Mind the Gap

[PieterSteidelmayer]

When pros take trades they do a lot of things differently to what I see most retail traders doing and especially when taking outright directional trades. While there’s no point discussing the differences that you can’t do anything about, I thought I’d suggest a couple of things that you can, if you wish, consider.

Stops (and Targets)
It will not have escaped your notice and probably features large in your mind the relatively significant number of times you’ve had your stop taken out only to find the price fairly soon after reversing back in the ‘right’ direction possibly having not moved too far beyond your stop. Irritating, isn’t it? Or to have set a what seems to your reasonable target level only to have get with a cat’s whiskers of the target and turn back.

The reason this happens is that most retail traders are technical traders and when you use technical techniques and methods you tend to get a specific rather than general answer to your questions. When you calculate support and resistance levels they normally come out at quite specific levels for each one: Daily R1 , Weekly Pivot Point etc. These levels then tend to be treated with for more reverence that they deserve. The thing is these levels are not cast in stone; in fact they have no reality other than that which they receive by dint of traders’ reactions to their potential existence, but where they come into existence is tentative at best.

A perhaps more useful way to view these levels is as a cloud or zone centred around the specific levels you calculate, but with sufficient contingency to allow for the inevitable volatility inherent within the asset class being traded. And a useful way to go about calculating just how much of an overrun and under run to allow for is to use the recent historic values for precisely that purpose. It will inevitably lead to your stops being further away from entry and your targets closer, but it will equally inevitably lead to more winning trades and less losing ones.

Risk Management
Most retail traders seem to use a fixed percentage of their capital per trade which is no bad thing, but it’s just as important to ensure your aggregate exposure is managed. You don’t have the benefit of a risk manager setting your exposure and monitoring it for you so you have to do this for yourself. As a rule of thumb it is inadvisable to have more than 5 times your per trade risk open at any time to the same asset class. If your per trade risk is 2% then you would avoid having more than 10% in any one asset class.

Timeframes
I’ve suggested elsewhere the relatively high cost of doing business in the smaller timeframes, but if you simply can’t get comfortable with a longer timeframe and are willing to pay through the nose, at least LOOK at the higher timeframes before placing your trades. Would you be taking that same trade in that higher timeframe?

 

[Forexmospherian]

Hi Pieter

I think you have opened a new thread with some serious well constructed comments on how you see and perceive the market

I can only talk purely from a FX view point and not on trading other instruments.

I would therefore disagree with you on most of your comments so far

We could not be further apart really - but if you are able to make good returns on a retail size account then they must work for you.

With regarding Professional traders - I am one and have been full time for over 6 yrs

I have never worked in the trade - but do not hold high regard for them

I appreciate most Pro commercial traders would have excellent education qualifications but still may fall short on the focus and disciplines required - and their training would leave a lot to be desired.

All traders are different and unique - but as far as I am concerned a good retail guy would be able to make a better return off his own Capital than a commercial trained Pro

Only my own view

Regards

F

 

[PieterSteidelmayer]

With regarding Professional traders - I am one and have been full time for over 6 yrs

I have never worked in the trade

Then you're not a pro trader are you. You're a full-time retail trader at best. If you can't even get the basic nomenclature correct little else you say can be held in any real regard.

Nothing you have said makes any sense or has anything to do with the post I made.

 

[Trader333]

I see that this thread was reported as locked and I am unable to see why which could be a technical error so have reopened it.

 

[PieterSteidelmayer]

Cold Reason
Another difference is that a pro trader will take a look at his/her assigned asset list each day and determine what is worth a further look. If there is nothing out of the ordinary to suggest benefit of further research he/she will not take a trade or force a ‘possible’ simply to gratify their ego or justify their existence or just for the sake of some action.

The ability to identify the situation and the decision to do nothing is one of the biggest differentials between pro traders and retail traders and one that needn’t exist at all. It is also one that separates the good days from the ones where you wish you hadn’t got out of bed.

Unless it is screaming at you as an obvious opportunity, pleading with you to take profits with little risk, then you should simply pass. If you only traded your good days and passed on the bad ones that would in itself raise your game to a significantly higher level.

A pro trader would rather miss a blindingly good opportunity than risk taking a marginal one.

 

[PieterSteidelmayer]

Maximizing Opportunities
Pro traders tend not to have set views on which direction an asset is going to move. Sure there’ll be a fundamental element to price development in the physicals and on the predominantly speculatively traded assets there will be an underlying directional pressure, but these are treated as meta-trends, a general indication of probable price development around which the actual price will gravitate.

You can eyeball the slope of any asset and get an immediate sense of that meta-trend. What many retail traders do though is only trade when the price is moving in the direction of that meta-trend. That’s very cautious and nothing wrong with being cautious. But they pay a price.

If you’re able to visualize or even calculate the median around which an asset is exhibiting directional characteristics, you’ll note the overshoots in favour of the meta-trend are larger than the under-shoots against that meta-trend so don’t try and be too clever fitting your median as it’s supposed to be asymmetric – that’s the whole point.

To give a more tangible example:- you’ve got an asset that is exhibiting clear downward price trend. The troughs tend to be deeper than the peaks. You come down hard against one or more technical resistance levels and price stalls, and then starts to rise. Depending on where the price is in relation to its median you have a number of options. Sit tight on your short or close part or all of it and wait for downward pressure to resume. That’s safe. However, if you’ve deduced the price has undershot the median by a statistically significant deviation, there is a reasonable trade off on taking a long position up to at least the next area of potential resistance.

If you’re following a number of assets than you probably won’t want to consider this extra workload, but in quiet markets or if you’re only tracking a few assets, then it keeps your head in the game and doing the work. One of the biggest threats to any trader is boredom and lack of focus.

 

[PieterSteidelmayer]

For clarity: Median = Value

 

[mikeball87]

When pros take trades they do a lot of things differently to what I see most retail traders doing and especially when taking outright directional trades. While there’s no point discussing the differences that you can’t do anything about, I thought I’d suggest a couple of things that you can, if you wish, consider.

Stops (and Targets)
It will not have escaped your notice and probably features large in your mind the relatively significant number of times you’ve had your stop taken out only to find the price fairly soon after reversing back in the ‘right’ direction possibly having not moved too far beyond your stop. Irritating, isn’t it? Or to have set a what seems to your reasonable target level only to have get with a cat’s whiskers of the target and turn back.

The reason this happens is that most retail traders are technical traders and when you use technical techniques and methods you tend to get a specific rather than general answer to your questions. When you calculate support and resistance levels they normally come out at quite specific levels for each one: Daily R1 , Weekly Pivot Point etc. These levels then tend to be treated with for more reverence that they deserve. The thing is these levels are not cast in stone; in fact they have no reality other than that which they receive by dint of traders’ reactions to their potential existence, but where they come into existence is tentative at best.

A perhaps more useful way to view these levels is as a cloud or zone centred around the specific levels you calculate, but with sufficient contingency to allow for the inevitable volatility inherent within the asset class being traded. And a useful way to go about calculating just how much of an overrun and under run to allow for is to use the recent historic values for precisely that purpose. It will inevitably lead to your stops being further away from entry and your targets closer, but it will equally inevitably lead to more winning trades and less losing ones.

Risk Management
Most retail traders seem to use a fixed percentage of their capital per trade which is no bad thing, but it’s just as important to ensure your aggregate exposure is managed. You don’t have the benefit of a risk manager setting your exposure and monitoring it for you so you have to do this for yourself. As a rule of thumb it is inadvisable to have more than 5 times your per trade risk open at any time to the same asset class. If your per trade risk is 2% then you would avoid having more than 10% in any one asset class.

Timeframes
I’ve suggested elsewhere the relatively high cost of doing business in the smaller timeframes, but if you simply can’t get comfortable with a longer timeframe and are willing to pay through the nose, at least LOOK at the higher timeframes before placing your trades. Would you be taking that same trade in that higher timeframe?

great read, especially the section about the longer time frames.. spot on info!

 

[gerryg]

It seems you have a deep knowledge on trading psychology and logic of trading. Maybe you can share some working techniques to apply for our current strategies?

 

[PieterSteidelmayer]

Could you be more specific?

 

[DionysusToast]

Having a Bi-Directional Plan and Being Willing to Turn on a Dime
If you’re evaluating an asset with the intention of trading it on a directional basis the primary concern is not the expected direction, but for the intended trading timeframe, what is the smallest amount of time that could pass for you to change or even reverse your opinion as to the likely direction of price development. For most intraday traders, and end-of-day or start-of-day directional bias is likely to be insufficient for your purposes.

Too feckin right. I'd say Amen but I'm not religious.

All this stuff about "higher timerfame trends" is nonsense if it zips up 10 points, zips down 10 points and ends up where we started.

The basis for reviewing likely price development will depend upon what technical factors you use to determine trend and your trading timeframe. A trader working the hourlies will need to review less frequently than one working the 5 minute chart, but you need to have a plan of action for what constitutes a confirmation of current bias and what constitutes a reversal of bias AND you need, if you wish to maximize your gains, have a plan of action to determine the levels and structure you need to have evidenced for you to trade both of these possibilities. And some days you will get to exercise both to the long and the short sides in the same asset.

I think people have too much focus on timeframes and charts. The market doesn't have a timeframe.

If you are an intraday ES trader, then you will have your levels going into the open but after that your focus is today. Not candlesticks but where we have been, what held and where are we likely to go - as well as the sort of day it is.

 

[teflon142]

90% of this is total guff.

 

[teflon142]

Excellent. A definite opinion.

Would you care to point which 10% is not total guff|?

Thank you.

turning on a dime. That's about it, IMO.

 

[teflon142]

but if you simply can’t get comfortable with a longer timeframe and are willing to pay through the nose, at least LOOK at the higher timeframes before placing your trades. Would you be taking that same trade in that higher timeframe?

this, for instance, is nonesense.

 

[Splitlink]

I'm done.

You have no more to say or you can't take the heat?

I've read most of what your detractors have to say and was hoping to read more of your points of view, dealing with drawbacks in lower TF trading, which appears to be their speciality.

Regardless of what is said, I think that this was a good thread and, hopefully, still is.

 

[tar]

If you dig lower and lower through your charts you will see all market cycles : Bull market , bear market , low volatility , high volatility , ranging markets ... etc , all are covered just in a short period of time , the lower the time frame the shorter the period is , however if you are trading the daily chart you may have to wait for ages till you see a bear market again for example .. etc . . Its - scalping - like a fast forward action , its not for everyone .

So whats the problem ? The problem is the costs , so for example you play the Dax , your costs for trading are at least around 1-1.5 points including slippage , the 1 minute ATR is around 4 points sometimes less or more , so your costs are = 25% -35% , however the 1H ATR is around 35 points so your costs would be 3%-5% , and in the 4H chart your costs are lower ... and so on .

Another problem you will have when trading short timeframes , is the leverage , because you have small moves so you would want to compensate that by trading bigger which increases your risks .

Anyway if you can live with these issues and use limit orders - exchange - for example to cut your costs ... etc , then its ok , its like swing trading and paying 50 points in spread and costs , its a ripoff surely but it can be done , you short Dax at 9500 and close at 8800 and pay 50 points in costs !

 

[PieterSteidelmayer]

this, for instance, is nonesense.

OK. Let's give this another try.

Why in your opinion is the quoted text nonsense? The problem with throwaway comments such as you make is that's exactly what happens to them. No substance. No content. Nothing at all to add to discussion or debate.

So if you care to elaborate we may all have something to learn.

 

[DionysusToast]

OK. Let's give this another try.

Why in your opinion is the quoted text nonsense? The problem with throwaway comments such as you make is that's exactly what happens to them. No substance. No content. Nothing at all to add to discussion or debate.

So if you care to elaborate we may all have something to learn.

I think as a rule of thumb, it's best to ignore people that disagree with you without stating why.

This is a discussion forum and the last time I checked "no it isn't" doesn't make up a good counterpoint.

 

[DionysusToast]

If you dig lower and lower through your charts you will see all market cycles : Bull market , bear market , low volatility , high volatility , ranging markets ... etc , all are covered just in a short period of time , the lower the time frame the shorter the period is , however if you are trading the daily chart you may have to wait for ages till you see a bear market again for example .. etc . . Its - scalping - like a fast forward action , its not for everyone .

So whats the problem ? The problem is the costs , so for example you play the Dax , your costs for trading are at least around 1-1.5 points including slippage , the 1 minute ATR is around 4 points sometimes less or more , so your costs are = 25% -35% , however the 1H ATR is around 35 points so your costs would be 3%-5% , and in the 4H chart your costs are lower ... and so on .

Another problem you will have when trading short timeframes , is the leverage , because you have small moves so you would want to compensate that by trading bigger which increases your risks .

Anyway if you can live with these issues and use limit orders - exchange - for example to cut your costs ... etc , then its ok , its like swing trading and paying 50 points in spread and costs , its a ripoff surely but it can be done , you short Dax at 9500 and close at 8800 and pay 50 points in costs !

The problem is Tar...

You already presumed there is validity in considering market in "timeframes".

You argue about which timeframes are better but that's based on the presumption that timeframes are relevant in the first place.

I dont think they are.

 

[Trader333]

DT,

You posted:

This is a discussion forum and the last time I checked "no it isn't" doesn't make up a good counterpoint.

and later also posted:

I dont think they are.

You didn't explain why so doesn't that also become a non valid counterpoint ?