Day Trading & Forex Forum

Chorlton

Well Said !!!!

IMO a Mechanical System should contain all the elements needed to trade successfully. The benefit once implemented is that day-to-day Trading should be less emotional than discretionary as one simply follows the systems signals and don't have to worry about other external factors (*1)

This for me was the main reason why I decided to journey down this path......

(*1) This assumes that these "external" factors have (to some extent) already been catered for during the testing phase.

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A Fine is a Tax for doing something wrong. A Tax is a Fine for doing something right !!

Return of Capital should always be more important than Return on Capital

nine

For the past five or six years I have been a discretionary day trader. Every order has been entered by hand ... well by click.

I started this because I was convinced that day trading was way to make real money trading. Why? Because in microswing day trading you get 3-6 opportunities per day per market. So if you risk 2% every time your return per day is much higher than in EOD trading where the 2% might only be risked once a week.

But I was pretty convinced it had to be hand driven. So I commenced learning. And at that stage I loved spending 3-8 hours a day watching the markets.

I learned about trends, how to read them with mas, how to read them with lines and channels, how to read them with market profile concepts. I learned about pullbacks and I learned a lot from the trend dynamics course. I learned about profit improvement on entry and the conditions that would suggest a conservative or an extended target.

Then I learned all the stuff that Mark Douglas talks about: getting out too early, getting out too late, entering without a signal, failing to enter with a signal, fear, frustration, boredom and all the secrets that lie within myself and come out when pressured to make very quick decisions with your money and your ego on the line. This generated a thread of mine: Useful things I've found on the net

After 4 years where I evolved from gbl to euro to hsi the HSI made a huge change of its nature when a bunch of big swinging disks from China bought megayuan to the market and totally screwed it up. So I went in search of another market. And I found two, the Aussie SPI and the Taiwanese STW. They were half as fast as HSI so two wasn't too difficult. And I adapted all the things I'd learned on HSI to these two; and three months later I had two great variations on my original strategy and was sucking the bucks from them.

Then came the GFC and the markets halved their ranges and STW became a little too quiet so I checked out HSI. Well the bsd's from China has burnt their yuan and it as back to normal almost. So now I'm trading HSI again although I'm better than ever because I had to evolve to the other markets ... and that learning has come back with me.

BUT. Damn it. I don't enjoy the process of trading 1m charts any more.

What to do?

OK. Time to apply my brains instead of simply my attention. Two weeks ago I decided that my exits were the most mechanical part of my strategy and that because SierraChart now permitted you to control the IB TWS interface with dlls I'd write some code to mechanize my exits - I'd still enter intelligently but I'd let the computer do the exit. After a week and a half I had code that was doing it quite well. And wow, it was a joy not to have to track the market intensely for the 3 minutes it usually takes me to close a position (for 50 points targeted). Exiting mechanically brings these advantages:

- it saves you 3 minutes four or five times a day (yes, hardly worth the hours of testing and programming)

- it prevents entrainment in the market during the time of risk (steenbarger talks about the problem that people face changing behaviours because they decide what to do in one mental state but then try to do it in another one) thus reducing emotionality & thus stress & propensity to make errors

- to change an entry into a straight gamble (one of the things that makes trading harder than gambling is that a gambler sees the chance, takes the bet, and then sits back to see how it runs; a trader because he then manages the position has much higher chance of self-blame and can't see it as a simple bet because he can do (usually wrong) things that affect the outcome.


So, wow, I put the trade on and then I sit back and watch the horse. I'm rooting for it but if it loses, well it lost. Such is life.


Then, 4 days ago, I thought, why not mechanize my main entry (I have two and the other one is to put a limit at a critical point and wait to see if the market will take the bait). On my main entry I'd sometimes miss it - often when I shouldn't. So I thought that if the exit was so much fun I'd program in the entry too. Well it turns out that after I get an entry signal there are 4 different limit points at which I can take the trade and they are determined by 5 different decisions about market micro-timeframe structure. No wonder I missed the odd trade ... I had less than 30 seconds to make the decisions, validate them, and place the correct order.

So now, when the trend is up and the structure is right, I just press a button and "Buy" or "Sell" appears on the chart. The software waits for the entry signal and when it gets it, in microseconds it calculates the correct one of my four entry points and submits it to IB.

Two days now. Wow, its relaxing. I've rediscovered the computer program and its a labour and stress saver.

Next step. I think I can program a state machine that will generate a series of entries as long as a) conditions don't tell it that the trend is suspect, and b) I don't remove the "Buy Sequence" command because I have decided that conditions might have changed.

So I will check the market from time to time to make sure that conditions are such that "in the old days" I'd be looking for trades and as long as that holds ..
I'll just watch the fire.

pedro01

I have a mentor that is helping me to trade purely based on price action. I currently trade a discretionary system that gives a signal - the signal can last a few bars and I'll take a long if I get a higher low as confirmation (opposite for shorts).

Now - I can wait like a hawk with reptilian reflexes (a Hawkocodile), waiting for my bar to close with a higher low before pouncing. I can rely on my reflexes OR when I get my setup signal, just kick this script off...

Even in manual trading, a little bit of code helps !!

This is just to put things in perspective - it's a very small piece of code but it proves a point. It stops me from either pressing the button too early or too late. It makes the decision in microseconds and it NEVER presses the wrong button.

Code can be used to help you trade. How far you go with it is up to you.

mechanicaldaytrader

...discretion is the better part of valor....computers are like adding machines - let them do the grunt work, but always check the total before making the deposit..

If you choose a futures index that is significantly hedged by multiple long term players, the index you day trade will not have wild liquidity swings or "random" numbers that wreak havoc with your trading rules, stop losses, profit objectives. I've traded in size on the Mini Dow - frequently 300 contracts at a time - with no liquidity issues, but I only trade "institutional stops". The biggest consistent trade size I've seen is about 800 contracts, he gets filled about 400 or so at a time.

If you do your due diligence on what index you trade, you will not have to change futures contracts ...cuz the unexpected isn't going to happen.

It is good to be brave, but it is also good to be careful.; If you are careful, you will not get into situations that require you to be brave

The Mechanical DayTrader

dcraig1

How do you know if an index is "hedged by multiple long term players" ?

mechanicaldaytrader

ya gotta pay for that info...lol ! "market technicians" know money flow, institutional stops, and have time-tested critieria for OVERSOLD and OVERBOUGHT conditions and when those conditions end. Unless you know money flow and have well-defined OVERSOLD and OVERBOUGHT conditions, you have no business day trading, imo. You are likely to lose your shirt ..and the boat..and the ....

Cheers!

The Mechanical Day Trader

dcraig1

The question was about hedging not overbought and oversold conditons.

mechanicaldaytrader

???? the question was about HOW to determine if a market is hedged...I gave him the answer...(actually a couple answers) ..one of which sailed right over your head dcraig1....You can't measure hedging unless you know money flow; you can't measure money flow unless you can identify OB and OS conditions with rigid mathematical models.

One great thing about Forums is you can definitely spot those that KNOW and those that DON'T ! Be careful out there folks!

The Mechanical Day Trader