Bonsai,
My reply is meant with good intent, it is frank and an honest assessment of my own trading and what I feel needs to be achieved through a certain process which as you will see involves an element of being mechanical.
You were burning the light bright late last night. LOL
Your comments were very wise and thought provoking; and sounds like it maybe from the Piper school of thought.
First let me deal with my reference ‘where I am’. This I think may have been taken out of context; what I was trying to say was that I aim to be where you are now with your trading, (my assumption being that you are a full time trader applying a profitable system) and not copying your strategy but moving to full time trading following my own defined trading plan that proves to be successful for me.
Obviously I have asked questions of you and yes I am guilty of ‘picking your brain’; but this is first out of respect for your knowledge and experience, second to learn from and third to establish if anything maybe suitable to include in my own strategy. So far I have gleaned some additional knowledge about the market and has made me review both my trading signals and my use of a stop loss. The emphasis being my OWN!
I have been trading for just over 3 years when I can and during that time I have made use of numerous indicators to establish a trading pattern that works. I have already developed a lot of the applications that Piper illustrates, if I had not I do not think I would still be trading. I have reached a crucial point in my trading and it is for this reason that I have been asking a lot of questions both of you, others and myself.
I am at the stage where I know several different daytrading strategies that work for me but I am allowing all of them to clutter my trading rather than developing a clearly defined strategy. Part of the reason for this was that I was trying to attempt to glean the best of the intraday trends while at the same time taking the shorter approach for quick repeated gains unlike the trend deal where often you must allow the price to come back at you before the greater gain is achieved. I am beginning to realise that for me the 2 do not mix as I do much better when I decide to trade 1 system.
Having now made a conscious decision to question my own thinking and move to trading just the intraday trends is a step in the right direction towards my own goal.
Maybe I still have a lot to learn as I feel that a mechanical approach does have its part to play. I would agree that it is not everything and on its own is plagued with problems, but I feel for me it is a very important ingredient. Let me expand on this further, and I quote you (which I must say I found very profound stuff and something I wish I had seen 3 years ago)
“Trading, imo, is not about the mechanics and you can't make it
mechanical. There is no silver bullet. It is much more about you as a person.
Really. In the markets, you may think you are trading the market
but you are actually trading yourself, your personality, your
regrets , fears and ambitions. And most of all you are trading the
psychological baggage created by reinforced convictions from
previous trades. It may sound like a lot of crap to some but it is my
recommendation that you do not discount it lightly.”
If you do not adopt a structured trading plan you are not focussed on how you are going to achieve your goal. We all know we want to make a profit but it the ‘how’ that matters. Part of this means you have to have the finance in the first place and manage this accordingly because feelings of fear will creep in if you have not managed your risk appropriately to your financial position.
You must decide what style of trading you intend to follow; Range/Reversal such as Bollinger approach, Scalper with all the varying indicators and tick charts, a Swing trader or a variety of others. Then you must decide what time frame you intend to apply this method, a daytrader, medium to long-term trader. (Sorry if this all sounds familiar).
Having established your style of trading and the charting tools you intend to employ (if any) then you also have to establish which entry signals you will follow by establishing confidence in them. From this you then have to establish your exit signals or strategy as it could be as simple as taking 10 points or a certain % and so on. When this has been achieved all with established confidence and your own ability to repeat the process successfully over a reasonable period can you consider the signals as part of a trading plan.
From here you have to establish how you managing an open position, where to place your stop when you enter to ensure a limited loss, where to place your stop when the position has moved on in your favour enabling you to benefit from a larger gain rather than exit to early, subject to your own style of trading.
Finally dealing with all those feelings you highlighted so well. The greed, the fear, the doubts, the expectations and that lovely description of past baggage, that’s brill and oh so true. I firmly believe that by setting up a clear pattern of trading such as the risk you take with your finance, the particular signals you employ, the method of entry and exit, the way you manage your open position then the mechanics of this help to reduce those feelings and by following a clearly defined trading pattern are you not in some way being mechanical. It is for this reason that I believe having a mechanical approach can work for some. I work best when I have clearly laid out rules of what to do and what not to do. If a signal presents itself which is outside the remit of the trading strategy then it will not be followed and hopefully this will help to avoid a loss because you know from past experience this particular signal is not as reliable as the ones you have chosen to adopt. It maybe that while you can see an entry there is not some other component present which prevents you from acting such as no clear stop and so on. You are essentially filtering out the clutter of signals that are not reliable following a proven pattern that works for YOU. I think this counts for being mechanical.
I would only add one other aspect to the complete trading plan and that is to react,
Once you have a clearly defined plan it is no good unless you have both the confidence in it and the ability to apply it successfully. In order again to deal with the feelings you must be able to switch them off and by having something to concentrate on such as your entry and exit and stop process you must react to the market changes by applying the plan to the letter. If your deal does not work out having offered so much promise you must close according to your stop by reacting, otherwise you face losing more, giving up more of your gains from a winning deal and much more. Because by failing to comply with your system will mean that you cannot apply it in the long run. Follow it and you add to other important features to your trading, Discipline and Clinical trading.
I would be interested what your view of my mechanical stance is, have I really misunderstood so much and I am approaching a BIG disappointment.
Kevin
