Risk management and odds

agree with limbo here. KISS - keep it simple, stupid.

The simpler a system is, the more adaptable it is during different market conditions... and this has been proved time and again during my research of mechanical systems. I can't help laughing and doubt some people's sanity when I read some books/magazines with those fancy TA stuff that makes a chart looks like a plate of spaghetti. Here are a few examples:

trendlines - total BS, ask 100 people draw trendlines on a chart, you get 100 variations..

Gann angles - total BS, some artificial spider net put on top of a chart.

Dow thoery - 33%, 50% and 66% retracement? give me a break, why not say 1% 2% 3% .... 98% 99%, you have everything covered.

There are many more examples like this, but the bottom line is, if you do some back testing, you will find most of the conventional TA stuff such as moving average crossing, stochastics line crossing etc are only marginally profitable (if trading a $25k account, maybe earn you minimum wage, that is if you can stick to the system) and most of them have such big drawdowns, NOBODY can stick to it after a string of losers.

So the bottom line is, as in my previous post, you need your own system, fully tested, and has good parameter to minimize drawdown, only then you have a tradable system and can survive.
 
What?! Aren't you fervently seeking that "Holy Grail" of trading systems, that one arcane combination of the "right" TA variables that unlock to you (and only you) the riches of the market? Backtesting...more backtesting...endless formulae and backtesting. Tradestation. Metastock. Indigo. Which will foretell the market? Plugging in this variable and that variable, creating this formula and that formula seeking that "perfect" key to market wealth and riches!

What?!

U guys R'nt in 2 that???
 
Yes and No.

Yes, trying different combinations/parameters... but the idea is based on my real trading experience which is mostly based on price/volume, and most of the focus is how to minimize drawdown.

No, not TradeStation, MetaStock etc.. although it appears a lot of people are using those and some are successful.
 
The secret lies within each trader. Minimize losers, maximize winners, manage your money carefully. Trade entry is NOT the key, and there is no secret formula.
 
First of all, I am not aware of a single profitable (let alone successful) system day trader at my firm, if anyone know any please let me know. There are very few successful system swing traders out there, for day trading, it is plain impossible. Way too many factors are involved.

Secondly, hitting big shots is far more important than hitting many shots, it is quality over quantity here. I don't remember the last time I shot 50% and finished with a down day, and anything over 60% usually automatically mean a super size day (assuming I traded my normal volume).

Risk management is the key, when in doubt, get out first, ask question later, I have never had any trouble cutting losses, during 8 months I have let 3-4 trades against me further than I should have (getting hit for a point in one print is not something I could have prevented, so those don't count), and I think I have took bigger positions when I am losing twice during this entire stretch.

My worst day was the day I hit $1300 in the morning, churned it all way, held one position against me too long, then started to go berserk and finished the day down $3100, which was my second worst day ever, but trading wise, it was a far worse day than my worst day because at least on that day I was blown out for $2000 20 minutes into the game!

I don't think cutting losses should be a problem for professional traders. Once you play the game a little bit more, you will see that letting your winner run is a MUCH MUCH HARDER skill to master (believe me, I tried everything from moving averages to stochastics, and I ended up just watching the chart, specialist, volume). The best day traders can take 8 positions 30 minutes into the game, take quick profit on half, and hold on to the other half for substantial gains, based on instinct. There are many days my team leader would tell me, I am holding on to this stock into the close, 30 minutes into the game, and the stock would just trend and trend and trend and trend all day. The problem with those moving average systems is at least 50% of your positions WILL NOT TREND, so it is up to the trader to decide whether he is going to take the scalp or hold on for more. No system in the world can make that decision for you, it has to be built from experience.

Before anyone spend a lot of time with Metastock or Tradestation, let me remind you that none of those systems account for SLIPPAGES, which is THE NUMBER ONE KILLER of ALL MECHANICAL DAY TRADING SYSTEMS. You will be surprised how tough it can be to get that fill sometimes, and that alone breaks your system more than you can imagine.
 
Originally posted by Hitman
There are very few successful system swing traders out there, for day trading, it is plain impossible. Way too many factors are involved.
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While this may have nothing to do with me, I just want to make sure that I am clear about my previous posts when I spoke of systematic trading. I was referring to discretionary trading done with the least amount of discretion possible. Not “system trading”. I do know a couple of successful “system traders” and I think it is a viable way to trade, though.

In regards to new traders who haven’t the technical knowledge or experience to develop systems, I think that a methodology that allows little room for interpretation is better suited to their survival.

Bye the way, Hitman. I really enjoy your posts in this thread and others. Very honest stuff. Thanks a lot.
 
In swing trading, yeah, I know some people who do ok with a 100% mechanical system, but they will never be as good as discretionary ones.

In day trading (no overnight), I don't know any. I am talking about mechanical here, that means, entry point, loss-cutting point, trailing stops, all pre-defined.

I urge new traders of all sorts to STOP looking for a silver bullet and spend more time to WORK on their game. Make your own decisions, mistakes, and your game will improve.
 
Originally posted by Hitman
In swing trading, yeah, I know some people who do ok with a 100% mechanical system, but they will never be as good as discretionary ones.
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Regardless of how good they are in relation to another trader, the traders I am referring to spend less time and are more relaxed than the successful scalpers I know. As to whether they are more profitable on a percentage basis, I really don't know. They are profitable enough to justify the time they spend, though.

It has been my experience that the percentage of swing traders that survive outweighs the scalpers. This is purely based on experience and is not intended to suggest that this is a representation of all traders. If this is true, then I would attribute this to the increase in pressure that scalping requires of many traders.

Of course, the whole idea that one method is better than another seems misguided. I have known a variety of successful traders with different ways of getting the job done. Each found what seemed to suit their personality. The more important psychological traits that are needed are discussed among traders but often as an afterthought to the technical (be it reading the tape or reading the chart.)

Originally posted by Hitman
I urge new traders of all sorts to STOP looking for a silver bullet and spend more time to WORK on their game. Make your own decisions, mistakes, and your game will improve.
More...
Great advice.

My goal was to suggest that newer traders would do well to find a more rigid method until they are able to acquire a subjective “sense” or improve the psychological traits necessary, if they can, to succeed with a more flexible, interpretive system.
 
So in short, what we've narrowed down our discussion to is that human intervention is required before taking a position or exiting from one. And that mechanical systems are not accurate, nor is any other system that is 100% because the market is setup by MMs and specialists, finally that your own brain, experience, and discipline (something learned over time) are all the key elements to being a succesful trader.

In light of the original question about 'Risk Management and Odds" we've come to understand that there is no one way to manage your money or trade. Basically, we've come back to square one where nothing is absolute and everything is relative, and in our attempts to find something absolute, we found only relativity lurking everywhere.

 
The trading technique is largely irrelevant. It is perfectly possible for two traders with diametrically opposed strategies to be successful. Take trader A who uses 1-minute candlesticks and a 20/1 Bollinger Band. He will buy when the stock hits the upper band. Trader B, on the other hand, will short when the stock hits the upper band. Both Trader A and Trader B can, over the long-run, come up with somewhat similar results, assuming a market with equally distributed bull and bear phases. Why can they come up with similar results? The answer lies in each trader's strong and egoless discipline to take their stops as they arise. No equivocation, no questions asked... just take those stops and move on.
 
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