Trading WITH versus WITHOUT a system

Quote from Dustin:
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-You cannot hypothesize a strategy without understanding how stocks move, how to execute properly, and where the profits can be found consistently. The ONLY way to learn these is practice. Ideally if you have the bankroll, practice with small size in a real account. No backtesting, No paper trading. You don't learn to trade with those.
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Hi Dustin, thanks for the good tips...

Here is my problem. I just learned the basics of technical analysis (i.e. what this indicator does, what that one does, a few candlestick patterns, etc). Now what would be the next logical move, if I wanted to focus on an intraday strategy?

Do I sign up a demo and just start looking at the live charts, having the indicators on and begin observing the behavior of the price?

The problem is the books give you all the technical background, the psychological principles, and some even outline a few strategies, but they never actually go through the process of how you go from book wisdom to your first paper trade. I could start paper trading right now of course, but it'd be not much different from someone throwing darts blindfolded.

I would go take a class, but they are expensive and I am wary of people who make a living teaching other traders - it often seems that is their way of making money when they lose their winning streak and need supplemental income.

Thanks again for any and all advice.
 
Quote from Georgii:



The discretionary trader, by contrast, doesn't follow a concrete system. They check a variety of indicators, and based on what those indicators are telling them, they make a decision whether to pull the trigger or not. They don't always look at the same indicators. They are more of a "wing it" type of trader, they don't have concrete rules and they go by a combination of indicators and gut.

Is this accurate?
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A discretionary trader, hopefully not a discretionary gambler, will have a system that they operate. However, for them it will usually be a framework of operation rather than a rigid mechanical system.
 
Quote from Dustin:

You are asking good questions, but getting mostly bad answers. Unfortunately ET is mostly the blind leading the blind. The path you are headed down right now has ruined many new traders. Usually I don't respond to these posts but I'm bored so here goes.

-Indicators are to be used as a guide, not a strategy. They are also much more effective on indexes than individual stocks. They are only useful due to crowd psychology, so you need a big crowd. Many new guys fall into the trap of indicator based strategies and don't survive the learning curve (because they don't learn anything about actual trading).

-You cannot hypothesize a strategy without understanding how stocks move, how to execute properly, and where the profits can be found consistently. The ONLY way to learn these is practice. Ideally if you have the bankroll, practice with small size in a real account. No backtesting, No paper trading. You don't learn to trade with those.

-"OK I will practice with small size but what do I trade?" I'm a big believer in trading volatility. This means using scanners to find what's moving today. Without volume and volatility you will have a tough time, so find it and trade it. You will learn from every losing trade. There are only so many mistakes you can make in trading, and once you learn not to make them you will turn profitable.

It took me 1.5 years of full time trading to turn profitable. If I had the above advice it would have shortened that significantly.
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This is good advice. Reread it. I think the volatility paragraph is something I wish I took under consideration at day one, as per it would have saved me a year of groping in the dark...................
 
Quote from Georgii:

Thank you for all the links.

I just want to get the semantics correct here...

Good luck to you!

A system trader formulates a hypothesis on what is likely to be a trend in a given market. S/he looks for certain indicators that when put together, will usually predict/confirm that a trend is taking place.

This is just one out of many styles or methods or approaches to trading. Technical long-term investors usually try to do forecasting. Most traders deal with the probability of a random variable called PRICE to move in a certian direction.

The system trader will look for these indicators, and when s/he sees them, they jump in and take the trade knowing that statistically they are likely to win more than 50% of the time (and they manage their money so that they can't get killed because of a losing streak). They have extensively backtested the system and have demo traded it, so they can fall back on a statistical success average.

This is a sure way to disaster...although I agree, most follow this route...

They always follow their entry and exit rules, because if they don't, they get creamed.

and if they do, often they get creamed anyway...

Some system traders operate like a robot, always entering a trade, others might weigh a few fundamental factors before deciding to pull the trigger.

that too...


The discretionary trader, by contrast, doesn't follow a concrete system. They check a variety of indicators, and based on what those indicators are telling them, they make a decision whether to pull the trigger or not. They don't always look at the same indicators. They are more of a "wing it" type of trader, they don't have concrete rules and they go by a combination of indicators and gut.

more or less...

Is this accurate?

within a wide margin of error...

Thanks again...
More...
 
Quote from Georgii:

Hi Dustin, thanks for the good tips...

Here is my problem. I just learned the basics of technical analysis (i.e. what this indicator does, what that one does, a few candlestick patterns, etc). Now what would be the next logical move, if I wanted to focus on an intraday strategy?

Do I sign up a demo and just start looking at the live charts, having the indicators on and begin observing the behavior of the price?

The problem is the books give you all the technical background, the psychological principles, and some even outline a few strategies, but they never actually go through the process of how you go from book wisdom to your first paper trade. I could start paper trading right now of course, but it'd be not much different from someone throwing darts blindfolded.

I would go take a class, but they are expensive and I am wary of people who make a living teaching other traders - it often seems that is their way of making money when they lose their winning streak and need supplemental income.

Thanks again for any and all advice.
More...

The next step is to take what you've learned and try to apply it to the charts of the stocks that are the most volatile each day. You can get the top gainers/losers free from many sites like Y! Finance. After each day take a look over those stocks and see if you can find tradeable patterns. Ten good traders will find ten different ways to trade them, you just have to find what you are comfortable with. For example you could trade them as continuations in the morning, then range trade them midday, then reversions late day...or any mixture you like. There are many good strategies out there, just a lot a of bad traders trading them.

Don't pay for any classes.
 
Quote from God,just God:

.....here we go

you need a system that YOU and YOU alone develop. Indicators and signals from others will not help you at all.

system trading based on rules is much easier than eyeballing in a more discretionary way

be less concerned with accuracy of your signals whatever they may be and more with money management

good luck
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godamit, this statement is just about spot on !
I would add, you'll never get 'em all right - ie trades - but the better the system, the higher the probability and that's what you trade, probabilities.
Never fall in love with a position, believe nothing you hear from the [slanted] media.
 
further, discretionary trading will overload your sensory perceptions.

If / when you build a mechanical trading system, the concepts should be quite simple and the range of choices should be limited to avoid information overload.

Information overload will seize the trader up.
The brain can't cope with too much changing new information repeatedly imo.
 
Quote from Georgii:
Thank you for all the links.

I just want to get the semantics correct here...

A system trader formulates a hypothesis on what is likely to be a trend in a given market. S/he looks for certain indicators that when put together, will usually predict/confirm that a trend is taking place.

The system trader will look for these indicators, and when s/he sees them, they jump in and take the trade knowing that statistically they are likely to win more than 50% of the time (and they manage their money so that they can't get killed because of a losing streak). They have extensively backtested the system and have demo traded it, so they can fall back on a statistical success average.
More...
Generally that’s the concept.
Quote from Georgii:
They always follow their entry and exit rules, because if they don't, they get creamed.
More...
Theoretical yes, but in reality there comes a time when you get a string of losing trades resulting in a larger drawdown. Then the question is whether you blindly decide to continue trading the tested system on the assumption that in the past it was giving you a statistical edge, or do you stop using the system because the market conditions have changed and the system is no longer appropriate for different market conditions? There are many nuances like this that need to be emphasized, because generally systems are overrated, there are many hidden traps in system trading and consequently the most money made by systems are by those who sell them to new traders who believe they can buy success. Obviously there are exceptions, but most of the so called profitable systems don’t work in the real world of trading, and when they do, they are definitely no match for discretionary trading, because discretionary trading is superior in more than one aspect.
Quote from Georgii:
Some system traders operate like a robot, always entering a trade, others might weigh a few fundamental factors before deciding to pull the trigger.
More...
Defining a process of trading style is one aspect, but I believe you should also look at what are the actual outcomes of each style, it’s strengths and weaknesses, such as smoothness of equity curve, expectancy, returns not only on money but also return on time for spending time in front of the monitor, etc.

The problem with system traders is that they are removed from the actual market by number of abstract levels, and so in a sense they’re like robots. Another problem with system trading is when developing the system, you need some knowledge of how the market works, how the elements of the system should be adjusted, because if you don’t you’ll just be purely relying on some nice optimized statistics that the computer spits out and the system will lack trading logic behind those numbers and it will be a disaster waiting to happen.
Quote from Georgii:
The discretionary trader, by contrast, doesn't follow a concrete system. They check a variety of indicators, and based on what those indicators are telling them, they make a decision whether to pull the trigger or not. They don't always look at the same indicators. They are more of a "wing it" type of trader, they don't have concrete rules and they go by a combination of indicators and gut.
More...
Discretionary traders have rules, they know exactly what they’re looking for, and they can even write it down in pseudo code, but unfortunately in most cases those rules are not possible to program and therefore human decisions must be made in rder to apply the method to the market. Discretionary traders do have trading plans. Don’t confuse them with gamblers who ‘create’ trades out of thin air without having any statistical edges. Discretionary trading will not overload your perceptions, because as discretionary trader you will have to adjust your thinking in a way that will filter out most information that has no value to you, and you’ll let your mind focus on only those things that are relevant to your trading methodology.

You always politely ask, and politely thank to others, if you want I can help you to get started to put together some basic framework to get you started in the right direction. I won’t be back to trading till about September so meantime I have some spare time. But you’d have to keep a blog so that you start developing some kind of a structure based on trading logic which you could later on utilize as a framework for any kind of trading based on your personal beliefs and preferences.
 
ALL of the previous posters and anyone else reading this will agree that preservation of capital is the single most important part of any winning system

suggested hints:

1. be on the right side of the trade
2. use a sell stop
3. dump losing positions before they hit the sell stop and hopefully before any money is lost.

I might suggest a system with charts that has the following and nothing else: price, volume, hand drawn trend lines and channels and your ability to recognize chart patterns. look at charts in many time frames intraday, days, months, years. a one day chart is useless without a bigger picture.

use a virtual account or paper trade for a year before spending any real money.

if you had a system you would understand, the market goes up you make money the market goes down you make money there is always another opportunity.

if you trade now without a system you would have more enjoyment if you lit your hundred dollar bills on fire and watched them go up in smoke

keep your money in a nice safe bank account.
 
Quote from angel_king:


1. be on the right side of the trade
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Only achievable using tea leaves or a Ouija board...

Sort of like saying, in order to win at sports, you must outscore your opponent...
 
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