Working on Consistent Profitability

[Bill Tradeswell]

tlow,

I thought I'd share a few things with you that took me a long time to figure out. Hopefully I can save you some time, money and frustration in doing so. I'm a pretty consistent ES futures trader, I trade intraday, usually around 3-6 trades per day, and never hold overnight.
Without getting into setups, techniques, etc. I'll offer you my suggestions for fundametal things you must get in order if you want to give yourself the best chance of succeeding in this business. Forgive me if I cover things that have already been discussed in this thread, there are far too many pages for me to browse through.

1. Broker and commissions: If you have enough money($5000 min., but they are flexible) and trade enough to meet any volume requirements, I'd highly reccommend opening an account at a futures brokerage firm like Infinity, Velocity, etc. "Mainstream" retail brokers like TOS and IB are great for trading a wide variety of products, but are TERRIBLE if you're strictly trading futures. Their data feeds are slow and innacurate and commissions are way too high. If you're paying more than $2 per side in commission, you're paying too much.

2. Lot size: Trading 1 lots is a very hard thing to do. It forces you to be all in or all out. Trading multiples allows you to adjust your size, scale in and out and capture profit when a trade moves favorable for you. I realize that your account size may not allow you to do so, but even if you can trade 2 lots, in my opinion, you will be greatly improving your odds at this.
A simple 2 lot trade example: buy 2, sell 1 at 1 point profit. Now your breakeven stop on the trade is 1 point lower than your entry price. If price moves back to your entry price you can scratch the other contract for 1 point total profit on the trade or stop out for breakeven on trade.

3. Focus: Devote your entire focus to one product. If you're trading ES, then only have ES charts on your screen(s) and only trade ES. The only way to get a good feel for how a product moves and trades is to watch it every day. Switching back and forth between products will only make you mediocre at Watching and queing off of other products

 

[jones247]

too funny... murphy's law is a trading axiom

Quote from NoDoji:

...or when I screw up and move it sooner for no reason other than an itchy finger, thereby guaranteeing I'll be taken out of the best move of the day by a single tick and have to chase a re-entry 20 ticks away from my original perfect entry

 

[Went Fishing]

Quote from tlow:
I agree that focusing on the process...the results should take care of themselves, however, how would you identify whether or not your process is ok and living up to its potential?

tlow
My method of trading is a lot more mechanical than yours, I believe PA trading requires a lot of user discretion, I may be wrong about this, since I don't partake of the sacrament. My system is devised of a collection of indicators, I keep a report each day of the percentage of winning trades the system signaled. Time of day is important in these reports. This is not an automated system (yet) so fills have to be verified (trade thru). Certain times of the day have a higher percentage of trades closed out with the maximum programed profit. This report is the qualifying indication that the method continues to perform.

The weakest link in any non-automated system is the trader (may be in an automated one too, if you fiddle with it a lot). So, if I enter on each signal the system generates my W/L % should be exactly the same. Occasionally, I'll take an intuitive trade, I keep track of those results also. Usually, jumping the gun on the system when I can "feel it in my bones," but this is a rare occurrence, so the win % is high.

I believe if traders focus on good disciplined trading techniques, and learn to replicate the procedure with the least amount of "mental input" they will surly come out ahead in their careers as a trader. One last thought, as Mark Douglas writes in his book, ".....the Zone..." ,,, paraphrased,,, "continually monitor your susceptibility for making errors". I believe, when this is the issue, you've arrived.

 

[tlow]

Nod,

Sorry I wasn't more specific...I meant when you enter there may be times when your protective stop is far away...meaning, there are some pretty steep trendlines on some days.

Fishing,

Ya, I understand what you are saying. I've also think you hinted at something that my personality has trouble getting accustomed to...the more abstract discretionary part of PA trading. Its a bit more abstract and there aren't a hard set of rules. When I originally started looking into day trading, I really wanted to use a mechanical system since thats what Im comfortable with....mechanical systems (in the general sense that is ) But wanted to learn more about how price works.

Anyway, as you said, the trader him/herself is the biggest flaw when trading so that is why I tried to equate my own winrate to how well Im trading. But I guess it should be taken with a grain of salt since I could trade a system perfectly but it still could be a bad day in terms of stats.

 

[deaddog]

Quote from tlow:

Anyway, as you said, the trader him/herself is the biggest flaw when trading so that is why I tried to equate my own winrate to how well Im trading. But I guess it should be taken with a grain of salt since I could trade a system perfectly but it still could be a bad day in terms of stats. [/B]

Now you're getting it.
You can execute your plan flawlessly and still have a losing day.
If your system has a positive expectancy you will come out ahead in the long run.

 

[tlow]

Quote from Bill Tradeswell:

tlow,

I thought I'd share a few things with you that took me a long time to figure out. Hopefully I can save you some time, money and frustration in doing so. I'm a pretty consistent ES futures trader, I trade intraday, usually around 3-6 trades per day, and never hold overnight.
Without getting into setups, techniques, etc. I'll offer you my suggestions for fundametal things you must get in order if you want to give yourself the best chance of succeeding in this business. Forgive me if I cover things that have already been discussed in this thread, there are far too many pages for me to browse through.

1. Broker and commissions: If you have enough money($5000 min., but they are flexible) and trade enough to meet any volume requirements, I'd highly reccommend opening an account at a futures brokerage firm like Infinity, Velocity, etc. "Mainstream" retail brokers like TOS and IB are great for trading a wide variety of products, but are TERRIBLE if you're strictly trading futures. Their data feeds are slow and innacurate and commissions are way too high. If you're paying more than $2 per side in commission, you're paying too much.

2. Lot size: Trading 1 lots is a very hard thing to do. It forces you to be all in or all out. Trading multiples allows you to adjust your size, scale in and out and capture profit when a trade moves favorable for you. I realize that your account size may not allow you to do so, but even if you can trade 2 lots, in my opinion, you will be greatly improving your odds at this.
A simple 2 lot trade example: buy 2, sell 1 at 1 point profit. Now your breakeven stop on the trade is 1 point lower than your entry price. If price moves back to your entry price you can scratch the other contract for 1 point total profit on the trade or stop out for breakeven on trade.

3. Focus: Devote your entire focus to one product. If you're trading ES, then only have ES charts on your screen(s) and only trade ES. The only way to get a good feel for how a product moves and trades is to watch it every day. Switching back and forth between products will only make you mediocre at Watching and queing off of other products

Bill, thanks for your input...not trying to disagree here, just bring up discussion:
In regards to:

1. I agree ToS is crap...at the beginning of this journal I was having all sorts of problems with them. They do, however, have many good learning tools that I really like. In regards to speed...the way Im trading, I almost always have a buy/sell stop in place well before price gets to that point. So Im not terribly worried about speed other than making sure I get my closest place in line. The other thing is I run Linux, and both ToS and IB are one of the few that run java apps so it is compatible with my OS. Lastly, isn't IB's commission right around $2?

2. Contract size...my account is borderline handling more than 1 contract. But to be honest, I really have no interest in trading more than 1 at this point. Maybe Im being naive but a.) there are plenty of traders who have proven success and able to learn on 1 contract and b.) I feel it forces me to be a better trader. Ya there will be many times where scaling in/out will be the right thing to do, but now, I have no real room for error. I must identify me S/R, breakout areas fairly precisely. I like that.

Im wondering if those of you who trade multiple contracts always...would you do better off all in or all out? Or is it simply system based?

3.I gave up on the ES a little bit ago...but focusing on CL

 

[NoDoji]

Quote from Bill Tradeswell:

Lot size: Trading 1 lots is a very hard thing to do. It forces you to be all in or all out. Trading multiples allows you to adjust your size, scale in and out and capture profit when a trade moves favorable for you. I realize that your account size may not allow you to do so, but even if you can trade 2 lots, in my opinion, you will be greatly improving your odds at this.

A simple 2 lot trade example: buy 2, sell 1 at 1 point profit. Now your breakeven stop on the trade is 1 point lower than your entry price. If price moves back to your entry price you can scratch the other contract for 1 point total profit on the trade or stop out for breakeven on trade.

I still have mixed feelings about this and since I very rarely scaled in or out of positions, other than practicing it in my sim account for a while, I’m probably not qualified provide input on it. I will provide input on all in/all out, though, because I mainly trade 1 lot and when I decide to size up I’m fairly certain I will continue to trade all in/all out.

As tlow says, trading 1 lot trains you to exercise a level of discipline and patience that is difficult to master any other way. You develop precision. I think one thing my trading roomies would confirm about me (besides I whine too much), is that I'm a precision trader when it comes to entries (and sometimes with exits, too). That's a result of deciding to trade 1 lot until certain of my goals are met. This is a skill I can keep with me no matter what I trade or what size I eventually trade. If I have 1 contract on and want to stay in the trade until it hits a minimum profit target and that profit target is 40 ticks away and price wiggles around at the 10-, 20-, and 30-tick levels, I must learn to accept those price wiggles as part of the game and trust my edge.

If I trade 2 lots and price starts to wiggle, I’ll be tempted to take off 1 lot too soon because a profit’s a profit, right? Well, the problem is that I still pick and choose from among my setups each day. If I trade 6 out of 12 valid setups, I’ve diluted my statistical edge. What if 4 of my trades turn out to be the losing trades and only 2 turn out to be winners? I will likely have a losing day. Now, combine that with trading 2 or more lots. I’ve taken on full risk for the multi-lot trade, but by scaling out and taking profit quickly on part of the position, I’ve limited my reward. Now I’m trading with not only a diluted statistical edge, I’m also trading with a diluted R:R ratio.

My initial goal is to get to the point where I’m trading all valid setups each day. This optimizes my statistical edge. Once that's achieved, my next goal is to size up, take profits on full size if a particular target is reached, and if price is coming in to target at a good clip, take full target on half and let the other half run. No dilution of edge nor of R:R ratio that way.

Quote from Went Fishing:

My method of trading is a lot more mechanical than yours, I believe PA trading requires a lot of user discretion, I may be wrong about this, since I don't partake of the sacrament.

The weakest link in any non-automated system is the trader (may be in an automated one too, if you fiddle with it a lot).

I agree that the weakest link in any system, discretionary or automated, is the trader.

I disagree about PA trading. Pure PA trading has very specific rules. It’s the user discretion that gets in the way. I have rules for entry, rules for when to move my stop, rules for when to stop and reverse, rules for profit targets and rules for when to let a winner run beyond target. I constantly fiddle with things, though.

Today, I used PA to get long CL based on one of my absolute favorite setups. The rule for entry was exact, my entry was triggered with 1 tick of slippage (which is always a good sign that you’re on the right side of things), and I followed my rule for moving the stop to b/e. Due to the slippage, my fixed target was missed by 1 tick (how's that for scalper's precision) and price began to retrace. I took off the trade for 10 ticks, afraid the full profit would evaporate. Had I left my stop at b/e and followed my rules (leave a with-trend stop at b/e until at least minimum target is reached) I would’ve likely ended up with more than my minimum target.

Quote from tlow:

Nod,

Sorry I wasn't more specific...I meant when you enter there may be times when your protective stop is far away...meaning, there are some pretty steep trendlines on some days.

If a survivable stop (the price at which I believe the setup would be invalidated) is more 15 ticks from my entry price, I have the choice of not taking the trade, trading anyway with my 15-tick max stop, trading with a wider stop, or watching the 1-min chart for a second entry point that allows a tighter stop. I usually avoid the trade or if I think it’s too juicy to pass up, I’ll throw in a 15-tick stop. Had one on news this morning where I felt the price action was communicating weakness, I threw on the trade and threw on a 15-tick stop and then after the fact realized that my stop was right at a zone that price could and probably would retrace to. I could be taken out for the loss by a tick or two and the trade could still be quite valid. Instead of moving my stop further I decided to just leave it. It came 2 ticks from my stop before turning at the common pivot level. Close one! That’s the downside of playing momentum with CL. The thing can turn and burn at any time, seemingly out of nowhere.

In a nutshell, we tend to make trading more difficult than it needs to be. Set the rules, follow the rules. Just be a dumbass trader and forget all the drama. Seems so easy every morning when I log in and by the end of the day, I'm scratching my head again!

 

[tlow]

What a blah day for me...Not to make excuses or anything, but I was a bit out of it all day...I swear my dog is like having a kid...or at least what I think it would be like. Hes been waking up at 4am for the past 3 nights, whining. I have to go out into the living room and put a blanket back on him because I think he is getting cold then he goes right back to sleep. Really annoying. Also, pretty funny at the same time. Whenever we decide to have kids Im sure ill be used to the middle of the night stuff since Im dealing with my silly dog.

Anyway, as I said a little hazy feeling today. Late waking up, lots of chop in the morning so my first trade wasn't till almost 10am. Today was a slow grind up and Im still having a bit of trouble with these types of days. i actually got in at a really good point around 10:30 at 87.50ish. I don't why but I just exited when price ran up a bit and then came back. I don't know maybe because it was a slow moving market or something...kinda silly to do, since it wasn't going to reverse straight down or anything.

I think I just need to work on following the trendline, find a good entry off the trendline and then place my stop to get out at a trendline break. If I had done that, I would've held on for almost the entire move. So I only wound up with 20 ticks.

Then I tried to get back in but kept missing my fills by 2-5 ticks and I wasn't chasing it since the moves seemed so slow. Lastly, tried to catch a fade trade at the top that was pretty low risk but it just didnt work out.

Little annoyed at myself for not concentrating better and making the day work for me. But live and learn, as I said, need work on the slow grinding days.

So Im pretty much even on the week. I don't want to put undo pressure on myself but I really want to stay in positive territory for the week since I haven't had a losing week since starting the CL. I know that is not the right attitude to have...I just need to trade well, but man I feel like Im getting so close to moving forward and trading live again.

Total Trades: 5
Winners: 1
Losers: 3
B/E: 1
Avg. Win (ticks): 21
Avg. Loss (ticks): -8
Total Ticks: -3
Total Win Rate: 20%

 

[quin8670]

Quote from NoDoji:

I still have mixed feelings about this and since I very rarely scaled in or out of positions, other than practicing it in my sim account for a while, I’m probably not qualified provide input on it. I will provide input on all in/all out, though, because I mainly trade 1 lot and when I decide to size up I’m fairly certain I will continue to trade all in/all out.

As tlow says, trading 1 lot trains you to exercise a level of discipline and patience that is difficult to master any other way. You develop precision. I think one thing my trading roomies would confirm about me (besides I whine too much), is that I'm a precision trader when it comes to entries (and sometimes with exits, too). That's a result of deciding to trade 1 lot until certain of my goals are met. This is a skill I can keep with me no matter what I trade or what size I eventually trade. If I have 1 contract on and want to stay in the trade until it hits a minimum profit target and that profit target is 40 ticks away and price wiggles around at the 10-, 20-, and 30-tick levels, I must learn to accept those price wiggles as part of the game and trust my edge.

I agree that trading one lot can allow you to develop a high level of precision. But I think the precision on your entries is what counts, which you can achieve with more than 1 lot. The advantages of scaling out of positions are a key edge for me. Lock in a bit of profit early in the trade and then let the rest ride in hopes for big moves that allow you to get exceptionally high R:R.

Quote from NoDoji:


I took off the trade for 10 ticks, afraid the full profit would evaporate. Had I left my stop at b/e and followed my rules (leave a with-trend stop at b/e until at least minimum target is reached) I would’ve likely ended up with more than my minimum target.

In situations like this, you could have just taken part of the position off (even 20-30%), which could have put you at ease and allowed the rest of the position to work.

 

[tlow]

Quote from quin8670:


In situations like this, you could have just taken part of the position off (even 20-30%), which could have put you at ease and allowed the rest of the position to work.

At that point, aren't you just doing that to satisfy your nerves? IMO, your original entry wasn't as good as your original analysis so you as the trader made the error...it seems like you are trying to make an improperly defined entry point work.

Ok...for arguements sake, now where and when do you move a stop to B/E, if at all? Or do you move up/down your original stop to the offset point of where you just scaled out?

You are moving up or down your pricing point, but you still run into the same set of circumstances just with a little bit better price.

If price happens to wiggle around a lot, I think you would be in and out too much.

Thoughts?