Pete's Place
- Thread starter PetaDollar
- Start date
TSimPlus; click to visit.
It's a free program you use with IB. You can run in "live" mode (send orders to TWS) or "sim" mode (doesn't do anything with the orders).
You can also run it in "verbose" mode where it records the times you move your stops, targets, etc.
I don't know, but if someone else does, please chime in.
Pete
Pete
If any of you remember that guy "NO PM PLEASE" (NPP), what impressed me about him the most: he made one day trade every few days or so, waiting for that great setup. I would like to have the same sort of deal. Right now I have 4-5 valid entries a day, plus add another 4-5 entries when I go nuts, which still happens a few times a week.
What's happening when I go nuts and overtrade: I'll see different setups in different time frames. NPP only had one time frame (5 min). So I've decided to stick with the 700 tick since that seems to give a reasonable number of decent trades. I made this change once before, when I was using moving averages, but started trading many more time frames once I got rid of the indicators. Now that i've seen where most of the good trades come from, it's time to focus once again.
I'm also going to add this rule: the A/D line must, in some way, support the trade. For example, if I am playing a reversal, the a/d peak (or top) must diverge with price's.
The hardest thing for me about all this is missing moves. But this is much is clear to me now: I can either miss moves, and become more successful; or continue to get most of the moves, and all of the losers and commission costs that come with that kind of trading.
What's happening when I go nuts and overtrade: I'll see different setups in different time frames. NPP only had one time frame (5 min). So I've decided to stick with the 700 tick since that seems to give a reasonable number of decent trades. I made this change once before, when I was using moving averages, but started trading many more time frames once I got rid of the indicators. Now that i've seen where most of the good trades come from, it's time to focus once again.
I'm also going to add this rule: the A/D line must, in some way, support the trade. For example, if I am playing a reversal, the a/d peak (or top) must diverge with price's.
The hardest thing for me about all this is missing moves. But this is much is clear to me now: I can either miss moves, and become more successful; or continue to get most of the moves, and all of the losers and commission costs that come with that kind of trading.
Well I've had an interesting two weeks of trading.
Two weeks ago: profitible.
This past week: consistent losses by the end of each day.
However, each day this past week, I was profitable during 1/4 - 3/4 of the day, which is something new for me. In the past it's been loser, loser, loser, all day long.
One thing I learned: when I lose all day long, or have consistent losing streaks, it's not because of the method. It's because of pathological behavior.
So as I review these past two weeks, my task is to identify this pathological behavior. Once I find it, I can correct it.
First, something i've found already:
Changing sides rapidly, incurring several small losses, then a much larger loss.
I did this two or three times during my profitible week. I did it a lot more this past week. It's like a nasty state that I sometimes snap into. What's going through my mind?
I feel the need to be correct. I get unwilling to enter, for fear of being wrong; or, like a chicken with its head cut off I run from side to side trying to get with the move, instead of choosing a side and accepting the risk.
Another thing I learned is that I just like to be in trades, which is bad. That's why I've had such a hard time cutting down my # of trades. I've doubled my wife's IRA since I started it 3 years ago; it's the most boring thing I do; I get into a position and check it every week or so, keep weekly charts, collect dividends. I have no problem cashing in winners or dropping losers in this account, because it is not for my personal satisfaction. I don't even consider it real money, even though it is. At one point, around last October's lows, it had drawn down to about 2/3 of where it started, but I didn't change the strategy at all, I stuck with it.
Thus, to make more progress now, I need to change my behavior around my own accounts. Easier said then done, but I will do it.
Two weeks ago: profitible.
This past week: consistent losses by the end of each day.
However, each day this past week, I was profitable during 1/4 - 3/4 of the day, which is something new for me. In the past it's been loser, loser, loser, all day long.
One thing I learned: when I lose all day long, or have consistent losing streaks, it's not because of the method. It's because of pathological behavior.
So as I review these past two weeks, my task is to identify this pathological behavior. Once I find it, I can correct it.
First, something i've found already:
Changing sides rapidly, incurring several small losses, then a much larger loss.
I did this two or three times during my profitible week. I did it a lot more this past week. It's like a nasty state that I sometimes snap into. What's going through my mind?
I feel the need to be correct. I get unwilling to enter, for fear of being wrong; or, like a chicken with its head cut off I run from side to side trying to get with the move, instead of choosing a side and accepting the risk.
Another thing I learned is that I just like to be in trades, which is bad. That's why I've had such a hard time cutting down my # of trades. I've doubled my wife's IRA since I started it 3 years ago; it's the most boring thing I do; I get into a position and check it every week or so, keep weekly charts, collect dividends. I have no problem cashing in winners or dropping losers in this account, because it is not for my personal satisfaction. I don't even consider it real money, even though it is. At one point, around last October's lows, it had drawn down to about 2/3 of where it started, but I didn't change the strategy at all, I stuck with it.
Thus, to make more progress now, I need to change my behavior around my own accounts. Easier said then done, but I will do it.
A little polishing up the S/R entry rules, mostly to keep me out of trouble. I made a few small changes bases on the last two weeks of trading. I found that I had copious losses when I tried the same trade again, after it failed. I also found my P/L was a little too volatile because there was a lot of wiggle room for the exact entry point.
S/R Entry (Reversals, Pullbacks)
a) Reversals:
i) Wait for at least one complete candle with a long shadow (2 pts on 10 min chart) in the s/r level. Note, you may not "ambush" a reversal by entering before the candle is complete.
ii) When prices moves again in the candle's shadow, enter half size (aggressive entry, must have another reason to enter, e.g. diverging a/d line).
iii) Wait for a second candle to form with a long shadow in the s/r level to enter full size.
iv) For very long shadows (shooting stars or hammers, 2.5 pts shadow) you can follow the more aggressive Pullback entry.
b) Pullbacks:
i) Wait for a complete candle with a long shadow in the s/r level-- enter full size.
ii) Alternately, you may enter half size while the candle is forming. Enter the second half when the candle is complete.
c) Losses:
i) When you sustain a loss, it means a S/R level was violated. The rest of the trades for the day must be in the direction of the loss. Look out especially to enter at near the S/R level that was violated.
ii) Do not play the same S/R scenario if you sustain a loss the first time.
S/R Entry (Reversals, Pullbacks)
a) Reversals:
i) Wait for at least one complete candle with a long shadow (2 pts on 10 min chart) in the s/r level. Note, you may not "ambush" a reversal by entering before the candle is complete.
ii) When prices moves again in the candle's shadow, enter half size (aggressive entry, must have another reason to enter, e.g. diverging a/d line).
iii) Wait for a second candle to form with a long shadow in the s/r level to enter full size.
iv) For very long shadows (shooting stars or hammers, 2.5 pts shadow) you can follow the more aggressive Pullback entry.
b) Pullbacks:
i) Wait for a complete candle with a long shadow in the s/r level-- enter full size.
ii) Alternately, you may enter half size while the candle is forming. Enter the second half when the candle is complete.
c) Losses:
i) When you sustain a loss, it means a S/R level was violated. The rest of the trades for the day must be in the direction of the loss. Look out especially to enter at near the S/R level that was violated.
ii) Do not play the same S/R scenario if you sustain a loss the first time.
I am bronzing NET's awesome words in my journal here. Seems like on the thread he started a lot of people are missing his point.
But I totally suffered from the problem he describes and solved it in much the same manner.
The strategy: It was a crazy idea that popped into my head one day. After making 23 out of 25 losing trades in a row, it seemed I couldn't pick a winning trade if my life depended on it. With the Flip-A-Coin strategy, I figured I could pick an instrument (any liquid one will do) and just enter a trade on the flip a coin (i.e., heads for long and tails for short) and let money management take me out of the trade. Either that or stop trading. Something.... ANYTHING had to be better than what I was doing.
Over time, I reasoned this strategy would give an overall 50% win-loss rate. That takes care of the entry. Now, all of the focus is on the exit--and that's where the money would be made. Exits would be determined by a two-to-one ratio, i.e., stop out at a 2% loss and take profits at 4% gain (substitute any ratio that suits your fancy).
Then I thought, why not just enter a trailing profit stop once the 4% profit level is reached and let it run! Now there's an idea. Finally a plan to get out of losing trades quickly and let those winners run (that simple sounding strategy that seems so elusive). Hmmmm... looks like the beginning of an edge.
How ridiculous! Maybe so. However, this silly little mental exercise broke my losing streak. Resorting to a strategy of flipping a coin caused me to step back and look in the mirror, and get back to the basics. This included re-reading some of my books, the most humbling of which is Trading in the Zone by Mark Douglas. After my first read, I thought I was prepared for the challenges and pitfalls. After my re-read, I found myself agreeing out loud with the author--scenario after scenario--as I recognized I fell into those traps for which I thought I was prepared.
There were many mistakes that compounded over time. The progression developed as follows:
Lack of commitment to a trading plan: I started out profitable with many winning trades early in my trading. I drifted away from what was working.
Over confidence: Initial success caused me to hold losing positions. Worse yet, several of my losers turned into winners upon my exit. This was really damaging, as I changed my strategy with my losers from being a trader to long term investor (honor thy stop no matter what, right?).
Being a relatively new trader, techniques that were learned in a bear market were carried into a bull market--i.e., failure to adapt to a changing market.
Following beliefs instead of technical analysis: There's an argument to support any position in the market--at any time--long, short, or neutral. I had my bias and I looked for experts to confirm it. I was always able to do this. What's so shameful in retrospect is all of the missed opportunities by identifying pivot points, then not believing in them because they went against my preconceived market bias. The technicals were working; my deeply seated market bias was failing big time.
Failure to accept probabilities in a trade, creating a quest for confirmation and certainty: What a vicious cycle! Identifying trade after trade and then sitting on one's hands as the train leaves the station--looking for confirmation. Then having confirmation create a poor risk-to-reward ratio... Finally entering bad trades in frustration.
Money management: My gosh! How on earth could I find myself down $20.00 a share on a shorted stock trade! What were you thinking!! ahhh yes... those early trades that reversed time after time right after my untimely exit. What bad negative reinforcement that turned out to be. So I ended up a trader on winning positions and an investor on loosing positions.
Fear of loosing: Prior to experiencing loss, I read about this phenomenon and frankly couldn't understand it; i.e., it seemed counter-intuitive. After all, wouldn't the fear of a loss help prevent one from happening? Lesson learned: Loosing trades create tunnel-vision, creating lost opportunity (gee... why not put that equity to work in a winning trade?).
Failure to mitigate the loss: An extreme move will typically be retraced, so patience on an exit will reduce the loss--that part I mastered. However, if one believes the retrace is a resumption of the previous move (i.e., preconceived belief vs. technical message of the market) then the opportunity to mitigate can be fleeting. The retrace ends, and with the market's next impulse, your even deeper in the hole.
It's amazing how clear our thinking is when we observe others making trading errors. It's equally amazing when we're in a loosing scenario
just how muddled our thinking becomes. Losses create tunnel-vision, and the more serious the loss, the more serious the tunnel-vision.
I have a colleague and we talk daily about our trades. He told me he wanted to jump through the phone when I refused to dump my losers.
Yet It's funny, because when he's in a loosing trade the first thing I ask him is where he'll get out (why couldn't I ask myself that same question). His most common answer: "I don't know...." or simply, "I'm not getting out."
Unbelievable!
It's also amazing to put this into writing and look back at it. It's why the majority of traders lose. The circumstances are surely different for each trader, but the bottom line is the same: Lack of discipline, poor trading plan, fear of loosing money (i.e, fear induced tunnel-vision), poor money management, failure to understand (really understand) probabilities, etc. etc. etc.
The Flip-A-Coin trading strategy got me to address perhaps the two most important issues that completely disappeared from my trading: probability based trading and money management. By flipping a coin, it's absurdly clear that you're gambling on market direction for your selected instrument. That leaves only money management, i.e, an absolute and strict exit plan as the ONLY way to make money over time, whereby the percentage loss over time must absolutely be smaller (on a relative basis) and percentage win over time must absolutely be larger. This is accomplished with extreme impatience with losers, and substantial patience with winners (quite the opposite of what loosing traders tend to do).
If we took a trade on a coin flip, how much confidence would there be in the position as soon as it moves away from us? I can tell you I would have no confidence whatsoever (after all, it's just a coin toss, right?) and would be very quick to escape the bad trade. It's a no brainer, because there is no emotional investment in a coin toss, so there's no emotional commitment to the position. Without that emotional commitment, escape is relief!
Something happens when we use technical analysis to enter a trade. We become invested emotionally. The TA convinces us that we're right in our opinion, and therefore we develop a belief as to what the position should do. Based on this belief, we develop patience in a position that moves against us--exiting quickly is an admission that our TA was wrong! (Our ego doesn't like this kind of thing.) To make matters worse, the exit means taking a loss--kind of a financial penalty for making a TA entry mistake. And there it was--staring me in the face!! It was holding a trade because of a belief that started in technical analysis and then took on a life of it's own, along with a preconceived, outdated market bias that was causing an "over-committment" to positions that ended up losers, made worse by attempting to avoid a loss by avoiding closing, etc.
When picking a trade, technical analysis only marginally improves the odds over that of a coin toss--and that's ONLY if the TA is nailed correctly (we don't want to believe this). Since the technicals only give one a slight improvement over the 50%-50% odds of a coin toss, we should be just as quick to escape from negative trades regardless of the method used for entry (coin flip or TA--doesn't matter). Ego should be rewarded for skillfully nailing an exit strategy--i.e., getting out rapidly or nursing the position into the protection of a profit stop, guarantying a win. Then, if the trade is favorable, trail it with a stop to insure exit as soon as the move ends (who knows when that will be-- 3% ... 50% or more... we just don't know). But for some dumb reason, a beautifully planned exit is not where we hang our hats; we like to do that on the entry--which by it's very nature--is not much more than a coin toss. Do we really want to admit that hours and hours of TA only adds up to such a small edge? Being right on that pick (after so much work) is soooo rewarding... could that possibly have anything to do with being patient with a losing trade?
So what's the fix?
The Flip-A-Coin strategy will only work with highly skilled exits, since there is no edge on the entry. Mastering trading with this strategy requires mastering skillful exits. This mandates extreme lack of patience with losing trades. Winning trades must be allowed to flourish, and never go negative once the trade is positive. Plenty of patience with the winners, using trailing stops for an exit so that the full profit potential of the trade can be realized.
If so much effort is focused on the exit, then the entry can almost seem trivial. Yet, there's challenge and reward in finding the skillful entry. The trick is to find an entry spot, take the trade WITHOUT HESITATION, and THEN treat it like a coin toss. If it doesn't work right away, get out--fast!
If it turns positive, treat it as a challenge to make the most skilled exit possible, i.e., a stop that trails, never letting a positive trade turn negative, etc. Fun challenges on entry AND exit! Geesh is seems so simple....
But I totally suffered from the problem he describes and solved it in much the same manner.
The strategy: It was a crazy idea that popped into my head one day. After making 23 out of 25 losing trades in a row, it seemed I couldn't pick a winning trade if my life depended on it. With the Flip-A-Coin strategy, I figured I could pick an instrument (any liquid one will do) and just enter a trade on the flip a coin (i.e., heads for long and tails for short) and let money management take me out of the trade. Either that or stop trading. Something.... ANYTHING had to be better than what I was doing.
Over time, I reasoned this strategy would give an overall 50% win-loss rate. That takes care of the entry. Now, all of the focus is on the exit--and that's where the money would be made. Exits would be determined by a two-to-one ratio, i.e., stop out at a 2% loss and take profits at 4% gain (substitute any ratio that suits your fancy).
Then I thought, why not just enter a trailing profit stop once the 4% profit level is reached and let it run! Now there's an idea. Finally a plan to get out of losing trades quickly and let those winners run (that simple sounding strategy that seems so elusive). Hmmmm... looks like the beginning of an edge.
How ridiculous! Maybe so. However, this silly little mental exercise broke my losing streak. Resorting to a strategy of flipping a coin caused me to step back and look in the mirror, and get back to the basics. This included re-reading some of my books, the most humbling of which is Trading in the Zone by Mark Douglas. After my first read, I thought I was prepared for the challenges and pitfalls. After my re-read, I found myself agreeing out loud with the author--scenario after scenario--as I recognized I fell into those traps for which I thought I was prepared.
There were many mistakes that compounded over time. The progression developed as follows:
Lack of commitment to a trading plan: I started out profitable with many winning trades early in my trading. I drifted away from what was working.
Over confidence: Initial success caused me to hold losing positions. Worse yet, several of my losers turned into winners upon my exit. This was really damaging, as I changed my strategy with my losers from being a trader to long term investor (honor thy stop no matter what, right?).
Being a relatively new trader, techniques that were learned in a bear market were carried into a bull market--i.e., failure to adapt to a changing market.
Following beliefs instead of technical analysis: There's an argument to support any position in the market--at any time--long, short, or neutral. I had my bias and I looked for experts to confirm it. I was always able to do this. What's so shameful in retrospect is all of the missed opportunities by identifying pivot points, then not believing in them because they went against my preconceived market bias. The technicals were working; my deeply seated market bias was failing big time.
Failure to accept probabilities in a trade, creating a quest for confirmation and certainty: What a vicious cycle! Identifying trade after trade and then sitting on one's hands as the train leaves the station--looking for confirmation. Then having confirmation create a poor risk-to-reward ratio... Finally entering bad trades in frustration.
Money management: My gosh! How on earth could I find myself down $20.00 a share on a shorted stock trade! What were you thinking!! ahhh yes... those early trades that reversed time after time right after my untimely exit. What bad negative reinforcement that turned out to be. So I ended up a trader on winning positions and an investor on loosing positions.
Fear of loosing: Prior to experiencing loss, I read about this phenomenon and frankly couldn't understand it; i.e., it seemed counter-intuitive. After all, wouldn't the fear of a loss help prevent one from happening? Lesson learned: Loosing trades create tunnel-vision, creating lost opportunity (gee... why not put that equity to work in a winning trade?).
Failure to mitigate the loss: An extreme move will typically be retraced, so patience on an exit will reduce the loss--that part I mastered. However, if one believes the retrace is a resumption of the previous move (i.e., preconceived belief vs. technical message of the market) then the opportunity to mitigate can be fleeting. The retrace ends, and with the market's next impulse, your even deeper in the hole.
It's amazing how clear our thinking is when we observe others making trading errors. It's equally amazing when we're in a loosing scenario
just how muddled our thinking becomes. Losses create tunnel-vision, and the more serious the loss, the more serious the tunnel-vision.
I have a colleague and we talk daily about our trades. He told me he wanted to jump through the phone when I refused to dump my losers.
Yet It's funny, because when he's in a loosing trade the first thing I ask him is where he'll get out (why couldn't I ask myself that same question). His most common answer: "I don't know...." or simply, "I'm not getting out."
Unbelievable!
It's also amazing to put this into writing and look back at it. It's why the majority of traders lose. The circumstances are surely different for each trader, but the bottom line is the same: Lack of discipline, poor trading plan, fear of loosing money (i.e, fear induced tunnel-vision), poor money management, failure to understand (really understand) probabilities, etc. etc. etc.
The Flip-A-Coin trading strategy got me to address perhaps the two most important issues that completely disappeared from my trading: probability based trading and money management. By flipping a coin, it's absurdly clear that you're gambling on market direction for your selected instrument. That leaves only money management, i.e, an absolute and strict exit plan as the ONLY way to make money over time, whereby the percentage loss over time must absolutely be smaller (on a relative basis) and percentage win over time must absolutely be larger. This is accomplished with extreme impatience with losers, and substantial patience with winners (quite the opposite of what loosing traders tend to do).
If we took a trade on a coin flip, how much confidence would there be in the position as soon as it moves away from us? I can tell you I would have no confidence whatsoever (after all, it's just a coin toss, right?) and would be very quick to escape the bad trade. It's a no brainer, because there is no emotional investment in a coin toss, so there's no emotional commitment to the position. Without that emotional commitment, escape is relief!
Something happens when we use technical analysis to enter a trade. We become invested emotionally. The TA convinces us that we're right in our opinion, and therefore we develop a belief as to what the position should do. Based on this belief, we develop patience in a position that moves against us--exiting quickly is an admission that our TA was wrong! (Our ego doesn't like this kind of thing.) To make matters worse, the exit means taking a loss--kind of a financial penalty for making a TA entry mistake. And there it was--staring me in the face!! It was holding a trade because of a belief that started in technical analysis and then took on a life of it's own, along with a preconceived, outdated market bias that was causing an "over-committment" to positions that ended up losers, made worse by attempting to avoid a loss by avoiding closing, etc.
When picking a trade, technical analysis only marginally improves the odds over that of a coin toss--and that's ONLY if the TA is nailed correctly (we don't want to believe this). Since the technicals only give one a slight improvement over the 50%-50% odds of a coin toss, we should be just as quick to escape from negative trades regardless of the method used for entry (coin flip or TA--doesn't matter). Ego should be rewarded for skillfully nailing an exit strategy--i.e., getting out rapidly or nursing the position into the protection of a profit stop, guarantying a win. Then, if the trade is favorable, trail it with a stop to insure exit as soon as the move ends (who knows when that will be-- 3% ... 50% or more... we just don't know). But for some dumb reason, a beautifully planned exit is not where we hang our hats; we like to do that on the entry--which by it's very nature--is not much more than a coin toss. Do we really want to admit that hours and hours of TA only adds up to such a small edge? Being right on that pick (after so much work) is soooo rewarding... could that possibly have anything to do with being patient with a losing trade?
So what's the fix?
The Flip-A-Coin strategy will only work with highly skilled exits, since there is no edge on the entry. Mastering trading with this strategy requires mastering skillful exits. This mandates extreme lack of patience with losing trades. Winning trades must be allowed to flourish, and never go negative once the trade is positive. Plenty of patience with the winners, using trailing stops for an exit so that the full profit potential of the trade can be realized.
If so much effort is focused on the exit, then the entry can almost seem trivial. Yet, there's challenge and reward in finding the skillful entry. The trick is to find an entry spot, take the trade WITHOUT HESITATION, and THEN treat it like a coin toss. If it doesn't work right away, get out--fast!
If it turns positive, treat it as a challenge to make the most skilled exit possible, i.e., a stop that trails, never letting a positive trade turn negative, etc. Fun challenges on entry AND exit! Geesh is seems so simple....
"The true speculator is one who observes the future and acts before it occurs."
--Bernard Baruch
--Bernard Baruch