The Trading Journey of Lurker

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Old May 12, 2007, 7:18pm   #1
Joined Jan 2007
The Trading Journey of Lurker

Hi all

I am very new to trading, and newer to these boards. I have posted frequently over in the Dow 2007 thread, but as my trading development keeps coming up over there, I don't wish to take this thread off topic. I have found that the questions and feedback I receive from T2W members creates an expectation of accountability, and has allowed me to become a more sober trader, avoiding some bad trades.

The idea of this thread is to note my trades, and my observations about my own trading behaviour. I would hope that other members here would be so kind as to share feedback, observations, suggestions, advice, and comments where appropriate.

I am trading a small account via spreadbetting. I am aware of the differences of opinion regarding the efficacy of spreadbetting, however for the moment the tax advantages and small stake sizes make it worthwhile. Should I ever go fully "professional", I would look into trading the actual futures, with all the attendant advantages. I have an IT background, but am currently between jobs and looking to trade full time. I am not setting myself unrealistic targets, like making enough money trading to support myself, because I believe that creates additional pressure while trading. I would like to make enough to justify time spent in front of the quote screen, but otherwise I recognise this is a learning experience, and I really have no right to expect anything better than breakeven at this stage.

What I would like to do here is to post all live trades, and my reasoning for entering and exiting them, along with an end of day review. I would imagine that this will attract some small amount of commentary from those who are wiser, and this is a large motivation for keeping a public journal. I do not expect to find many people who have the time to assist me with learning what I should be able to learn independently, and I am not looking for handholding, holy grails, or anything else sometimes associated with lazyness on the part of new traders. Some feedback and guidance where possible would be nice.

To start off, since I won't be trading again until Wednesday 16th, I am going to list what I believe are the main issues with my trading, and then I intend to follow up with short term goals to improve this.

Trading Issues
  • Poor money management
  • Trading against the trend
  • Over reliance on discretion for entries and exits
  • Failure to confirm trends and setups on longer timeframes
  • Poor use of stop loss orders (too close, or too far away) - placing them for the wrong reasons
  • Overtrading

Short Term Goals
  1. Identify the trend, and trade with the trend
  2. Confirm setups with multiple timeframes (5min, 30min, and daily for intra-day trading)
  3. Keep a full record (on T2W and handwritten) or trades taken, pips won/lost, reasons for entering and exiting, and thoughts
  4. Keep small stakes for the time being, until consistent profits can be achieved
  5. Avoidance of "gamble entries" and high risk trades

I will be trading index futures, mostly the Dow and FTSE. I am avoiding ForEx for the time being, and will only enter equities if I see a good setup. I intend to day trade without overnight positions at the moment, although in the future I would look to EOD / swing trading to catch bigger parts of moves.

Feedback appreciated.

Thanks for reading.

~LL
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Old May 12, 2007, 7:47pm   #2
 
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good move, lurker

a couple of starting points:

1. how are you going to identify the trend - maybe need a tight definition?
2. similarly, is your set-up precisely defined to the extent that if you posted it (not asking you to) would all readers do exactly the same thing as regards spotting it, trading it, entering and exiting in the same places?

just a couple of thoughts.

good trading

jon
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Old May 12, 2007, 9:02pm   #3
 
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Hi LL

Firstly, I think you will learn a lot by posting your trades and more importantly the reasons for and how you feel about each trade on a public forum.

I'm also very new to trading (but haven't yet started risking £££) so I understand the stage of your journey. My input is:

1. Do you have a written down trading plan which includes clearly defined i) setup, ii) how you will identify the setup, iii) entry, iv) money management and v) exit rules?
The identification of the setup is very important. Barjon has given you very good advice.
2. Have you backtested your trading strategy?
3. My understanding is that your stops need to be where your reason for entering the trade no longer applies and also considering intra day volatility.
4. Why FTSE100 and DJ30? Personally, I find the movement too erratic.
5. Have you demo traded? If yes, how successful were you?
6. Have you entered in the T2W FX competition? I'm using it to forward test my own strategy (see my blog entry no. 11).

Good luck

Fibonelli
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"The trend is your friend and divergences are your best friend until the bend at the end"

Party on like it's 1930, until Mr C (Wave) gatecrashes the party.
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Old May 12, 2007, 10:02pm   #4
Joined Jan 2007
lurkerlurker started this thread
Quote:
Originally Posted by barjon View Post
good move, lurker

a couple of starting points:

1. how are you going to identify the trend - maybe need a tight definition?
2. similarly, is your set-up precisely defined to the extent that if you posted it (not asking you to) would all readers do exactly the same thing as regards spotting it, trading it, entering and exiting in the same places?

just a couple of thoughts.

good trading

jon
Hi barjon

Thanks for your contribution. I hope the following answers your questions.

Establishing the Trend


I intend to look at weekly, daily, and 4 hour candles of the instruments I wish to trade. DMI will be used to establish if the market is trading or trending. ADX > 25 indicates a trend. Furthermore, a 100 period exponential moving average is overlaid on the daily and 4 hour charts. Trendlines are used to determine general direction and S/R levels. This should be okay to establish a) if there is a trend and b) whether the trend is bullish or bearish.

On your second point, this seems to regard almost system trading. I can't trade mechanically - I can used fixed signals (pivot points, S/R, volume, MACD) to determine whether I should take a trade or not, however the point at which I enter and exit a trade (and even if I trade at all) are discretionary. To answer your question, I don't have written rules specific enough to let somebody else replicate the trades I would take.

Is it okay to have such a discretionary system, or should I tighten up my rules? I don't want to over-rely on indicators and signals. Let me know what you think.
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Old May 12, 2007, 10:24pm   #5
Joined Jan 2007
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Quote:
Originally Posted by fibonelli View Post
Hi LL

Firstly, I think you will learn a lot by posting your trades and more importantly the reasons for and how you feel about each trade on a public forum.

I'm also very new to trading (but haven't yet started risking £££) so I understand the stage of your journey. My input is:

1. Do you have a written down trading plan which includes clearly defined i) setup, ii) how you will identify the setup, iii) entry, iv) money management and v) exit rules?
The identification of the setup is very important. Barjon has given you very good advice.
2. Have you backtested your trading strategy?
3. My understanding is that your stops need to be where your reason for entering the trade no longer applies and also considering intra day volatility.
4. Why FTSE100 and DJ30? Personally, I find the movement too erratic.
5. Have you demo traded? If yes, how successful were you?
6. Have you entered in the T2W FX competition? I'm using it to forward test my own strategy (see my blog entry no. 11).

Good luck

Fibonelli
Fib, thanks for your post - paper trading is probably a good idea, but you need to risk some capital in order to understand how you will perform in a "real world" situation. When you feel ready, get yourself an SB account and force yourself to stick to £1pp stakes until you are profitable. As long as you have some risk capital, that is the best way to learn how your emotions will affect you. Good luck when you go live!

To respond to your points (in reverse order, oddly enough):

6- I've not entered - its a FX competition and I'm trying to stay away from FX trading at the moment. It would be a good place to paper trade before I start on FX again - but I have reasons to avoid FX for now.

5- I had a demo account with TradIndex (20,000). I almost exclusively traded FX with that, and some commodities. I grew the account to over 100,000, mostly on the back of the fall in the GBPJPY the other month. I rode that down from 240.** to 219.** or thereabouts. Because it was only paper trading, I didn't find it too helpful for anything other than learning the platform. I didn't paper trade very long.

4- Interesting point. I started on indices because the spreads were low, the volatility was such that there was profit potential, and I seemed to be quite good at it initially. I've tried equities, and made a few hundred shorting miners and Prudential the other week, but the spreads are large and the movement (in terms of SB points) is quite low. It's probably not for me. As far as the incides go, they are moved quite a bit by the news, are quite trend-friendly, have low spreads, and high liquidity. I think I'll stick with the FTSE from 0930 (I dont trade the open) to 1500, and the Dow from 1500 to 2000 (I don't trade the last hour). What do you trade?

3- Your understanding of stops is spot on to my eyes. I sometimes set stops at the most I am prepared to lose, but mostly set them where the market will tell me I am wrong. (for example just above a recent double top if I am shorting). Still, I sometimes set them too close, and get stopped out - or too far away, and then sit thinking "this trade isn't coming back, but I won't close it until my (too damn far away) stop is hit."

Now your questions regarding this strategy. I don't backtest. I don't really see the point - I think there is a lot of "curve fitting" that can go on in backtesting, leaving the trader to the mercy of a "system" which was successful in the past, but won't be in the future. I do not want to be in the position of taking trades I think are wrong because the statistically correct backtested system told me to. Some say that without backtesting you have no edge. Perhaps they are correct. Backtesting lends itself to mechanical trading, but I exercise too much discretion to even program in a backtest.

My strategy? It isn't too formalised at the moment. That is a bad thing. Discretion is good, but too much leads me to take trades at bad entries (for fear of missing a move) or just through boredom. That is not a good place to be. In an effort to try and be more disciplined and rigorous, I tried Chartman's Dow Jones Day Trading Strategy. I didn't do that one too well - when I did make the entries I was whipsawed, then I noticed there were many profitable swings that the system didn't trade, and eventually I missed out on the big trades that the system saw which I didn't trade. I became pretty despondent. The system is basically:

Wait for price to cross the 100EMA, and wait for a pullback. Trade in the direction of the EMA break, but only if CCI(150) and RSI(14) aren't OB/OS.

That had disastrous results, and many whipsaws. I am about to post some images, and one of them is of the entry signals generated by Chartman's system as I understand it. It catches some goods swings!

I have fairly solid risk control and money management rules (which I don't always stick to, but do for the most part.)

For example, as I have a small account I have a rule that I cannot lose more than 10% per day. If I go over that, I stop trading. No trade is to risk more than 25% of the account. (I have a small account, so I can't reduce this number much). Furthermore, each trade should have a risk / reward of 2.5:1 or higher. I break these rules sometimes, but I am trying hard not to. Perhaps I may improve on this front.

The identification of my setup is lacking to put it politely. Any assistance with this would be appreciated. I usually use trendlines, bollinger bands, MACD, and a few oscillators to determine buy/sell signals. I combine this with chart S/R and candle patterns to make trading decisions.

Let me know what you think!

Cheers

~LL
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Old May 12, 2007, 11:01pm   #6
Joined Jan 2007
An example of why I can't use a completely mechanical system

lurkerlurker started this thread I refer to my previous post, where I mention an early unsucessful attempt to use a trading system. Note that this is in no way a criticism of the system or the system's designer - it is intended as an insight into how I find it difficult to follow fixed systems, and how whipsaws can occur. I have tried to use this system without success.

Here, we are using ChartMan's daily dow system - I hear that chartman is an experienced and well regarded trader, and that many have benefitted from his system The exercise here is to show how I have previously failed to profit from following fixed entry and exit rules based on indicators.

Please see the attached image. The first entry (1), is a pullback confirmation from crossing the EMA. Neither CCI or RSI are extreme, so the entry is greenlighted. The sell is signal is around 13,310. In this example, we will use the CMC spread of 4 on the cash Dow to assess profitablity.

Lets assume a sell at 13,307. Price falls immediately, hits lows around 13,285. No panic exits within 20 points of the EMA are allowed, so one would wait. CCI comes out of oversold, and price breaks 13,300 - major S/R level - signal to exit. System gets out when the bid goes above 13,300. With a 4 point spread, the offer will be 13,305.

Sell at @ 13,307 - Cover @ 13305. +2 pips.

Trade #2

Upside cross of EMA, pullback confirmed. In at 13,316. Neither RSI or CCI extreme, so entry greenlighted. Note this trade could be entered about 5 minutes early, at the same price. A sell signal could be generated to close this trade when CCI is overbough, but apparently one should not exit so early, and there is no divergence. Lets assume we adhere to the rule not to exit until it crosses the EMA the other way +20. We get out when the bid is 13,298 (on the suport break, EMA cross etc).

Buy @ 13,316 - Cover @ 13,298. -18 pips.

Trade #2.1 (not shown).

I am not sure if the system permits entry at around 1645 when price retraces to 13,285 (key S/R), and then drops in a failure candle. If it does, we can add a +50 pip short here.

Trade #2.2 (not shown).

I am not sure if the system permits entry at the gravestone doji at around 1755. There is no EMA crossover, so I don't think so. If it did, add another +25 pips.

Trade #3.

EMA cross, pullback. Buy at 13251 (offer), cover after the double top and the indicators being overbought. The cover is around breakeven after the spread.

Trade #3.1 (not shown).

After the head and shoulders pattern is confirmed, I would have shorted, ut the system does not permit it as there is no pullback after the EMA is broken at 1959. (this trade would have only made +8 pips)

Trade #4

Sell at 13,243. Price dips, retraces to this level, and then plummets. Exit would be when CCI becomes oversold, and there is a bullish engulfing. Cover at 12,220 - + 24 pips.

Total for the day: +8 pips after 4 trades. I must be doing something wrong or not following the system, but after Fibonelli's questions I wanted to see if I could take a chart for a day and apply entry and exit signals to it. I used ChartMan's system because I had previously attempted it.

Could somebody point out my errors in implementing this system (perhaps another follower of chartman's dow system, or another dow trader, or even chartman himself!).
Attached Thumbnails
dow-chartman-10th-may-2007.png  
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Old May 12, 2007, 11:05pm   #7
Joined Jan 2007
Some Dow charts

lurkerlurker started this thread Here are some dow charts.

Chartman's system on a 10 minute chart shows that the EMA crossover entry catches some really good swings.

The other trend images for the Dow show how I have attempted to establish trend with trendlines, ADX, and S/R levels.
Attached Thumbnails
dow-30m-adx-trend.png   dow-4h-adx-trend.png   dow-daily-adx-trend.png  

dow-chartman-10-mins.png  
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Old May 12, 2007, 11:48pm   #8
 
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Quote:
Originally Posted by lurkerlurker View Post
Hi barjon

................Is it okay to have such a discretionary system, or should I tighten up my rules? I don't want to over-rely on indicators and signals. Let me know what you think...........
LL

Whilst you don't want to become a slave to your indicators and signals, it's advisable imo to have a set of conditions relating to your set-up to inform your trade. Some of those will be first level conditions - ie: if they are not met then no trade - some will be second level and more discretionary.

Even if you're trying to be fully discretionary you still need to isolate the factors that will lead you to exercise your discretion and place a trade. As you test your method - in your case by small trading - you will learn which of those factors is important enough to become an inviolable rule and, at the other end of the scale, those which don't seem to matter and can be discarded.

I trade trend continuation via 3 bar retracement - fairly mechanically - and when I started it years ago I listed a dozen or so associated factors that may be pertinent. As I tested and traded I gradually found out the weight of each factor until, today, I'm left with three that MUST apply before I'll trade and a couple that I'd prefer to see and which just influence position size. It turned out that some things I thought would be crucially important didn't rate at all and vice versa.

Hope this is of some help.

good trading

jon
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