2 years in the game... is it time to hang up my boots?

2 years in the game... is it time to hang up my boots?
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Hey guys.. this is kind of a long story but I will try to make it as short as possible

2 and a half years ago, in June 2008 , I started day-trading full-time.
My previous experience with the markets had been as a long term investor in the ASX, buying (and occasionaly selling) various stocks.
In the first 6 months of 2008 I had started to play around with CFDs and Options.

So without too much hesitation I quit my full time job and decided I would try to make a living trading CFDs.

I read some books,(swing trading, candlestick analysis, trader bios, etc) attended a few seminars, went through a stack of online-presentations to do with technical analysis, trading discipline, trading forex, etc

And within a few months I found myself focusing mostly on trading forex, using a price action strategy with the focus on breakouts on the Daily chart.

My basic strategy was
- look for inside bar breakouts on daily
- also look for pinbars off horizontal support/resistance or fib levels
- risk 1% or 0.5% of account per trade
- use 21 and 100 day EMA as support / resistance levels as well as horizontal lines drawn off 4H charts
- trading majors and yen crosses
- look for 3:1 risk reward targets
- put stops around 3-day hi or lows - or use EMA lines and fib s/r for stops


and that (pretty much) remains my strategy to this day, although I use a lot of discretion and tend to watch the breakouts occuring over the 15min charts, it still forms the basis for my trading strategy.

So where am I today?

Pretty much Even-Steven.
I certainly haven't made any money, I have probably lost around 4-5% of my account all up at the time of writing.

Over the two years, my maximum drawdown was probably 15%, my maximum high point was around 20% gain on the account.

I kept accurate records of all of my trades, trade by trade, month by month,
here is a summary and a graph

Stats drawn from every trade I made between Sep-08 and Jul-10
(total about 650+ trades. Which makes about 25-30 trades per month)
(includes trades on all CFDs stocks, commodities, indices... MOSTLY FX trades but also includes other instruments.)

Average Win: $322
Average Loss: $155
Win%: 31%
Payoff Ratio: 2.18 (winners : losers)

Winning Months: 7
Losing Months: 14

The average month was around a 2% swing in either direction, I had 4 'big' months where I went up or down around 9-12%



(I hope that picture comes out okay?)
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Looking back, how could I have improved my trading method?
Well , honestly I think there are two main ways that I got burnt.
1) Going for 3:1 payout, was too ambitious. I think a 2:1 or even 1:1 is more realistic. In other words: Smaller targets.
2) Trading with tight stops, and having a lot of small losses. Most times I would rather "give the trade room to breathe" and get stopped out at a loss than 'break even' or take a small gain. I think this is probably more related to my targets than my stop-losses. In other words: Less big wins, more smaller wins and breakevens.


Now I don't have the resources or time to go through every trade and check whether i ACTUALLY WOULD have ended up with more $ if I had modified my system as mentioned above, it's just my 'intuition' that I would have been more profitable.
(Smaller $ wins, higher win %)

For a few years I was really convinced that high-payout ratio targets and accepting a below 50% win ratio was the only way to be really profitable.
Now I am not so sure.

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So ... this is where I stand.

I have had a lot of screen time over the past few years, and I recently started playing with Options and fixed-odd betting on forex recently, (with a win rate of around 60% on fixed odds betting)

The benefits of options+fixed odds is that... I can't get stopped out if I'm wrong by 1 pip (for instance) and I tend to be correct more often than I am wrong.

(Whereas when I was trading spot Forex, I tended to just get stopped out a lot of the times when I was 'correct' ... not whinging about this I'm just saying that the mechanisms behind FX Options and fixed-odds FX bets means you can't get stopped out... they have their disadvantages too.)


However apart from the odd trade here and there, I'm not sure where I stand on my career as a day-trader.

I don't believe that my system (as described above) will ever be CONSISTENTLY profitable over long term and as a day-trader I MUST be CONSISTENTLY profitable as my livelihood depends on the steady income rather than praying for a few big wins every 3 months.

So where do I go from here?
Is it time to hang up my boots?

Is it merely a case of just tweaking my existing system?

I have heard it said that many people who trade take 2-3 years to become profitable. Also I have heard it said that most traders lose their accounts ...

Well I risked a large amount and I haven't lost my account (i'm pretty much square) and based on my risk management, I don't think I would ever lose my account... I would keep treading water. Even Steven.

so does this mean I actually should just keep sticking it out and I will eventually turn into a profitable trader?

I don't know.

I would appreciate some guidance

regards
Jon.

a bit more analysis of your entries may show the mistakes....

I suggest that you do not pull the trigger on a trade for a few days and instead. start to analyze the validity of your entries...

Rewrite the trading plan....

Probably a subtle change will give you success...

If you've been trading it this long, what made you think the system has an edge? If you're not confident it does, why trade it? The monthly results are a bit all over the place.

You say you don't have the resources and time to go through each trade, but you should be able to backtest 'part' of your system. I realise with the fibs, things are a bit subjective, but the inside bar breaks, and the emas as support can be backtested, and various profit targets, stops, trailing stops can be played around with.

Did you consider trend? Support/Resistance levels as targets (horizontal, trendline, Big round numbers)?

I hope it works out for you, but

so does this mean I actually should just keep sticking it out and I will eventually turn into a profitable trader?

Click to expand...

this sounds quite passive, as if it will just arrive one day. I think you need to take the initiative and make it happen by doing some hard work.

Shakone's right - what's your edge? Your results are random, as if you're tossing a coin to determine the trade.

2 and a half years ago, in June 2008 , I started day-trading full-time.
My previous experience with the markets had been as a long term investor in the ASX, buying (and occasionaly selling) various stocks.
In the first 6 months of 2008 I had started to play around with CFDs and Options.

So without too much hesitation I quit my full time job and decided I would try to make a living trading CFDs.

I read some books,(swing trading, candlestick analysis, trader bios, etc) attended a few seminars, went through a stack of online-presentations to do with technical analysis, trading discipline, trading forex, etc

And within a few months I found myself focusing mostly on trading forex, using a price action strategy with the focus on breakouts on the Daily chart.

My basic strategy was
- look for inside bar breakouts on daily
- also look for pinbars off horizontal support/resistance or fib levels
- risk 1% or 0.5% of account per trade
- use 21 and 100 day EMA as support / resistance levels as well as horizontal lines drawn off 4H charts
- trading majors and yen crosses
- look for 3:1 risk reward targets
- put stops around 3-day hi or lows - or use EMA lines and fib s/r for stops


and that (pretty much) remains my strategy to this day, although I use a lot of discretion and tend to watch the breakouts occuring over the 15min charts, it still forms the basis for my trading strategy.

Click to expand...

This is how the majority of people giving advice in this forum would begin their posts, and, they would get a lot of recommendations for it as well...interesting...

3:1 is hardly ambitious.

Brain surgeon trains for what 5-7 years before he/she is in any way competent? Yet we expect to hit the ground running in a very complex industry that would (ironically) require the brain surgeon to re-wire our hardware in order to be successful...

Unless you roll out of a city career, giving you the knowledge and confidence to make profit from day one, we mostly arrive in this space by accident and or design and then have to start to build a new career from point zero with little capital to make our mark. There are no trading qualifications to obtain to give you comfort, no mental band aids for the battle scars you get on your Odyssey, no free lunches and no free help. It's all about you.

IMO if you are still in the game after two years at breakeven, still have the hunger, still (deep down) know you can make a career out of this after 2 years you may be so close you can begin to taste the success, on that basis I wouldn't give up. Keep flying low and keep experimenting, keep faith in yourself. However, if you don't have that hunger, self belief, the self confidence in your edge and you can't culture that winners' edge then perhaps it is time to move on.

jon

I do not trade for a living, nor have I in the past, so my comments are very much second place to those who do and who I hope will offer you some advice.

However, your description of your strategy seems predominantly about your entries whereas it is your exits that determine whether you make a profit or loss and how big they are. My belief, for what it's worth, is that you have far more chance to improve your trading by concentrating on your exits strategies (both to increase profit and reduce loss) than by thinking about "tweaking" your entry methodology.

If you haven't read it, Van Tharp's Trade Your Way to Financial Freedom is an excellent guide to all this.

You've made a bold move and I hope you will succeed in time.

(another) jon

barjon said:

jon

I do not trade for a living, nor have I in the past, so my comments are very much second place to those who do and who I hope will offer you some advice.

However, your description of your strategy seems predominantly about your entries whereas it is your exits that determine whether you make a profit or loss and how big they are. My belief, for what it's worth, is that you have far more chance to improve your trading by concentrating on your exits strategies (both to increase profit and reduce loss) than by thinking about "tweaking" your entry methodology.

If you haven't read it, Van Tharp's Trade Your Way to Financial Freedom is an excellent guide to all this.

You've made a bold move and I hope you will succeed in time.

(another) jon

Click to expand...

jon, I think you are completely missing the point. If someone needs to ask whether they should continue trying to be profitable then the answer is "No". Take up another hobby, a cheaper one.

Keep your day job until you are profitable

The US market is perfect, being open 2.30 pm to 9 pm UK time to practice.

Don't attempt the high board first off !!

Pat494 said:

Keep your day job until you are profitable

Click to expand...

That was his first problem. He quit his job before doing the research/study.

new_trader said:

jon, I think you are completely missing the point. If someone needs to ask whether they should continue trying to be profitable then the answer is "No". Take up another hobby, a cheaper one.

Click to expand...

nt

I doubt he's seriously asking that question. More likely just down in the dumps about his trading and looking for some reassurance and guidance to help him improve it. Haven't we all had our "I'm not cut out for this" moments

jon

Jon4664 said:

Now I don't have the resources or time to go through every trade and check whether i ACTUALLY WOULD have ended up with more $ if I had modified my system as mentioned above, it's just my 'intuition' that I would have been more profitable.

Click to expand...

This seems like a major problem to me. You say you don’t have time to go back through your trades and review them, but you have 1:2 win/loss. You do have time! Stop trading now and do a thorough review, as you have a 2 to 1 chance of losing at the moment, so it can't do you any harm to not trade for a month. One other suggestion I’d also make is that you should have a cut off point for when you are losing in a month, where you stop trading and review what you’ve been doing so you can see where you are going wrong. I have a personal cut off of 1.5% draw down in a month, but something around 6% is suggested in books I’ve read.

Jon4664 said:

So where do I go from here?
Is it time to hang up my boots?

Is it merely a case of just tweaking my existing system?

I have heard it said that many people who trade take 2-3 years to become profitable. Also I have heard it said that most traders lose their accounts ...

Well I risked a large amount and I haven't lost my account (i'm pretty much square) and based on my risk management, I don't think I would ever lose my account... I would keep treading water. Even Steven.

so does this mean I actually should just keep sticking it out and I will eventually turn into a profitable trader?

I don't know.

I would appreciate some guidance

regards
Jon.

Click to expand...

Giving this kind of advice is fraught with danger. I believe it is more productive to ask questions meant to help you discover the core issues to help you make an informed decision.

Do you have a passion for trading? Trading is hard work. Without passion it is hard to do what needs to be done to succeed. Some parts of the job are no fun and tend to be skipped without that passion.

You wrote that you keep good records. These records should contain journal-type entries for each trade related to your decision making. Did you follow your rules? If not, why not? How much did you risk? How did you determine this? If things are happening too fast to keep these kind of records, consider using a voice recorder and transcribing it after the market closes.

There are at least three prime components to your trading system; strategy, money management and trader (you). With journal entries such as those I discussed above, you can more easily identify which component of your system needs the most improvement and focus there.

If you examine each trade individually with your journal entries you can begin to correlate your decisions with how the trade turned out. I have found that one of my weakness as a trader is committing unforced errors because I lost focus. Keying errors, reading the option chain incorrectly, not rechecking my trade before launching it, etc. Not trading when I'm tired or in the middle of an intense forum dialog would reduce the unforced errors. It is now down to discipline to do what I know needs to be done.

Examining many trades over time where you committed no errors will give you some insight into your strategy. Is there a large variance in performance even though you did your best? If so, perhaps you strategy is weak. Is there a constant trend over time? This is an indication of systemic changes in the market that your strategy may not be able to accommodate.

Last, you must examine your decisions with respect to money management. Do you follow sound money management practices in general. And in particular, how did the amount you risk correlate with the trades where you exercised the most discipline, i.e. committed no errors according to your rules.

I believe that with these introspective exercises you will be able to come to your own conclusion and have confidence in your decision.

Live long and prosper.

barjon said:

nt

I doubt he's seriously asking that question. More likely just down in the dumps about his trading and looking for some reassurance and guidance to help him improve it. Haven't we all had our "I'm not cut out for this" moments

jon

Click to expand...

Most of the Market Wizards had less than illustrious starts to their careers, in fact the typical path was to blow a load of cash before re-grouping and going back.

Two years is not that long IMO, if you're breaking even then why not persevere, if you're able to. Even legends like Paulson had 3-5 indifferent years amongst all the good ones.

Stunningly honest post, by the way.

barjon said:

nt

I doubt he's seriously asking that question. More likely just down in the dumps about his trading and looking for some reassurance and guidance to help him improve it. Haven't we all had our "I'm not cut out for this" moments

jon

Click to expand...

Most people aren't "cut out for this".

are you serious ? you quit your day job without even proving on demo that you could make a profit ?! - WHAT have you lived on for the past 2 years......how much profits do you need to make each month / year to live on ? - HOW are you going to get them ???? I think you need to get a new job ASAP

Jon4664 said:

2 years in the game... is it time to hang up my boots?
-

Hey guys.. this is kind of a long story but I will try to make it as short as possible

2 and a half years ago, in June 2008 , I started day-trading full-time.
My previous experience with the markets had been as a long term investor in the ASX, buying (and occasionaly selling) various stocks.
In the first 6 months of 2008 I had started to play around with CFDs and Options.

So without too much hesitation I quit my full time job and decided I would try to make a living trading CFDs.

I read some books,(swing trading, candlestick analysis, trader bios, etc) attended a few seminars, went through a stack of online-presentations to do with technical analysis, trading discipline, trading forex, etc

And within a few months I found myself focusing mostly on trading forex, using a price action strategy with the focus on breakouts on the Daily chart.

My basic strategy was
- look for inside bar breakouts on daily
- also look for pinbars off horizontal support/resistance or fib levels
- risk 1% or 0.5% of account per trade
- use 21 and 100 day EMA as support / resistance levels as well as horizontal lines drawn off 4H charts
- trading majors and yen crosses
- look for 3:1 risk reward targets
- put stops around 3-day hi or lows - or use EMA lines and fib s/r for stops


and that (pretty much) remains my strategy to this day, although I use a lot of discretion and tend to watch the breakouts occuring over the 15min charts, it still forms the basis for my trading strategy.

So where am I today?

Pretty much Even-Steven.
I certainly haven't made any money, I have probably lost around 4-5% of my account all up at the time of writing.

Over the two years, my maximum drawdown was probably 15%, my maximum high point was around 20% gain on the account.

I kept accurate records of all of my trades, trade by trade, month by month,
here is a summary and a graph

Stats drawn from every trade I made between Sep-08 and Jul-10
(total about 650+ trades. Which makes about 25-30 trades per month)
(includes trades on all CFDs stocks, commodities, indices... MOSTLY FX trades but also includes other instruments.)

Average Win: $322
Average Loss: $155
Win%: 31%
Payoff Ratio: 2.18 (winners : losers)

Click to expand...

Hi Jon,

My advice is as follows:

- Stop trading IB breakouts. Particularly if your entry is on one side of the IB and your stop is on the other.

- Keep to just pins for the time being but also demo blind entry at all levels you would "want" a pin to occur.

- Up your risk. With what I estimate your account size to be from your stats that strategy won't make you enough money at 0.5% to 1% risk to make a living and be a day trader. Get it up to 3% at an absolute minimum. Your current risk is probably wise based on your w/l ratio but if you do what I say you will get that w/l ratio much higher. So maybe take this step once you see the results.

- Stop using a fixed R. Once you are filled, get 50% out just ahead of the next level on the timeframe you enter, regardless of the R and then re-assess the trade and trail a stop on the other 50%.

- Keep a strict note of a) what happens after your stop is hit and b) how much drawdown you suffer on each trade from the entry. This will help you improve your s/l placement over time.

- Start trading the gaps. Immediately.

There may be other things you are doing wrong that you haven't mentioned in your post, like moving to breakeven. However make the changes above and perhaps do all that on demo to start with. Try it alongside what you are doing if you are not comfortable jumping in live with it. Give it an absolute minimum of three months and then report back.

Your results will be much better.

If you need further help on the route, PM me.

Great post by the OP, and like others I think, from your description that you have done okay considering where you are in your trading career.

Always difficult to offer advice based on limited information but the first thing that strikes me is that if you are only averaging 25-30 trades / month that is just over 1/day...so I am surprised your strike rate is so low (31%) [winning trades as a % of total.] What I mean by this is that youi are obviously puting tiome into 'selecting' the best opportunity across multiple instruments, not that there is anything wrong with just over 1 trade / day. I am sure there are more high probability trading opportunities in these circumstances than your strike rate suggests.

Of course I don't know how you are determining what a 'winning trade' is, - it could be one that reaches your 3:1 r:r or one that get's stopped at a profit by a natural/methodical move of stop as price progresses,? But on the surface the strike rate still seems lo.

Trader_Dante offers good advice, and in lifting the strike I would start by doing more work on the overall methodology to increase it thereby easing pressure on the r:r ratio.

G/L

advfntrader said:

I think you need to get a new job ASAP

Click to expand...

This is easily the best advice. Unless you have another source of income, I would take it if I were you. It could easily be another few years before you come close to being profitable and that is assuming you are actually cut out for this, something you aren't even sure of yourself having jumped in with both feet. I think it is utterly reckless for people to encourage you to keep going, or read another book, or add another pretty coloured line or timeframe or system etc...wtf?