my journal 2

[Yamato]

Getting back to my 100 trades on the chart game: new rule. No need to wait when i lose, because i get hyper even when I win. The rule will not be to wait one minute between trades because it doesn't make sense. The rule will be to wait at least ten click between trades. Each click is one week. I must not seize more than one trading opportunity every 10 weeks. If I do, it means I've switched into compulsive trading mode.

Thus, my one and only rule, on top of the stoploss rule: each trade must be more than 10 clicks apart from the previous exit. Each stock must be at least 5 minutes apart.

Both in real trading and in the chart game, I must find a way to avoid getting into a trading frenzy.

 

[DionysusToast]

If you are going to hold trades for 12 months, then the chances are that at some of the time you will be fully invested. Personally, I would avoid that unless you can neutralise market risk.

Let's say you 'diversify' all of your money amongst 20 long trades in the US market. As soon as the market takes a dive, it'll wipe out months or more profit. Stop losses may not help you when this happens.

You could, of course aim for 50% long trades and 50% short (as long as your shorts aren't on stuff like SKF which is inverse to the market). This will give you SOME cushion in the event the market takes a wild move in one direction or the other.

 

[Yamato]

Yes, thanks for the advice. However the 12 months idea was just a hypothesis and I didn't even use it once. Also, I am always talking about the chart game, where diversification is not possible. Let's forget about this 12-months hypothesis altogether.

 

[DionysusToast]

Yes, thanks for the advice. However the 12 months idea was just a hypothesis and I didn't even use it once. Also, I am always talking about the chart game, where diversification is not possible. Let's forget about this 12-months hypothesis altogether.

OK - fair enough ! Good luck with the next 'game'

 

[Yamato]

Richard Dennis on emotions (from Market Wizards)

Richard Dennis on emotions (from Market Wizards), which is my biggest problem. He seems to adopt a solution I've been thinking of: let time pass between trades. As much time as necessary not to be emotional and affected by the previous trade.

How do you handle a losing streak?
Cut back. If it is really bad, stop and get out.
Do you sometimes need to get away from the markets for a few days?
Generally, it just takes a day or two, but you do need to stop for a period of time. It is almost like a pitcher not balking. Before he throws the ball, he has to stop at least for that second. That is what I try to do—at least have a pause. It could be for just one day.

So you are able to avoid the emotional trap?
Yes, but the flip side is that I also avoid the emotional elation when things are going well. There is no way to play just one side of that street. If you feel too good when things are going well, then inevitably you will feel too bad when they are going poorly. I wouldn't claim that I realized that after three years of trading, but after you've done it for twenty years, it either drives you crazy, or you learn to put it into perspective.

 

[Yamato]

It's working so far. I'm up 100% on 10 different stocks. Lost a few times, and each time I am taking a break between trades, and a 5 minute break between stocks. During those short breaks I've been watching some short videos on youtube. I'll post my results once I'll get to 100 trades. I haven't lost control yet and let a small loss turn into a huge loss. I did feel some anger after each loss and felt rushed to make my loss back. Another time a 20% profit turned into a small loss because I wasn't happy with not getting out at the bottom (which to some degree you must accept if you let your profit run).

 

[Yamato]

Still going ok. Up about 150% after 30 trades. Still 70 trades to go. Still haven't lost control over my losses. They happened, and I cut them. Not easy. Each time I am tempted to get mad at the market, just like in real trading. Keeping trades apart helps very much. I noticed that the temptation is to wait less than the 20 weeks I had decided to wait. It's like an addiction, that I develop immediately, and that compels me to trade more and more frequently, and that's how things get out of control: if I do that, I weigh my entries much less, and totally lose control if I lose. Thanks to this chart game, I have finally realized what exactly was wrong with my trading: rather than my understanding of the market, a latent addiction that is always there, ready to screw me.

Other than that, trading long and short, and I am wrong about once every 3 times, and lose when I am wrong less than what I make when I am right.

Right now I am not trading with a univocal system, but entirely discretionary: with the rules I mentioned above (stoploss, time between trades). If I'll manage to find a method to be profitable over 100 trades, which rule out luck, that will give me a lot of confidence for my real trading as well. Never before have I been able to be consistently profitable with discretionary trading. Maybe exactly because I was never able to wait long enough, for the right opportunities. Something my automated trading achieved from the start.

 

[Yamato]

One loss just got away (and luckily came back)

Still going, about 300% after about 50 trades. On one occasion, just now, I was distracted, frustrated... and lost control: one loss got away, and turned from just 2% to 50%... then I kept it open and it ended at -6%. The 100-trades series was saved but I do have to record this, that at trade #49, I didn't have the patience, calm and rationality to stop a loss at the -10% threshold.

But I cannot have any such moments. These situations may work out more than not, but are what causes me to blow out my account over and over again. You cannot, even once, let that loss get away from you. That's what makes automated trading so superior, in that it never loses its control over trades.

 

[Yamato]

The more I look at it, the more the US $ Index's 5-day moving average seems to be the right filter for my automated systems:

http://futuresource.quote.com/charts/charts.jsp?s=DX&o=&a=D&z=800x550&d=LOW&b=CANDLE&st=MA(5,5,5);

If I had followed such rule and reversed all their signals when the US $ Index was above its 5-day moving average, I'd have made a 100% monthly average profit for the whole 6-months forward testing period.

If I won't use it to reverse my trades (which might be a bit daring), I should at least use it to forbid my regular trades. It seems much better than the "no trading if past week unprofitable" rule, which was a pretty good rule to begin with.

 

[Yamato]

At 52 trades, still profitable: over 300%. Basically one must catch his breath while trading and cannot ever be breathless or he'll pick his entry/exit carelessly.

 

[Yamato]

http://stagevu.com/video/ajdxrcegjcer

 

[Yamato]

huge return, but no total loss control yet

Here it is. Long and short trades. One loss got out of control, because I let it slip away, but I got lucky and from 40% it got to 5%. I still need to practice loss control, because I must really never let a loss get bigger than 10%. I did however manage to take breaks between trades and longer breaks between stocks, and that lack of trading frenzy and breathlessness is what enabled me to get to the end with a good balanced mind and such huge returns, which actually improved over time, because I learned to let profits run a little more.

Other than this, the return is huge: with 101 trades I made over 1000%, bringing capital from 10k to 120k. This cannot be randomness. This alone disproves the random walk theory.



Learning to control losses is my main objective
My aim for the future, is to repeat such 100-trades feats, end them all profitably, finish them within a few hours like I did with this one, get faster and faster at playing them but at the same time stay fully in control of losses by keeping myself detached emotionally, which, as practice increases, should require shorter breaks.

I finally found something related to trading where obsessiveness pays off
I am very satisfied. I finally found something in trading where my obsessiveness can be put to work and produce good results. Until now it was just obsessiveness at blowing out accounts. They say that practice makes perfect but until this game i never really found this to be true for trading. The more I traded the more I lost. However, with automated systems, i found my first field where my work produced results. Now, with this chart game, I found a second field. Maybe over time even with discretionary trading I got more accurate, but until I'll solve my stoploss problem all the accuracy in the world won't do me any good, since when I incur a loss until now I've always let it run forever.

My first profitable discretionary trading ever
This is turning out to be my first profitable discretionary trading. It's not exactly like real trading because time doesn't go by this fast and at your click, but it's close enough. Once I'll ace this chart game and particularly once I'll develop complete confidence that I can be profitable and learn to control my losses, then it'll be like for all those things you know that can be done, like juggling, riding a bicycle... once you can do it, no matter how much time goes by, you'll always be able to do it.

When you find out you can make money, you understand you can take losses
I believe the step number one, which already happened, was to really realize that I can make money by reading the charts, and I would say that this is pretty clear by now. The step number two, still in progress, is to learn to let your losers go. Since you are good at winning, you don't have to win each and every time, and should be able to accept that once every 3 times you will lose. Yeah, because this seems to be the case so far: i lose once every three times, and my losses are about one third of my wins (average of 7% vs 21%). So it goes like this, on average: plus three, plus three, minus one... and then all over again. If I keep my pace, and space trades apart, and keep these results, it should become natural to prefer taking one small loss and two bigger wins, rather than trying to have no losses at all and most definitely incur, within 100 trades, into at least one disastrous loss.

100 trades forces me to face losses, whereas just 20 trades did not
Yeah, this is why it was so important that i set my number of trades to 100. If you're not doing things right with just 20 trades, you could still get lucky, and if something goes wrong, you could still restart all over again. But 100 trades take you hours to be done properly, and you will definitely not get lucky. And if you're doing something wrong, it will show during those 100 trades. If you just hope to get lucky and get away with not using a proper stoploss, you'll end up starting over and over again for days before you can find a series of trades where your losses come back to your entry so that you get 100 profitable trades.

Here are all my trades, from biggest loss to biggest win:

-14.53%
-11.80%
-9.85%
-8.98%
-7.15%
-6.27%
-4.37%
-2.05%
-1.50%
-0.84%
0.00% (FLAT)
0.00% (FLAT)
1.03%
2.96%
6.22%
6.48%
6.64%
9.50%
12.42%
14.57%
14.73%
14.74%
21.24%
21.64%
23.74%
25.58%
31.17%
41.27%
43.22%
71.64%

Actually they're not always just one trade, because the trades are not listed by the chart game but just the stocks. But they're close enough to the proportion of trades, even though these are actually the groups of trades made on each stock.

I guess I'll be doing this 100-trades series no more than once a day, but always all within one day, and several times a week. I'll do it until i achieve full confidence in my profitability and full control of losses. I must never be even slightly tempted to let a loss run. And never make any careless trades.

 

[Yamato]

I think I've made it. If, beginning on monday, I can start moving this practice of the chart game, over to the real-time IB paper trading account, then I'll have made the transition to real money. First I want to do a few more 100-trades like today. But two or three more should be enough. Or if necessary twenty more. What's important is that when I move to paper trading I have total confidence that I can be profitable and that my risk/reward and % of wins make me profitable. This enables me to cut losses, and once I do that, I can do it with the GBP as well. And if I make even just 50 dollars a day, then I could even quit my job. Obviously if it works it works and I can use more than one contract and so on.

I need to see if I can translate chart reading at a weekly level like on the chart game to chart reading at an intraday level.

Now, first of all, these are the weeks on the GBP: do they look like the weeks on the chart game? Yes, they do. So if I can make money on any stock chart, as I've been doing, then I can make money on the weekly GBP:



Now, I suppose the lower timeframe will be similar, with the exception that spread and commissions will take away more of my gains. But not so much more to make me unprofitable.

Another thing: I need practice, lots of practice. With the chart game I can achieve practice by letting years and years go by on different charts. And this is just awesome. However I can't do that on the GBP in live trading. It'd take me years to learn plus I'd never be able to learn anything because my brain cannot learn anything at such a slow speed (it's like giving an answer, and then being told if it's right or wrong a few weeks later: you learn nothing). So since I cannot speed up the weeks, I need to lower the timeframe. I can't trade days either, nor hours, because they're still too slow. Proabably minutes make me feel they're too fast, and would make me deal with too many timeframes in order to find out s/r levels. I can probably use 5 minute candles, and try to learn to be profitable with them:



Now that I think of it, there is a great intermediate step whereby I can play those 5 minute candles a little faster to get some practice. It's the genesis software, which I've spoken about in earlier posts. I think this time I'm going to make it.

 

[Yamato]

STEP 1
Ok, here I am again. I will start another 100-trades series. It's quite tiring but I need to do it, in order to develop confidence and learn to use the stoploss. It's going to take a few hours (hopefully less than yesterday) and I will watch youtube videos between each stock and wait a few weeks between trades (not 20 because that's too many). After a loss, I'll try to wait a little longer.

STEP 2
After this 100-trades series, I will try to do the same thing on the GBP, with genesis software (I mentioned the software a few days ago). It's all set up already. I've downloaded months of data, set up the 5-minute timeframe, and I'll know nothing about the GBP on 5-minute timeframe (on a daily basis, I might remember what happened). Besides I will just look at candlesticks: not at dates, not at price levels... well, no, price levels I will look at, because the 100 ticks levels are important. I could also play the EUR in case I run out of history to play. If this works as well as STEP 1, then I'll slow it down to almost real-time. If I still make money with the 5-minute charts slowed down, then I am ready to paper trade on IB's account.

STEP 3
Paper trading the GBP for a few days, and then, if it works, I can start with real money.

 

[Yamato]

I just checked out the GBP, ahead of time, and realized that spread and commission costs do not allow me to trade with 5 minute candlesticks. I am always there expecting the move to go further to cover my costs, and this greediness interferes with my appraisal of the markets: if it doesn't want to go there, it won't go there just because i have to cover my costs. I can't force price to go somewhere because it has to cover my commissions and spread costs.

So the timeframe has to be 15 minutes at least. But that, in turn, will interfere with my appraisal just as much as fixed costs, because i don't know how much i can slow down my appraisal before I forget what i was thinking or second-guess my thinking because i am there... that's the problem right there, because the market you can trade (due to commission and spread costs) moves so slowly that it hampers your reasoning.

 

[Yamato]

I was trying to make for a while a bunch of +10%/-10% trades. Made about 50 of them, with a 1000% return almost, but then incurred a loss, let it get out of control and it turned into an 80% loss. It worked really well until that loss, but I wasn't patient enough, as usual. If I put in the patience and the time, as shown yesterday, and the stoploss, I am undoubtedly profitable. However, if I don't do that, and I tend not do it, then I just lose.

I just shouldn't trade discretionary with real money until I either find a univocal method to follow that works even if I'm impatient, or until I have the right patient attitude, if I'll ever have it. Until then, I should just work on my automated systems, and save money for them, rather than wasting it on the wrong discretionary trading. Until I show patience and stoploss discipline with the chart game and the other simulation, there's no way I'll be able to trade profitably with real money.

 

[Yamato]

need to step back and come back with new solutions

I think I am not made for discretionary trading right now, or ever will be. My life is very ordered, predictable, regular. I eat the same things every day. I cannot handle uncertainty and avoid all risks and don't care about the rewards. The uncertainty within every trade drives me mad and destabilizes my trading. That is why I cannot do any trading that relies on my judgement. Because the uncertainty of each trade bothers me too much. Even if I use the stoploss, after a loss I won't be able to make the same good choices I've been making before that loss.

I am not flexible enough to change this pattern. Each losses destabilizes me too much, even in simulation.

I am really pissed off about it, because I wanted to make money and quit my job, but it's a fact I have to face. I can be profitable in simulation, but only as long as the speed is mine, and everything goes my way: if I lose or if things go slowly, I will most likely blow out the account out of frustration.

I am quite discouraged. I've never quit, but it seems that I cannot fix my mind and make myself a patient and rational person. And if this cannot happen, I cannot do any discretionary trading. It'd be a miracle if I am patient enough to let my systems run, but now I don't even have the capital to run them anymore.

I am not saying I am quitting, but I need to take a break and come back with new solutions to the same old problem, because nothing I've tried so far has worked. The method is there. I can be profitable. But only if I calm, and I cannot ensure that in any way. I lose my temper while I trade (in simulation or real trading) several times a day. Maybe I can handle one loss, but two losses in a row is already too much for me to handle emotionally. With this situation I cannot do any discretionary nor even just manual (even if mechanical) trading.

One thing, one improvement has taken place: I will not come back to waste any more money until I've fixed my emotional problem in simulated trading, since the problem is identical to that happening in real trading.

 

[Yamato]

Stoploss practice

Ok, I was giving up too quickly. I was going in the right direction and should keep doing it. I need to digest the stoploss. Understand I can make money and digest and accept the stoploss.

I'm going to try it all over again.

I will make a series of trades, as many as possible. The only constant in each trade will be that I either get out at -10% or at +10% (or more). This is because my biggest weakness, actually only weakness, is the stoploss.

I can make good calls on what's right and what the market will do next. The problem is not get so attached to my prediction that if it goes wrong, I don't admit it.

So I will just make a bunch of trades on the chart game and tomorrow on IB paper trading account. And see for how much time i can execute the stoploss without going crazy. I must get used to it.

It will not matter if I'll lose. What will matter is that I tried to get as many trades right as possible and yet that I didn't get so attached to my predictions that i got carried away, didn't use the stoploss, and caused disasters because of it. I could even lose all capital, as long as I lose it 10% at a time.

In order to increase your chances of winning you must care about winning. However, you must not care so much that you become a sore loser and do not acknowledge losing. That's usually my problem. That happens when you're not confident about winning on other occasions. If you almost always win, it will be easy to accept defeat. If you feel you insecure about your capability of winning... then you become a sore loser, don't accept your losses, and blow out your account. Forget these comparisons. What matters is that I need to practice the stoploss more than anything else in the world. And this chart game is perfect.

I will take losses 10% at a time and so I will take wins. What counts is learning the method. The concept of limited losses. Once I'll get used to it, trading will become much lighter on my mind. Even if I'll start badly and have 100 losses in a row and blow out my account like that, things will improve as I practice more. Eventually I'll get to breakeven... and so on.

Actually I know I am much better than breakeven already, but I am imagining the worst case scenario.

 

[Yamato]

automated trading: DX correlations

Continuing from here:
http://www.trade2win.com/boards/trading-journals/85510-my-journal-2-a-18.html#post1050056

Ok, I subscribed to the ICE exchange (one dollar per month). Here's what I can see now, the DX:


It's the ICE's future on the US Dollar Index. A pretty good future, with volume, which I could even trade in alternative to the GBP and EUR.

I applied to the above chart the 8-period moving average on daily candles. If you compare it to my systems' results, you can see how when the DX goes up, my systems lose, and viceversa. Doesn't matter why: I could reverse my systems depending on where the DX is.

But before doing this I want to purchase the DX data from the disktrading people, backtest most of my 42 systems with the DX filter, and see if they do better even in backtesting (besides forward testing, as I noted above). I tried to contact them, but these people are not getting back to me.

 

[Yamato]

used the stoploss for almost 100 trades

See below:



Rules followed: open up a new chart and as soon as you see it, pick a direction and keep it until you either make 10% or lose 10%. Long and short trades.

Lost over 90% of capital. So I guess that means that if I don't wait I tend to pick the wrong direction. I'll try to reverse my decisions from here on.

The exercise wasn't really about my accuracy though. It was an exercise to train myself to always use the stoploss, and I did. Trading with a fixed stoploss is extremely boring and I was falling asleep. The thing that keeps you thrilled is a loss getting out of control or a gain exceeding your expectations. If you just go to plus or minus 10 percent, you tend to fall asleep. Which is all very good, because I've been very alert and excited in the past 12 years, and lost money all the time. So being bored and falling asleep must have something good about it.