Trading Dummies

I should sue the market for mental distress. What a choppy day...
I think if the market does not make up its mind which way she wants to go I should stay the hell out of it.
Anyway. made couple of stupid mistakes with NIHD. It had a nice gap this morning, and gave a 10am inside candle, but no follow up and got stopped out there. The same happened with SWN. Fortunately got lucky with shorting SHLD which brought me back with a little green balance.

Here is SHLD.
 

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inCom, for ABP the stop loss should have been closer to $7.10 right? Was it slippage that got you out a bit lower?
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Today, among others I was watching TIE (nod to Stephen Vita for pointing it out) and looking for a good long entry (due to its bullish daily performance).

Other stuff was either scratch or small losses. Choppy day as others have mentioned.
 

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Quote from Babak:

inCom, for ABP the stop loss should have been closer to $7.10 right? Was it slippage that got you out a bit lower?

More...

Well, I had actually set the stop order exactly at 7.00, and got filled with no slippage. I'm experimenting with several levels of tightness regarding to stops.

Where would you have set that stop? In general, do you prefer tighter/looser stops or is this determined discretionally on a per trade basis?

In the first dummy trades I mentioned, I had set tighter stops. After closing the positions I got a sense that maybe they were too tight. This feeling has been reinforced even more with ABP. Look at further evolution of it in the attachment: if I had hold tight for just another bar it could have produced a nice gain.

Of course, everything looks easier in retrospective. I could have got in the trade again, later, when price rose back, but I'm setting a rule for myself that allows for one dummy trade per day, for now.

By the way, congratulations for starting this nice thread, Babak.

-GS
 

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PFCB was excellent today. Stop was .20 - .25 and had gains of over 1.50, some serious r/r.

I have a question on the large gap downs: Has anyone looked to short these as per dummy guidlines but then reverse long if the high of day gets taken out (ie: it starts heading for a gap fill) ? Take a look at ADCT from today. Seems like some good r/r there.

Cheers
 
Today HGSI should have been on the radar due to its gap down as well as extremely high volume.

With the 15 minute chart it gave a dummy entry at $9.25 (stop loss at $9.45 or $9.50). The spike down (blue circle) was a good place to exit as afterwards the intraday trend shifted. If you cover into the welcoming arms of that spike down, the break of the downtrend channel gave another opportunity to exit with your profits.

Interestingly enough, it then gave a dummy long signal at $9.05 with stop loss at $8.75. And if the 2:30pm wiggle didn't hit your trailing stop you had a beautiful end of day exit.
 

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Razor:
I didn't try to short anything with dummies so far. I have rarely used shorting, actually. However, I plan to do it soon. I'm beginning to suspect that looking also for shorting opportunities is a way for staying even more in contact with reality.

After some good dummy trades in the past days (CHIC, MU, SVA) I did two yesterday that were really bad mistakes (JDSU, BEAV).

What follows is my backward grasp on them, your comments welcome.

First of all, TICK and TRIN were bad for AMEX and NYSE. Only NASD looked like pretty good, so this is why I decided to only buy NASD stocks yesterday. Is market overall behaviour important? I think so, but I see you managed to do good trades yesterday.

Secondly, I failed to follow precisely the dummy entry pattern on JDSU. If you look at the chart (see attachment), I bought it while the inside bar was not yet formed, chasing the price on its way up. On the other hand, "bar" is a relative term, since I chose to use 15min bars. On another time scale it could have been a correct dummy entry, maybe.

Third mistake was chasing price. I wrote a couple of Excel formulas to compute position size given max % risk on equity and initial $ risk. So it did the calculation and gave me the number of shares to buy. Only, I ended chasing both stocks, especially JDSU which was ramping up. Since I left the stop where I thought it belonged, the risk increased. JDSU costed me a round -5.00% (on position, not equity).

On BEAV, I got in late, because a dummy pattern had already formed, but my scanner didn't catch it. If it did, This could have been a good trade. In addition, I got a very bad slippage on exit. I could have closed the position a minute before being stopped out to avoid this, for example.

Lessons learned:

1) Always take into account market mood AND your own mood. Don't trade just for the fun of it. If you don't feel like, don't trade. So far, I used to be a backtester and traded a fully automated system which didn't care about market sentiment. I see that in trading manually this is a fundamental part of the process.

2) I have to acquire more the mentality of a retailer. If you buy something at 17.10 instead of 17.00 and buy 1000 of it, this is a difference of 100$, If buy 10000, it's 1000$. Never chase price on its way up. Always take into account that small 1c.

I'm still a beginner at trading manually, so I wrote down a list of rules I intend to follow on every manual trade I'm going to do. At the same time, I realize that depending on rules can be misleading and even turn itself in a sophisticated form of superstition. I know that, because after hundreds or maybe thousands of simulations I saw several well respected, abstract myths crumble down and reveal themselves for being just that. So what I want to do is to be very careful at believing anything and try to retain as a skeptical mentality as possible.

GS
 

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Hi all, me again :D

I love crunching the numbers with trading and while the below may seem far fetched and unatainable one must remember that the numbers don't lie. Now, having the discipline to follow the below is the tricky part.

Strategy: Dummies 15 min play
Account size: $25,000
Trades per Month: 40 (2 per day)
Stops: Always set to 2% of account or $500, so must adjust share size according to size of stop (ie: .50 stop = 1000 shares)
Gains: Can only be taken when r/r is 3/1, no partials, no breakevens if up 2.5/1 and it comes back down, no messing with it, pure and simple, when you hit 3/1 you take the gain if you don't hit the 3/1 then you take the loss. No over night holds, remember simplify.

OK, so on a 25k account with 2% risk per trade (below includes commish).

Stops: $520
Gains: $1,480

You must also take into account slippage when calculating risk. So if the bar shows a stop below 10.00 for example and entry was 10.35, I would call that a .50 stop (9.85 worst case lets say) and not close trade until I hit a 1.50 gain to get the 3/1 r/r.

Ok, below are the numbers:

50% win rate = $19,200 gain for the month or 77% !!!
45% = $15,200 - 61%
40% = $11,200 - 45%
35% = $7,200 - 29%
30% = $3,200 - 13%
25% = ($800 LOSS)

Pretty amazing what you could do with a small 30% win rate huh ? That is only 12 wins out of the 40 trades you take for the month.

Now, the question is, if you took 40 trades, would 12 (or 30%) hit the full 3/1 r/r. Well I think that if you focused on the setups that gave tight stops (ie: tight inner range bars) then you probably would have a good chance at this.

The numbers don't lie, however, the discipline to be up 2.8 r/r and all of a sudden it reverses and comes down to give you a full stop will be torturous and the next time you are up 2/1 you may say, hey I am up big I should book these profits as I don't want a profit to turn into a loss again...but what if it doesnt turn into a loss and you sell for a 1.5/1 r/r gain only to see it hit the 3/1 later in the day.....this will really mess you up as you need to make sure you hit the full 3/1 r/r on ALL of your wins to justify having such a low win rate but still make over 10% a month.

I am still struggling with mastering my emotions and following my rules; however, do the math and you too will see the numbers don't lie !

Cheers !
 
Hi Razor

Your numbers are correct, but you're assuming a 6% profit target on your trades. I think this could be a little too optimistic. I've done about 20 dummy trades so far, and my average % per trade is being much lower than that. To be exact, I did 10 actual trades, 6 of which were winners, with an average % per trade of 0.88%, and 12 paper trades, 5 winners, averaging -0.71%. Still too soon for statistics, but hey, I'm just beginning.

Of course, in the end all of it depends on trader's skill.

In addition, is true that a tighter stop lessens the initial risk, but also increases the possibility of being stopped out, hence decreasing your % of winners.

GS
 
Hi Incon,

I think you may be getting a little confused......I am not asking the stock to move 6%.....I am only asking it to move 3 times the size of my stop....

So, if youhave a stop of .25, I need a .75 gain to get to the 3/1 r/r which +.75 on a $20, $30, $40 etc stock is not a big move at all.

For example a .75 move on a $30 stock is only a 2.5% move, well if that stock was down or up 10% on the day from the gap a move of 2.5% doesn't seem to far fetched, IMHO

Remember, a .25 stop can be 1%, 2%, 5% whatever size you decide as compared to your account, just adjust the share size to match. I have selected a 2% risk factor per trade. This is what many 'experts' recommend as the max you want to lose per trade. (2% of your total account, so a 25k account would mean max loss of $500, adjust share size accordingly to match the stop and $500 level, ie: .50 stop = 1,000 shares)

Hope this helps clarify things a bit for you.

Cheers :D
 
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