Your thought process going into a trade

S

shotstakovich

Hi, I was hoping a more experienced trader could help me understand the thought process that went into a successful trade.

I come from a value investing background doing fundamental research on equities, and my holding period is usually much longer than the holding periods of most members on this site.
 
shotstakovich said:
Hi, I was hoping a more experienced trader could help me understand the thought process that went into a successful trade.
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First, the same process goes into a "not successful" trade that goes into a "successful" trade. There is no difference other than the actual real-time outcome.

Going along with speedo's reply, as an intraday futures trader, first, has the current market activity triggered a known to be profitable opportunity. Once the trade has been put on, there is only one question... is the current market activity as expected for that specific opportunity. When the answer to that question is no, the response is... next.

Aside from the backtesting, rules, and discipline necessary for daytrading, getting into daytrading with only a background of a fundamental approach may prove to be very difficult for you. jmo.
 
First, the same process goes into a "not successful" trade that goes into a "successful" trade. There is no difference other than the actual real-time outcome.
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Couldn't said it better. Nice.
 
shotstakovich said:
Hi, I was hoping a more experienced trader could help me understand the thought process that went into a successful trade.

I come from a value investing background doing fundamental research on equities, and my holding period is usually much longer than the holding periods of most members on this site.
More...

I no longer think, it all automated. Where I do my thinking is designing the method and doing hundreds of hours looking at data. When I use to manually trade, I use to breath the rules, so I was a robot-no thinking.
 
Trading isn't about the successful trade. They come naturally when you know what to look for. In my case, if I'm long I want to see people attacking the offers with little resistance, then I want to see the big guy pulling his bids to trap bots, then I want to see him not get filled.. and hit up again. I also want to see the offers pulling every time it splashes up a little. This comes with muscle memory and watching the ladders which I've spent over 5 years on, so it's hard to explain more in detail for you.

Most of trading is the grind. You want to be able to handle the grind trades with such automation that they never turn into big losers.

Thought process (very simple):

0. What is the context of the day?
-What time is it (near open, afternoon, or close).
-Is correlation in play today?
-What is the price action like (are people hitting up and down, back and forth).
-What is the total volume done so far, is it big or low?
-Are there are any figures coming out later on, and how important?
-Have any figures come out earlier which may entice people to do their orders earlier
-Is there evidence of big players participating right now? If there isn't, why gamble on the hope that they enter?

1. Do I have enough reason to enter this trade or is this 50/50?

2. Where am I wrong? If it trades 4 ticks away, I'm wrong... do I still want the trade? Probably not. At another time, I'm wrong if it trades 1 or 2 ticks away... this is a golden trade!

3. Am I stepping in-front of a train? Sure, it might be running out of steam, but that doesn't mean weak people are also in a position and looking to exit as soon as it doesn't look good for them, squeezing everyone else too.


Note: Most of these are learned over time. It takes about 6-12 months to get the hang of this. For my friends and people I mentor at my firm, it will take about 2-3 months because they get to talk to me every single day and put the pieces of the puzzle together instantly, instead of waiting 1-month to figure it out.
 
the real edge to trading is risk management

It's like roulette. If you get red 5 times in a row, odds are black is going to hit sooner than later. So if you bet small 5 times and lose and bet big once and win, those small losses don't matter. Your win rate might be low but you're making money. Except you can't predict roulette but you can predict commodities and stocks.
 
recession2016 said:
the real edge to trading is risk management
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You keep using that word. I do not think it means what you think it means. The "edge" is a structural advantage of some sort. A market maker has an edge in knowing the flow. A corporate derivatives trader has a balance sheet and access to deals. Those are "edges". Risk management is not an edge. Risk management is a skill and it can be learned. It's not an edge.

PS. This is not to say that a retail trader does not have an edge.
 
Plan the trade and trade the plan, only most have an issue clicking the button by waiting too long or not long enough, and then having a useless entry which is whipsawed out.

You're just an airline pilot, flight plan, takeoff, autopilot, landing, plus training to handle exceptional events.
 
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