Does anybody really make any money?

[Tubbs]

It's time for my usual cast of doubt over the markets. I usually get irritated replies - so here goes again.

Firstly, can anyone daytrade. I'm trying with the S&P & it looks pretty random to me. I read on this board so many times that you shouldn't predict the market but react to it. But surely reacting to the market is just predicting a follow through of what just last happened - a valid premise - but still predicting the market. Once a trade is placed are we not all just predicting the market.

It strikes me that technical analysis or at least ability to read markets is just like religion. Some people have been enlightened & are told what the market is doing all the time. Others have doubts but think that there is a god (technical analysis works). I must say in both there is a one sided conversation and in both we are constantly betrayed by our beloved religion. It just makes me wonder - are we just all effectively throwing darts at a board getting some wins & some losses. Add in to this the commission etc & that's why everybody loses.

Please put me straight, I once again need it -

 

[techst]

'everybody loses' hmm. Losing is a part of trading. But I dont consistently lose, I'm up 50% this year. Sounds like someone suffering a drawdown...

 

[FetteredChinos]

sounds like you're having a bad time tubbs.

the good times, just as the bad, are constantly ebbing away...

it comes and goes.

the problem is that we are all trying to predict the market, by essentially calling one direction and trying to back it with a stake.

how about ignoring market direction and backing it with a stake?

how, i hear you ask?

well , open two trades on the same market. one long, one short. use two different futures contracts, or if SB-ing, use rolling cash and the current future.

now you dont have a preference for the way the market is moving, as no matter what happens, you can close a trade at a profit.

this is psychologically beneficial.

manage the open trades, and close each of them on what looks like a pattern reversal.

bearing in mind indices dont trend approx 70% of the time, you can close one at a profit at some point, and even if you were to leave the other trade open til the close, random theory implies that you should break-even over an extended number of trades (less spread)

its not a path to riches, but it is manageable.

FC

 

[Tubbs]

An interesting idea Fettered - I actually don't trade since I lost my shirt - just looking for a viable concept - can't say I can find one - maybe something out of the box as you suggest.

 

[FetteredChinos]

An interesting idea Fettered - I actually don't trade since I lost my shirt -

i trade in the nude as well.

 

[dbphoenix]

Do you have any sort of trading plan?

 

[haleh]

sounds like you're having a bad time tubbs.

the good times, just as the bad, are constantly ebbing away...

it comes and goes.

the problem is that we are all trying to predict the market, by essentially calling one direction and trying to back it with a stake.

how about ignoring market direction and backing it with a stake?

how, i hear you ask?

well , open two trades on the same market. one long, one short. use two different futures contracts, or if SB-ing, use rolling cash and the current future.

now you dont have a preference for the way the market is moving, as no matter what happens, you can close a trade at a profit.

this is psychologically beneficial.

manage the open trades, and close each of them on what looks like a pattern reversal.

bearing in mind indices dont trend approx 70% of the time, you can close one at a profit at some point, and even if you were to leave the other trade open til the close, random theory implies that you should break-even over an extended number of trades (less spread)

its not a path to riches, but it is manageable.

FC

this idea of your can be tested only in trading days such as today so far, otherwise i amnot so sure it will work,take yesterday e.g.

 

[Trader333]

In my view there is a significant difference between predicting and reacting even after entering a trade. As an example, if I attempt to predict the market then I will be able to say how much profit I am going to make and where and when I will exit my trade.

In reality once I enter a trade I dont know where I will exit until I see certain things. All I know is that I have a plan for all eventualities.


Paul

 

[TheBramble]

All I know is that I have a plan for all eventualities.

Ah. At last. In a nutshell.

No disrespect to dbp, but a trading plan sounds like it could easily lead to 'paralysis from analysis' - I know, I've been there.

Textbook stuff for the academically minded and it'll keep you safely away from the potential 'lessons' the market wants to deliver (and you need to receive) that bit longer, but you can't make profits without losses.

'A plan for all eventualities' I like it. Good work Paul.

 

[dbphoenix]

Not sure I see the difference between a trading plan and a plan for all eventualities since the former should include the latter. The crux of the matter is approaching the market with forethought of some sort.

 

[TheBramble]

Good response.

Care to share an exemplar Trading Plan so that we can understand all that it encompasses?

 

[dbphoenix]

Timsk created a nice template, though the result is as individual as the trader. My current plan is only a half page, though it didn't start out that way.

http://www.trade2win.com/boards/showthread.php?p=166320#post166320

 

[Tubbs]

My point is on randomness. We can all have blind faith that we can read the market, yet maybe it's all just an illusion. I hope not. The trading plan thing is completely useless to me. I have all of those points already sussed. The one I'm having trouble with is buying the market and it actually going up. I have similar problem shorting. Apart from that I'm fine. It's a bit like all of those books on psychology of trading - you have to master yourself to trade - '******** you do' you have to buy before the market goes up - find any way of doing it and you've won. Smoke and mirrors. How can being in control of 'me' give me a profit?

 

[dbphoenix]

The trading plan thing is completely useless to me. I have all of those points already sussed. The one I'm having trouble with is buying the market and it actually going up.

If you have a plan all worked out, what's the ratio of your winners to losers?

What's your profit to loss ratio?

What's the longest uninterrupted string of losers that you can expect over 50 trades?

What's the maximum drawdown that your setups provide in those same 50 trades?

How much of that drawdown are you willing to tolerate?

 

[nine]

Tubbs,

IMO there is a big difference between "reacting to the market" and trading. When trading I specifically do not "react" to everything I see in the market because I know that my chosen market, HSI, has a huge number of volume and price fakes going on and to react to those is to invite the boys to chew you up and spit you out (been there for the first few months).

This trading plan stuff is good and necessary but first you must have one or more edges. The edge is a combination of entry criteria (setup conditions, and trigger), stop, and exit criteria (varies with the entry).

What I do, when trading, is to monitor the market and react not to the noise but to seeing my criteria occur in real time.

So, although I am reacting to the market, I am doing it through the filter of a set of criteria that I have extensively tested and can retest over time if I think Market conditions have changed and are making me less profitable. If you cant buy going up then the chances are that you dont have a clean, crisp, clear set of entry conditions that you are confident in.

So for your problem maybe this is criteria X. And criteria X might be, Market trending up, Market breaks out of X bar high by Y points. Don't buy now ... wait for retracement and buy on a) breakout of retracement within Z bars or some retracement criteria. Or something else. But if you dont have the criteria clearly in your mind then you wont be able to do it.

You may have a different issue but this is certainly worth having a good look at.

I enclose an extraction of some Mark Douglas material that some people seem to have found helpful in this area (I recommend his the disciplined trader and trading in the zone). It might be of value to you.

Kiwi

It's time for my usual cast of doubt over the markets. I usually get irritated replies - so here goes again.

Firstly, can anyone daytrade. I'm trying with the S&P & it looks pretty random to me. I read on this board so many times that you shouldn't predict the market but react to it. But surely reacting to the market is just predicting a follow through of what just last happened - a valid premise - but still predicting the market. Once a trade is placed are we not all just predicting the market.

It strikes me that technical analysis or at least ability to read markets is just like religion. Some people have been enlightened & are told what the market is doing all the time. Others have doubts but think that there is a god (technical analysis works). I must say in both there is a one sided conversation and in both we are constantly betrayed by our beloved religion. It just makes me wonder - are we just all effectively throwing darts at a board getting some wins & some losses. Add in to this the commission etc & that's why everybody loses.

Please put me straight, I once again need it -

 

[Trader333]

....We can all have blind faith that we can read the market, yet maybe it's all just an illusion.....

In my view there is a simple reality check on this. If you believe that you can read the market and are not able to then it will result in ongoing consistent losses. The opposite is also true in that if you are able to read the market then you will acquire ongoing consistent profits.


Paul

 

[stevespray]

Morning….

The markets, over a long period of time, will present many opportunities to make money. The key is therefore to ‘be around’ when the opportunities show up. These opportunities will mean nothing if you have nothing left to speculate with.

CAPITAL PRESERVATION IS THEREFORE THE KEY.

The fact is that most ‘newer’ traders over commit to position size and allow an unacceptable level of drawdown to occur on their accounts. Irrecoverable draw down is the main reason people fail. It does not matter how good you are at predicting the markets – you need sound money management. This aspect normally presents a problem for most people who are new to the markets or people who have only a small amount of capital to speculate with. The concept of money management and small position sizes is a boring one. Because of this peeps decide to ignore it. Enter the gambler! People who trade with little regard to money management are gamblers. Sorry to be so blunt but its my opinion. These people are a ‘time-bomb’ waiting to happen – the law of averages is just waiting for the right moment.

Another problem for the ‘newer’ trader is simple human psychology. The chances are that when you first come to the markets you will be unprepared for the raw emotions which the markets will throw up at you. Single trades can swing your emotional state – one winner and you think you’re Jessie Livermore, one loser and you feel that you can not possibly carry on. This all leads to a loss of composure which, as I’m sure most experienced traders will tell you, the market has a nasty habit of punishing.

The basis problem for less experienced traders is that they need a steady flow of winners. When I say ‘need’ I mean that their psychology demands it. Of course what this leads to is situations where winning trades are consistently cut short before they are given a chance to really make it big. On the other side losses are allowed to mount. At the end of the day peeps end up with a selection of small winners which are completely dwarfed by one or two huge losses. This is exactly the opposite of what is required. The successful trader actually has a string of small losses which is dwarfed by a few BIG winners. This concept is hard for less experienced traders to understand. It conflicts with their dreams of what they thought stock / futures dealing was all about. As you mature as a trader you will find that income from the markets is not regular. You will have runs, some good and some bad. The key is not to chase losses – In my experience most new traders chase a loss, they increase a stake size in order to recover the loss made in the last trade. On the flip side they half stakes after a good winner, they now fear giving what they won back to the markets. The most successful traders in history where the ones who backed their winning runs. This is the real key to making the big money. Adding to winning positions in established trends means that you are only speculating with the markets money.

I’m not sure I can agree with Fettered’s comments earlier in the thread. Firstly by opening two positions you are already down two spreads and have absolutely no market exposure – where is the value ?
Secondly, by following the outlined method, you will be cutting you winner and running your loser – this is the opposite of what is required. I accept you point on the psychology of collecting a winner but surely this is just creating a phoney environment? The key to success is cutting losses quickly – big losses always start out as small losses.
All the time we are told that ‘markets only trend 30% of the time’. This isn’t the case. The statistic is timeframe dependant. If you look at a yearly chart of the Dow then you would see that it has in fact trended higher for the last 50 years.
The problem for the newer trader is that he / she is unable to actually work out the timeframe that they are actually trading in. For example, someone may look at a recent Daily chart for the S&P’s and spot that we are in a short term downtrend. In my experience what people tend to do is to open a position based on the picture they see in the daily and then subsequently manage the position on a 5 minute basis. This obviously leads to failure – one up trend day will see them racing for the exit because they think that the downtrend is now over.

The fact is that there is no short cut to ‘the promised land’. Successful trading is an evolution which takes an incredible period of time. During this time you must pass through not just a process of learning but also a process of ‘unlearning’ – You will need to teach yourself that opinions and emotions which you developed before you entered the markets are wrong and are no longer required.

Steve.

 

[pb]

Tubbs,
Yes, it is possible to make money consistently by trading, but it's a long and hard slog, with no short cuts. Trading is not easy for anyone, except for the very (very) few who are born naturals.

Take your time. Continue to build and preserve your capital. Play small. Be patient. And don't quit the day job just yet.

Edit: Obviously Steve beat me to it.

 

[twiggytwo]

Morning….

The markets, over a long period of time, will present many opportunities to make money. The key is therefore to ‘be around’ when the opportunities show up. These opportunities will mean nothing if you have nothing left to speculate with.

CAPITAL PRESERVATION IS THEREFORE THE KEY.

The fact is that most ‘newer’ traders over commit to position size and allow an unacceptable level of drawdown to occur on their accounts. Irrecoverable draw down is the main reason people fail. It does not matter how good you are at predicting the markets – you need sound money management. This aspect normally presents a problem for most people who are new to the markets or people who have only a small amount of capital to speculate with. The concept of money management and small position sizes is a boring one. Because of this peeps decide to ignore it. Enter the gambler! People who trade with little regard to money management are gamblers. Sorry to be so blunt but its my opinion. These people are a ‘time-bomb’ waiting to happen – the law of averages is just waiting for the right moment.

Another problem for the ‘newer’ trader is simple human psychology. The chances are that when you first come to the markets you will be unprepared for the raw emotions which the markets will throw up at you. Single trades can swing your emotional state – one winner and you think you’re Jessie Livermore, one loser and you feel that you can not possibly carry on. This all leads to a loss of composure which, as I’m sure most experienced traders will tell you, the market has a nasty habit of punishing.

The basis problem for less experienced traders is that they need a steady flow of winners. When I say ‘need’ I mean that their psychology demands it. Of course what this leads to is situations where winning trades are consistently cut short before they are given a chance to really make it big. On the other side losses are allowed to mount. At the end of the day peeps end up with a selection of small winners which are completely dwarfed by one or two huge losses. This is exactly the opposite of what is required. The successful trader actually has a string of small losses which is dwarfed by a few BIG winners. This concept is hard for less experienced traders to understand. It conflicts with their dreams of what they thought stock / futures dealing was all about. As you mature as a trader you will find that income from the markets is not regular. You will have runs, some good and some bad. The key is not to chase losses – In my experience most new traders chase a loss, they increase a stake size in order to recover the loss made in the last trade. On the flip side they half stakes after a good winner, they now fear giving what they won back to the markets. The most successful traders in history where the ones who backed their winning runs. This is the real key to making the big money. Adding to winning positions in established trends means that you are only speculating with the markets money.

I’m not sure I can agree with Fettered’s comments earlier in the thread. Firstly by opening two positions you are already down two spreads and have absolutely no market exposure – where is the value ?
Secondly, by following the outlined method, you will be cutting you winner and running your loser – this is the opposite of what is required. I accept you point on the psychology of collecting a winner but surely this is just creating a phoney environment? The key to success is cutting losses quickly – big losses always start out as small losses.
All the time we are told that ‘markets only trend 30% of the time’. This isn’t the case. The statistic is timeframe dependant. If you look at a yearly chart of the Dow then you would see that it has in fact trended higher for the last 50 years.
The problem for the newer trader is that he / she is unable to actually work out the timeframe that they are actually trading in. For example, someone may look at a recent Daily chart for the S&P’s and spot that we are in a short term downtrend. In my experience what people tend to do is to open a position based on the picture they see in the daily and then subsequently manage the position on a 5 minute basis. This obviously leads to failure – one up trend day will see them racing for the exit because they think that the downtrend is now over.

The fact is that there is no short cut to ‘the promised land’. Successful trading is an evolution which takes an incredible period of time. During this time you must pass through not just a process of learning but also a process of ‘unlearning’ – You will need to teach yourself that opinions and emotions which you developed before you entered the markets are wrong and are no longer required.

Steve.

Great Post and so true !
regards Twiglet

 

[CJIA]

re

Great Post and so true !
regards Twiglet

I will definitley second that,excellent.