Some Technical Questions

[They]

I don't know who "They" is responding to, so I imagine it must be a contributor who is on my "ignore" list. But for anyone else out there who is in the dark (as I was) as to what in the world MFE/MAE stands for, as best as I could determine, they are abbreviations for Maximum Favorable Excursion or the maximum amount of profit available while a trade is open, and Maximum Adverse Excursion or the maximum amount of loss available while a trade is open.

I was commenting that I agreed with some of Overnight's post which was responding to qlai's post which was responding to straightjacket's post about waiting for trades to go against his original trade thesis coupled with wider stops giving him better results, which sounds to me like random entries.

Checking the MFE/MAE should be one of the first things you do when you have a trade concept. You should simply be testing your trade signal over various time periods or volume quantities - a trade is opened, how has price moved after 1 minute, 5 minutes, 50 minutes or after 5k contracts, 15K contracts 50k contracts, etc. If you look over a multitude of periods and the MFE and MAE are always equal your trade trigger sucks and is no better than random.

This type of testing is one of the reasons why you'll see people post trades that have them exiting after 'X' bars vs some fixed target or stop.

 

[userque]

1 - I always have a mental stop loss (rarely change it). However, I don't have a profit target whatsoever. Therefore, I am having trouble measuring theoretical risk/return in my trading journal.

I guess you'll have to accumulate your trading data over time and extrapolate going forward. You could also try using the volatility index and somehow correlate it to your risk assessment.

My exists are entirely discretionary depending on my prepped outlook for the day. What would you suggest? (I have a risk/return calculated from the trade itself, but that doesn't tell me much about the conditions that the trade was taken.)

I'm not sure what you're talking about here. Record some volatility measure for each trade.?

2 - I am taking paper trading seriously. For some reason, it actually feels like real money. Has anyone actually experienced this because it goes against what everyone says.

Most things said by others will go against what you believe or know to be true. Get used to it.

So far, it as intense for me as when I was shorting small caps a few years back.

Everyone's different. (People will still scream "You're wrong! That's NOT what you feel!" in this case. LOL)

3 - I am adding one tick to my trades in the journal + $4 round trip. Do you think this is appropriate?

If you like it; I love it.

4 - When trying to document my decision making, I am unsure of what to track.

Track every thought and piece of data you have. You'll quickly figure this out yourself ... as to what to really track or not.

But do track why you made the trade. Take screenshots of the charts etc. after you're done trading for the day. Record video of your screen and speak your thoughts (recording audio as well) as you trade.

Would any of you have suggestions for other things to document beyond just the trades themselves?

5 - I am doing well so far, but worried about risk management. My trades tend to go well when I wait for the price to go against my thesis coupled with a widening of my stops. All of this feels to me like it increases the risk and this seems to be against what I've read. Any advice on how to approach this dilemma?

Decrease the money (contracts) used per trade to adjust your risk if you think you need to. This way, your strategy can remain the same, if you want to keep it. Base it upon your estimated potential widest stop ... based upon all the data you will amass.

 

[expiated]

Checking the MFE/MAE should be one of the first things you do when you have a trade concept. You should simply be testing your trade signal over various time periods or volume quantities - a trade is opened, how has price moved after 1 minute, 5 minutes, 50 minutes or after 5k contracts, 15K contracts 50k contracts, etc. If you look over a multitude of periods and the MFE and MAE are always equal your trade trigger sucks and is no better than random.

Thanks for the clarification. Sounds promising, but complicated. I only took a cursory look at the explanation I found and didn't really understand anything more than the concept. Maybe I would better understand it if I made a serious effort to, which I would probably do if I were struggling with my trading, but since I am totally satisfied with the results I'm getting, I'm opting to forego addressing my ignorance and will leave the topic for those much smarter than I. (I carried out a number of very thorough analyses on how price moves over various time periods, but always from the angle of a rather "simple minded" guy who never got past high school calculus. Also, I see neither posts from Overnight nor from qlai, so I guess they must both be on my ignore list.)

 

[Handle123]

This time frame belongs to the robots. Beginners often are attracted to it due to the perceived safety of flat overnight.

There is no money to be made here. 1% makes enough to live on. The other 99% live in the basement.

The key question is. What is the path of least resistance. To the lowest hanging fruit. To replicate the financial freedom.

Years ago I use to recommend scalping and day trading, but it is no cakewalk any more, but it is not cause of the HFTs or automation. It is just way too many patterns one has to discover and memorize, takes years to get consistent. I did it opposite, I got good at stocks long term then commodities and was bored of long term, so added into scalping. Oh Boy, this takes so fricking long to get the hang of it.

Scalping/day trading has the greatest amount of risk for me than long term since I hedge. But someone does a fat finger in ES and Bamm out thousands, and fees are way too high compared to what can be had if you take many trades, even renting seats is no free lunch. Yea, I think only 1% of those who do intraday makes a decent and 0.03% make the most. New trader likes he can have so little money to be able to open brokerage, but you be a victim of the big dogs most of the time, what am I saying, I want all to come in and test the waters, need more bait.

Have a life, do long term trading and learn how to sell options around your positions. Less fees, explore country you live.

 

[ironchef]

Scalping/day trading has the greatest amount of risk for me than long term since I hedge.

If you hedge your day trading why is it risky? Or did you mean you hedge your long term?

 

[Straitjacket]

lol, oh man unbelievable stuff here..... like I don't know where to begin. I wish this form had voice option for people with questions, so I could actually go on and answer questions and debate people via voice so people could get some real answers.


First of all it's a 100% mathematical verifiable fact that the markets are fractal. A one second chart is no different than a monthly chart. So anyone telling you, that one time to trade or hold is better than an other doesn't have a strong mathematical signal for long that they can explain to you, down to the exact trigger point. Because if they did they would know the market is fractal..... therefore wouldn't make statements that are mathematical incorrect....

With that said having to be flat during the day can be a slight disadvantage because algo's don't care about time, and they often do use time against people. Notice how lately price was popping overnight or late in the day, this screws both weak hands as people long scared to hold and than anyone short is also forced out as well or they wake up the next time being down and them getting forced out moves the market even higher.

With that said if you're trading properly and have a strong mathematical edge being flat at the end of the day disadvantage is more about you making less, it really shouldn't and on most days won't be the REAL reason you're negative, you may correlate it to "oh man ran out of time thats why I am down". When the real reason is you don't actually have a true mathematical edge.

Thank you for this.

I actually feel that I have an edge based on my bias for the day (up/down). But I am weak on establishing entry/exit and stop loss. I am just observing the volume patterns and how it correlates to the magnitude of up/down movement. But I am doing this by eye, not yet measuring it.

Would you have any suggestions on how to go about testing and synthesizing signals that can be mechanically defined? (Based on my call for the day.)

As an aside, I’m careful to create 2/3 scenarios for my daily call/bias if there is mid-session economic news scheduled. I also try to have a contingency in case of surprise news.

 

[Overnight]

...

Checking the MFE/MAE should be one of the first things you do when you have a trade concept. You should simply be testing your trade signal over various time periods or volume quantities - a trade is opened, how has price moved after 1 minute, 5 minutes, 50 minutes or after 5k contracts, 15K contracts 50k contracts, etc...

Good lord. Calgon, take me away.

Hindsight does not help pave the way to the future. Leave that to the Klingons.