Two Questions For Practicing Day Traders

[ironchef]

I also want to mention paper trading.
I am from the camp that paper trading is best used for "how-to" use your platform.
Today, with all the micro, nano, onesie, and fractional instruments, there is no reason
NOT to have skin in the game. Further, as Ai pervades, the more you NEED to understand YOU and what YOU do.

Thank you for taking the time to post.

I like to offer a couple of counter points about real time paper trades:

1. The fact that there is no skin in the game has its value in assessing the theoretical expectancy of a method. Afterwards the new trader can work on the psychological aspects with live trades.

2. In the last two sessions, I actually started to do both live and paper trades in my daily session. After live, I then paper traded for practice and for trying different tweaks to the system to "optimize".

Best regards,

 

[ironchef]

So question 1 is moot, is the new assumption.

So Question 2 then: Expectation is too coarse a measure. It uses probability of W/L. In order to get a meaningful number you need too many trades, e.g. > 30. That is too coarse for what you are trying to learn now. You want to drill down into each trade before measuring dozens of trades.

Imo a day trader should use "High and Low water mark" intra trade, what is called MFE and MAE, and then add time in market.

You see examples of this: you get into a trade and it lasts way longer than normal. If it is a winner, grand slam, then ignore it. But if it is not, and is either a BE or small gain, or loss or large loss, then there are problems:
1) you are protecting the expectation (both probability of W/L and the actual W/L) number by holding onto bad trades. Sort of metrics slight of hand.
2) the trade takes too long and is not being closed and opening another trade, there by reducing the total number of trades. You miss better trades.

Try this metric. MFE/MAE/Time. Some platforms do it for you. They record each trade MFE and MAE and total time in market. Something to consider when choosing a platform.

Then WHEN you have a POSITIVE, $/minute metric. Get that number high, then work on orders handling to get the more profit. The expectation number over many many trades will be fine and reliable.

After re-reading it a few more times and after reading @tiddlywinks' comments/explanations, I got it.

Schwab platform doesn't have that feature but it is easy for me to record it on the excel spread sheet that I am using to keep trading statistics.

Thank you again.

 

[ironchef]

I also look at my metrics in regards of R and not percentages of capital. My typical day is four trades and I shoot for a 2r+ a day. In a month I would have about 10 day's ending + 2r and the rest of the month day's cancel each other out. So, realistically, I average about +20r a month, 200r a year. Year in year out. It is the consistency that for me is the important part of the results I get. I do everything to keep a good work ethic and be disciplined every day... I only trade the first hour. I only take trades that are in my tradingplan. I quit trading after 4 signals or if the results are more then + 2r for the day. (I do not cut off a winning trade)
All this works for me. I trade for a living, I do not live to trade. Big difference. I see a lot of people get in to daytrading and it is for most people an alternative for Vegas. The get there dopamine from seeing a possible trade and get hooked for life, whatever the results are financially... I really belief that 90% of daytraders are in that category.

Thank you. Your comments didn't sink in until I reread them a few more times today.

I really appreciate you sharing your thoughts and plan.

 

[Jzwu2017]

@Jzwu2017, I do want to come back and thank you for one of your prior responses: I didn't believe it but you were right.

Because I am keenly aware of the psychological effects of winning/losing real money in trading from my very own experience. In one of your posts you said even trading for a Mac money it’s a big deal. Indeed, that’s exactly what I felt too!

I believe it’s human nature as long as real money is involved. Unfortunately, that’s not something we can change at all, perhaps only to control/mitigate to some degree.

 

[padutrader]

@padutrader,

Thank you for your pointers.

Is that what Al Brooks would have said?

it IS what he says...ad nauseum...and after he repeats it, for the 99000 th time, i understand what he says.....shows the greatness of the man for having thought of it,first.

while most people think he over complicates, he actually makes it ridiculously simple.

 

[padutrader]

Because I am keenly aware of the psychological effects of winning/losing real money in trading from my very own experience. In one of your posts you said even trading for a Mac money it’s a big deal. Indeed, that’s exactly what I felt too!

I believe it’s human nature as long as real money is involved. Unfortunately, that’s not something we can change at all, perhaps only to control/mitigate to some degree.

in trading real money is involved.
but when you drive on the road your life is involved. why are you not terrified for losing your life? you drive without fear. you have been taught to drive you have been trained to do it in certain way.
the key in trading is not to fear losing or even aiming not to lose BUT to lose little and win big.
well you get the idea.
how do you do that? trading 2nd entries is one way. a second entry is a second trade wiith the same logic as the first where the first did not actually work out and 'failed'.

for eg you get a break out which then fails and becomes a BO pull back which then breaks out a second time.
the blue line are the second entries that worked the red are those that failed and note that these failures became good entries in the opposite direction. Lose little win big.
now you tell me is Brooks complicated?

 

[Jzwu2017]

You have a good point about driving without fear. It’s become a natural part of us after some experience. In general, severe car accidents are far and between.

Trading loss is hard to become natural to us due to the inevitable frequent losing trades. The emotional impact is quite different. For pro traders losing has indeed become natural to them so they don’t feel much of losses.

Another reason is pro/winning traders are confident that they can win consistently even with many small controlled losses, so they can take losses like a champ.

 

[padutrader]

due to the inevitable frequent losing trades.

lose little win big that is the key

 

[padutrader]

The get there dopamine from seeing a possible trade and get hooked for life, whatever the results are financially... I really belief that 90% of daytraders are in that category.

markets are there all day.... yes 90% of losing traders are in that categary..... but most of them lose because of no or horrible technique rather than thrill seeking...... In Vegas, you actually win sometimes, so guys, usually work out, that Vegas is the better alternative. and you get online casinos too.

 

[Jzwu2017]

lose little win big that is the key

Fully agree. However, it’s easy said than done.