lol
November Trading Journals
- Thread starter Hitman
- Start date
Without going into details of my precise trading system, I have no problems talking about some of its components, which may give others ideas on how I approach the markets.
First, when I said opening bar it means an order was filled on the opening bar of whatever time frame I'm following. I use both a short-term and long-term time frame, primarily 3m, 30m, and 60m bars. The market is S&P futures, where many system traders go mining for gold.
Ok, here are the main components that intersected to generate a buy signal. A robust system will several different components, and an entry or exit signal is generated with specific combinations. A lot of book pushers talk about looking at the markets "in 3D" or using confirming indicators or "triple screens" etc. This is basically the same thing but I believe my techniques are much more robust than those book pushers.
To follow my analysis you will need to look at a 30m and 60m SP01Z chart.
[1] Pre-entry component: First thing I do before the market trades is look at where S&P's are going to open. This easy just look at the Globex session. If the market is going to gap open above or below yesterday's range then I require a different set of signals to generate a trade than if the market were to open within the range of yesterday's high-low.
[2] Pre-entry component: My system is always aware of support/resistance. Specifically, I look at 30m and 60m bars for support & resistance. There is no subjectivity here, I use a simple highest-high and lowest-low period to determine support & resistance. If prices behave a certain way X% above support, that is a bullish signal. If prices breaks through support that is a bearish signal. Notice that Wednesday's low was significant support, tested several times in past week, and also the top of the opening gap on 11/13. If you don't believe that S/R can help you increase risk/reward then you can stop reading right here.
[3] Pre-entry component: Run a statistical test on this RSI(5). Take 60m bars. Now look at all the times that the RSI(5) <20 or >80. For every time that the RSI(5) stayed <20 or >80 for 3+ bars, after RSI(5) is no longer <20 or >80, look at what % of the time price will move above the highest high of first RSI(5) bar <20; or below lowest low of first RSI(5) bar >80. Look 7-14 bars after the RSI is no longer overbought/oversold. I used 7-14 because 7 is one full trading day. No optimization here, you can use different RSI period or different lookahead period, the point is to look at what tendency prices have after this happens. Some people fashion enter trading systems around just the RSI and an MA. I haven't had much success with a specific use of an RSI, but here I use it as a general signal. If I told you that you had a X% chance the price would be higher Y% in the next Z bars you could make trade with statistical probability in your favor. In the worse case, if this is just coincidence, it's 50/50 anyways, but I believe it is not coincidence. Simply put, after 3+ consecutive oversold RSI bars, price will have a much higher probability to trade above the first RSI bar than below it the next 1-2 days. Vice-versa for overbought. The reason that this probability is important is because it is a confirming pre-market bullish indicator. Also, if I know that price has a higher probability to move higher in next 1-2 days, it is more likely that I won't get stopped out, and within a few bars I could move my stops to break-even. Combine this with [2] and you have a bullish bias. Now define your trigger.
[4] Pre-entry component/trigger: One of my triggers is if prices had a channel breakout above highest-high of recent highs. (I also use limit order triggers to buy dips & sell rallies, but this case is a breakout trigger.) Both 30m and 60m bars broke through the current congestion. I would be long here on either 30m or 60m chart. Sell stop would be below support which was yesterday's low. This breakout is made even more significant in that it happened above major support [1] and within Z period and X% of [2]. (e.g. try looking at a pure breakout system, but instead of taking every signal, you only look at what filters you can to improve results).
[5] Post-entry confirmation: I use a 40-period MA as a post-entry confirming indicator. I don't use it to directly enter or exit trades, but to confirm whether I should HOLD or EXIT. A lot of people exit only when the market this their stop price. Don't let the market prove you wrong, let the market prove you right! If the market doesn't confirm my signal I exit at market. Most systems I've seen are in the market too often. I only enter when conditions are right and sit on the sidelines when they are not (I thought today's low holiday volume would be one of those, that was a discretionary decision). This reduces risk and also reduces capital requirements for following multiple markets (e.g. diversification with less capital). Also note that depending on which type of MA you use, it would have crossed the MA to the upside on the first or second bar on both 30m and 60m charts. Some people test a very specific combination of SMA's, EMA's, AMA's, JMA's etc. My trick with MA's is to make sure that if you vary your period or type of MA the general behavior is the same. Do not curve fit!
[6] Post-entry confirmation: Similar to how [3] is a confirming indicator once in a trade, another post-entry confirming indicator is when the same RSI(5) moves in the direction of my trade. I want the RSI to be overbought when I'm long or oversold when I'm short. Look at both 30m and 60m charts and see how RSI(5) went overbought and stayed overbought a few bars after we entered and stayed overbought through the entire session. This is good. The more overbought bars the merrier b/c I am getting higher highs and higher lows! This combined with [5] told me to leave my initial stop in place and not tighten nor exit the market. If I did not get either this confirming indicator or [5] I would start moving my stops tighter after the first couple bars. You could use other methods such as a parabolic stop but that will often take you out of bullish consolidations when long and bearish consolidations when short. I just use very specific if-then rules for how to tighten/widen my stops.
That's basically it. On both 30m and 60m bars prices had higher highs and higher lows, hence even if I was using a tight stop, I would not have been stopped out. That's why I said "damn!" in my previous post b/c I used discretion thinking that today would be a low-volume day and prices would likely stay in a trading range, and that breakout on the opening bar was probably a false breakout as sometimes happens on the open. What did I do? I did not follow my system. I used what I thought was a better decision and missed a 14.00 point move! That's $3,500 on one S&P contract or $700 on an emini.
Some notes: I hate using curve-fitted parameters for obvious reasons. That is why my primary components are basic ones like S/R, breakouts, trading range definitions, etc. When I do use parameters like an MA or RSI or momentum, I use them only as confirming indicators for either pre-market or post-market decision making. If you substitute a 35- or 45-bar MA; or if you used an RSI(4), RSI(6), or RSI(7) instead of RSI(5), you would still get the same confirmations. This tells me that the system is robust and did not go through optimization.
Having said that, I do see value in optimizing. It helps me to understand the inner workings of my system and sometimes reveals hidden subtleties of the market. Sometimes you optimize and find a parameter that gives terrible results. This is good! You now start analyzing the opposite signal and seeing if you can find a way to use whatever market behavior or tendency you may have discovered in a non-optimized way.
I hope this was helpful. I tried to provide very specific details as possible without giving too much away. I utilize different components to deal with different types of setups, this was just one specific setup for today's trade.
I also hope this lets the discretional traders reading this understand that systems trading isn't just about some magical convergence of indicators, but a sincere & scientific analysis of market behavior. You'll never find the holly grail, but all you need is to find situations where your probability of success is greater than your probability of failure. For example, almost everyone looking at SP01Z can tell me where the most recent support is by looking at lowest low on 11/21, 11/16, and opening gap on 11/13. But with scientific analysis you can look at how price behaves around support. How many times was the low within ATR(X) range of support? At what intervals did this occur? How many times did RSI go overbought down into support. How many times was RSI oversold breaking through resistance? Do these things say anything about how likely support will hold? Do they say anything about probability of X% move if support does not hold?
This is what systems traders do. Just remember to avoid the fools goal of systems building and make sure that you test for robustness (i.e. not optimized) and scientific significance (not coincidence). Many systems available for purchase out there is fools gold. They are overfly curve fitted (optimized) or only worked for a certain time period (concidence).
Good luck mining.
My technique is somwhat simpler... if its going up I buy it and if its going down I short it (I figure on whether its going up or down by looking at the tape and at a chart) ... if I am wrong I get stopped out for a small amount and if I am correct and can make many times more than if I am wrong... my trades have about a 50%-60% success rate (i.e. more than 50% of them make money), and have been paying my bills for several years. To me, trading is simply about going with the flow.
Candle:
My technique is somwhat simpler... if its going up I buy it and if its going down I short it (I figure on whether its going up or down by looking at the tape and at a chart)
That's my trading system in a nutshell. But instead of relying on my intuition on when a chart or tape looks good, I rely on a mechanical view of the markets.
If I I'm feeling under the weather for the day or the mind is just a little slow, no problem, I already programmed my view of the markets into my system. I could teach someone else to trade my system. I can also quickly test to see if the system is valid on other markets. Grains, softs, metals, bonds, currencies... no problem, there is no need to spend a lot of time becoming a specialist in that market. Backtesting will quickly tell me if my view of the price behavior is appropriate for that market or not. My system won't chase, it won't feel greed nor fear, it won't take a day off, it won't be affected by what others are doing, it doesn't care if there's a war or an energy crisis. And as my capital increases and I diversify, I can have my system(s) monitor multiple markets at the same time. If you were successful and was making in 7 digits a year, imagine if you could clone yourself 10 times and trade 10 different markets! This is my goal. Don't know if it will happen, let's see if I'm still posting here 2-3 years from now.
These, and many other reasons, are why I so strongly believe in systems trading.
My technique is somwhat simpler... if its going up I buy it and if its going down I short it (I figure on whether its going up or down by looking at the tape and at a chart)
That's my trading system in a nutshell. But instead of relying on my intuition on when a chart or tape looks good, I rely on a mechanical view of the markets.
If I I'm feeling under the weather for the day or the mind is just a little slow, no problem, I already programmed my view of the markets into my system. I could teach someone else to trade my system. I can also quickly test to see if the system is valid on other markets. Grains, softs, metals, bonds, currencies... no problem, there is no need to spend a lot of time becoming a specialist in that market. Backtesting will quickly tell me if my view of the price behavior is appropriate for that market or not. My system won't chase, it won't feel greed nor fear, it won't take a day off, it won't be affected by what others are doing, it doesn't care if there's a war or an energy crisis. And as my capital increases and I diversify, I can have my system(s) monitor multiple markets at the same time. If you were successful and was making in 7 digits a year, imagine if you could clone yourself 10 times and trade 10 different markets! This is my goal. Don't know if it will happen, let's see if I'm still posting here 2-3 years from now.
These, and many other reasons, are why I so strongly believe in systems trading.
dottom,
Interesting explanation. I like your use of RSI as a confirming indicator. Did I understand you correctly that your stop would have been Wednesday's low? I think that would be instructive for some newbies here who think you can trade the indexes with 1 or 2 point stops. Just curious, but how long have you been trading and how have your results been in this tough market?
Interesting explanation. I like your use of RSI as a confirming indicator. Did I understand you correctly that your stop would have been Wednesday's low? I think that would be instructive for some newbies here who think you can trade the indexes with 1 or 2 point stops. Just curious, but how long have you been trading and how have your results been in this tough market?
Did I understand you correctly that your stop would have been Wednesday's low?
My initial stop once my order was filled would have been one tick below the previous day's low, which happened to be a major support point. I do not always use the previous day's low as my stoploss, but rather a swing-high or swing-low based on an intraday basis. Note that yesterday's low is always a swing-low and yesterday's high is always a swing-high. When the swing-low/high happens to be a significant S/R point, it improves the risk/reward. A S/R point that has been tested multiple times is more likely to hold than just an intraday S/R.
Once the trade was initiated, my stoploss changes depending on market action. It ranges anywhere from the lowest-low of past 1-5 bars. As I mentioned I always look at S/R points. So if there is an intraday swing-low, say 7 bars out, and my lowest-low stop that is 5 bars out is only X% above the swing-low, I'll use the swing-low instead. Another example- if we get an NR(x)/IB bar (narrow range of x period/inside bar), I'll move up my stops to the high/low before the IB bar. If there is no momentum & consolidation kicks in I get out. I'm not worried about missing the continuation of the move. In fact, I love periods of consolidation b/c the consolidation bars help define areas of S/R for the next move.
I think that would be instructive for some newbies here who think you can trade the indexes with 1 or 2 point stops.
You can only use 1-2 point stops on S&P if you're using a very short time frame (1-5m bars). The natural ebb & flow of the market will stop you out. I want to be stopped out when my view of market behavior is wrong, not because the natural flow of the market hit my stop loss. I know there are a lot of websites claiming to teaching users how to make 1-2 points per trade using very tight stop losses but none of them have actual performance records. The problem is that the effects of slippage, commissions, & bid/ask spread will kill you if you're trying to make only 1-2 points per trade. I can show you several systems that make money grabbing 1-2 points in profits backtesting on historical intraday data, but if you are trading eminis and lost 0.25 each side due to slippage, that's a 25-50% difference in results for each trade. You'd need to hit like 70% winners to overcome that if you had 1:1 ratio of profits/losses.
Not to mention that even if you assumed no slippage and immediate execution, the probabilities are against you from the moment you initiate your trade if you have a very tight stoploss/target of less than 2 points. If you still have to deal with bid/ask spread. Take a simple example- you enter market at 1150 and exit 1151 or 1149, whichever comes first. Well the problem is the market has to move 1.00 to hit your profit target and only 0.75 to hit your stoploss b/c when you bought at 1150 and bid/ask was 1149.75/1150.00. So right there you're fighting a 25% disadvantage in terms of price movement to being stopped out . This is assuming you had perfect executions with no slippage. If you are paying 0.25 slip on one side, plus 0.12 commission cost, and you can see scalping for a few ticks is a losers game. If you want to play the very short-term game on S&P's go for at least 2.00-pt swings and make sure your system had a way to ride those big winners so you can get catch the occasional 10-20 point move.
Just curious, but how long have you been trading
Been trading 8 years, and prefer futures but have traded stocks & options extensively as well. I like the fact that index futures won't drop on a dime because its CFO was lining his own pockets and the company was cooking its books (ENE), or if trading is halted on a stock and it opens 75% lower the next day. This may not affect the very-short term traders as much like Candle, Hitman, Stockbroker, Don, but those of us looking at 30m or 60m time frames may put in a stop and take a long lunch and take the rest of the day off if the system says that no new signals will be generated within the next couple bars. Excluding commissions, stocks are NOT a zero-sum game where as futures are, and in fact many tenets of TA were originally designed with futures markets in mind specifically b/c of the nature of supply/demand on a zero sum game. I don't want to too thereotical but stocks is an insider's game. This doesn't affect short-term traders much as they are just looking at ebb-and-flow, but it does affect the underlying supply/demand curve. I know two executives at two major companies that swapped insider info and made very nice short-term $ each the other company acocunced earnings. The big $ in stocks is an insiders game. What do all those major stock funds do? They have analytsts shmoozing executives at major companies trying to find any info that can give them an edge. I want to play a true supply/demand game which is why I am moving away from stocks. Not to say you can't make money trading stocks, you most definitely can, but fear/greed factors are not the same in stocks than in futures. When an executive sells 10,000 options to go buy his vacation home and the market falls right through your stoploss that's not the same as someone who shorted 10,000 shares and has more risk. Maybe they take half-profits above support and that causes a rally the other way. Just my personal thoughts, other veteran stock traders may have different views.
how have your results been in this tough market?
Actually, my trading systems have all done better in the past two years than any other two years in backtesting. Whatever the current market conditions are, these intermediate swings fit right into my methodology. Although I don't consider myself a true swing trader (I do long-term and short-term trades)- it is my observation that swing trading techniques should have kicked butt these past 2 years based on the intermediate swings of the market.
My initial stop once my order was filled would have been one tick below the previous day's low, which happened to be a major support point. I do not always use the previous day's low as my stoploss, but rather a swing-high or swing-low based on an intraday basis. Note that yesterday's low is always a swing-low and yesterday's high is always a swing-high. When the swing-low/high happens to be a significant S/R point, it improves the risk/reward. A S/R point that has been tested multiple times is more likely to hold than just an intraday S/R.
Once the trade was initiated, my stoploss changes depending on market action. It ranges anywhere from the lowest-low of past 1-5 bars. As I mentioned I always look at S/R points. So if there is an intraday swing-low, say 7 bars out, and my lowest-low stop that is 5 bars out is only X% above the swing-low, I'll use the swing-low instead. Another example- if we get an NR(x)/IB bar (narrow range of x period/inside bar), I'll move up my stops to the high/low before the IB bar. If there is no momentum & consolidation kicks in I get out. I'm not worried about missing the continuation of the move. In fact, I love periods of consolidation b/c the consolidation bars help define areas of S/R for the next move.
I think that would be instructive for some newbies here who think you can trade the indexes with 1 or 2 point stops.
You can only use 1-2 point stops on S&P if you're using a very short time frame (1-5m bars). The natural ebb & flow of the market will stop you out. I want to be stopped out when my view of market behavior is wrong, not because the natural flow of the market hit my stop loss. I know there are a lot of websites claiming to teaching users how to make 1-2 points per trade using very tight stop losses but none of them have actual performance records. The problem is that the effects of slippage, commissions, & bid/ask spread will kill you if you're trying to make only 1-2 points per trade. I can show you several systems that make money grabbing 1-2 points in profits backtesting on historical intraday data, but if you are trading eminis and lost 0.25 each side due to slippage, that's a 25-50% difference in results for each trade. You'd need to hit like 70% winners to overcome that if you had 1:1 ratio of profits/losses.
Not to mention that even if you assumed no slippage and immediate execution, the probabilities are against you from the moment you initiate your trade if you have a very tight stoploss/target of less than 2 points. If you still have to deal with bid/ask spread. Take a simple example- you enter market at 1150 and exit 1151 or 1149, whichever comes first. Well the problem is the market has to move 1.00 to hit your profit target and only 0.75 to hit your stoploss b/c when you bought at 1150 and bid/ask was 1149.75/1150.00. So right there you're fighting a 25% disadvantage in terms of price movement to being stopped out . This is assuming you had perfect executions with no slippage. If you are paying 0.25 slip on one side, plus 0.12 commission cost, and you can see scalping for a few ticks is a losers game. If you want to play the very short-term game on S&P's go for at least 2.00-pt swings and make sure your system had a way to ride those big winners so you can get catch the occasional 10-20 point move.
Just curious, but how long have you been trading
Been trading 8 years, and prefer futures but have traded stocks & options extensively as well. I like the fact that index futures won't drop on a dime because its CFO was lining his own pockets and the company was cooking its books (ENE), or if trading is halted on a stock and it opens 75% lower the next day. This may not affect the very-short term traders as much like Candle, Hitman, Stockbroker, Don, but those of us looking at 30m or 60m time frames may put in a stop and take a long lunch and take the rest of the day off if the system says that no new signals will be generated within the next couple bars. Excluding commissions, stocks are NOT a zero-sum game where as futures are, and in fact many tenets of TA were originally designed with futures markets in mind specifically b/c of the nature of supply/demand on a zero sum game. I don't want to too thereotical but stocks is an insider's game. This doesn't affect short-term traders much as they are just looking at ebb-and-flow, but it does affect the underlying supply/demand curve. I know two executives at two major companies that swapped insider info and made very nice short-term $ each the other company acocunced earnings. The big $ in stocks is an insiders game. What do all those major stock funds do? They have analytsts shmoozing executives at major companies trying to find any info that can give them an edge. I want to play a true supply/demand game which is why I am moving away from stocks. Not to say you can't make money trading stocks, you most definitely can, but fear/greed factors are not the same in stocks than in futures. When an executive sells 10,000 options to go buy his vacation home and the market falls right through your stoploss that's not the same as someone who shorted 10,000 shares and has more risk. Maybe they take half-profits above support and that causes a rally the other way. Just my personal thoughts, other veteran stock traders may have different views.
how have your results been in this tough market?
Actually, my trading systems have all done better in the past two years than any other two years in backtesting. Whatever the current market conditions are, these intermediate swings fit right into my methodology. Although I don't consider myself a true swing trader (I do long-term and short-term trades)- it is my observation that swing trading techniques should have kicked butt these past 2 years based on the intermediate swings of the market.
***Been trading 8 years***
***I'm only averaging $250/day, but I'm also trading very conservatively. Those of us with ambition hope to one day run one of those large funds, which we cannot do with discretionary trading 100k shares per day.***
I don't mean to be a jerk but 8 year's worth of experience and $250 a day doesn't really match. I mean, "trading very conservatively" is a nice excuse for inability to handle size. I suffer from the same problem and I tell people that it is my second biggest weakness that I must absolutely positively improve upon, that it can make or break my chance of becoming truly top tier in this profession, and I don't make up lame excuses for it.
Even if you play all 250 games a year it is 62.5K a year, and I am just a month into my second year and already up more than that YTD and there are people at my firm with equivalent (or a few months extra) experience of me making 2-3 times what I make.
I mean, I don't mean to be offensive, but I will be convinced when you average $500 a day, which is the minimum in my book to be called a profitable trader, as for myself, I am not there yet, neither I am convinced that system trading works at least based upon your numbers.
Also, please get off the high horse of "when you trade longer time frame and managing far greater amount of capital than a typical day trader", you ain't there yet, and even then, there are far more discretionary fund managers than systematic ones, and we don't know how much discretion is used by the "systematic" ones.
***I'm only averaging $250/day, but I'm also trading very conservatively. Those of us with ambition hope to one day run one of those large funds, which we cannot do with discretionary trading 100k shares per day.***
I don't mean to be a jerk but 8 year's worth of experience and $250 a day doesn't really match. I mean, "trading very conservatively" is a nice excuse for inability to handle size. I suffer from the same problem and I tell people that it is my second biggest weakness that I must absolutely positively improve upon, that it can make or break my chance of becoming truly top tier in this profession, and I don't make up lame excuses for it.
Even if you play all 250 games a year it is 62.5K a year, and I am just a month into my second year and already up more than that YTD and there are people at my firm with equivalent (or a few months extra) experience of me making 2-3 times what I make.
I mean, I don't mean to be offensive, but I will be convinced when you average $500 a day, which is the minimum in my book to be called a profitable trader, as for myself, I am not there yet, neither I am convinced that system trading works at least based upon your numbers.
Also, please get off the high horse of "when you trade longer time frame and managing far greater amount of capital than a typical day trader", you ain't there yet, and even then, there are far more discretionary fund managers than systematic ones, and we don't know how much discretion is used by the "systematic" ones.