner if you if have only a 1 tick stop.
More...

DOUBT

Your preconception is limiting as to what I do. That is ok because we all have different mentalities and thus it is important that you convince yourself of that which you will find to be effective. It is evident that we are very different in our approach.

My stop is precisely a C&R which after reading many of your posts, you are well aware of when to do it since it should be in your log. I put in a 1 tick stop ONLY at the precise point for reverses, C&R secures all the profits and provides the next REVERSE point. I found a bug in my code today and got to work late so I'm only +4 the bug ate up the remaining 5 from the HI-LO value that I always gun to exceed. I won't even mention the overnight results (a near double up)... :cool:

As for the R/R thingy, I don't do it simply because I find it to be irrelevant. I never know what my reward is ahead of time since that would be the prediction trap. The market runs it's course and I just simply keep up with it. My immediate risk is breakeven, my reward is whatever the immediate trend shells out. This is an always positive R/R and thus destroys the need to be conscious of R/R since I get rid of all losers ASAP. 10 washes in a row, 40 washes in a row, how many back to back washes have you ever encountered? I've had at worst seven in many weeks of automation and the net on the day was still higher than the H-L. I've even pulled the T&S from the tightest day seen over the last few years. The beauty is that all of this worst case scenario (C->C->CENTERING) precedes one thing always BO, FBO all of which I immediately prepare for. The weakness of automation, unfortunately, is the lack of discretion which undoubtedly would only help to really clean up points since I would precisely know when to bracket which is the exact tool that addresses the limiting case you fear. However, I'm lazy because of my full time day job so I settle for whatever the market shells out.

Another +1 just in writing this post.

WASH/REVERSE & REPEAT

BTW....

My apologies Nwb. I do not wish to disrespect you and therefore will refrain from this thread and stay on your topic.

Kindest Regards,
G33M4K (non-BEginner)
 
Quote from makosgu:

DOUBT

...

Kindest Regards,
G33M4K (non-BEginner)
More...

that was a darn good post, I hope it is not a cut & pate job, Jack would be so proud :D
 
Quote from jomama:

Good point, due to parent pressure I would probably have to get a job out of college no matter what. But because of the job market I'm looking at 2-5 months of applications and interviews (my friend with the exact same field of study took that long to find one). So I guess during that time I could explore trading.
More...

From your other post it sounds like you are way ahead of the curve so just keep at it. While looking for a job, do some more trading and see how it goes. This market is rough, not the time to jump into it full-time, you're better off working a full time regular job. See if you can automate your system or preset orders the night before. It is highly doubtful that it will be transferable to other markets, most emerging markets are way too volatile and the Euro is less volatile. You can also explore swing trading since you seem to have a knack for chart set ups, this way you easily integrate your trading with a 9-5 job.
 
Quote from makosgu:



...
LOSSES
This is probably the toughest issue to deal with especially for a nwb. My worst loss on any single position is commision + a single tick. I feel that it is absolutely imperative to know that losses need never happen ...
More...

i find his very interesting - do you enter with a market or limit order? with a market order (buying the ask / selling the bid) - you are down this one tick right from the start - with a limit order (trying to buy the bid / selling the ask) - you might miss most of your entries.

just curious...
 
Not sure if what I'm about to say will help you or hurt you so take it in stride (I'm sure many here have different attitudes about my approach). You have found a successful methodology and your recent results show this but I will say that what works today will probably not work in the near future.

Due to the cyclical nature of markets, it is my belief that the predictability of certain patterns varies under different market conditions (making predicting the outcome of any pattern on any given day a 50/50 bet in most cases - possibly better with sophisticated analysis methods). A pattern will work one day, fail the next and possibly not work again for some time. During the non-working periods you will face drawdown or best case not make or lose much. There are many non-chart based methods available, as with any methodolgy however, the trader is the weakest link.

With the above in mind, it is my belief that learning patterns is a great methodology but trading their make/break ratios alone will not be very profitable until you acquire enough wisdom/experience.

The entry/exit criteria should always be the foundation of any methodology, patterns will allow you to set good exit points because of the price action of a broken/made pattern, the earlier you know the trade is going to move against you, the less money you stand to lose. Saying this, I personally do not care about win/loss ratios because I have found them unrelated to profitable trading.

What matters is that when the market proves your bet to be correct you make a lot more money than you stand to lose when the market proves you wrong. This is akin to the saying "do what the market tells you to do" and this is why I believe entry points are not very significant. If the trade is moving in your favor you have to add to your position, this means that when entering any trade, test the direction of the market with a partial position. Once the position is confirmed, then execute the full size or much more depending on how strong your convictions are. This works well for a longer time frame such as the 5 day/3 trade limitation you are under.

You know these things already but they really are the fundamental truths : Add to winners, let the winners run and never add to losers unless your strategy allows for it. Always cut the trade when then chart isn't working as expected.

I'm repeating what most books will tell you if you decide to read them. The truth is that trading is not complicated but the psychology involved is. The rules are very simple and you will not survive without psychological discipline.

To go into some other stuff:

No, 500 is not a lot. I would say if you are well disciplined $10k-15k or 2k-3k 100 share trades (whichever comes first) will get you to a proficient skill level.

It is very dangerous to have early success.

You have to have the ability to hold YOURSELF accountable.

Could've, would've, should've will destroy you emotionally.

Upon execution good trades feel good, bad trades do not. Your body is a great gauge for this, listen to it.

Get a career started and keep trading like you are trading. Experience is the only teacher.

Regards,

Mike
 
Quote from gerry875:

i find his very interesting - do you enter with a market or limit order? with a market order (buying the ask / selling the bid) - you are down this one tick right from the start - with a limit order (trying to buy the bid / selling the ask) - you might miss most of your entries.

just curious...
More...

This has been and still is one of my biggest dilemma: when I trade stocks at the open, especially after earnings I have to place LMT orders 3-5 cent OTM to get a fill and if I try with MKT I risk to get fill 20 or more cent OTM.

Im still trying to get around it.
 
You must log in or register to reply here.
Back
Top