my journal 2

[Yamato]

Examples of the 4 types of trades I am studying:

1. Breakout above resistance (40): LONG opportunity (ongoing example)
SECOND MOST FREQUENT SITUATION

Have learned to be profitable with these trades (it seems easy now).

2. Bounce on support (12sh): LONG opportunity (ongoing example)
MOST FREQUENT SITUATION

Have learned to be profitable with these trades (it's a little harder than with breakouts above resistance).

3. Breakout below support (30): SHORT opportunity (ongoing)
LEAST FREQUENT SITUATION

Have NOT learned to be profitable with these trades (I think it will be the hardest thing to learn).

4. Bounce on resistance (100): SHORT opportunity (it happened already)
THIRD MOST FREQUENT SITUATION

Have NOT learned to be profitable with these trades (I think I'll be able to learn soon).


You see that I am not using the concept of trend. The trend is a confusing concept to me when I am talking about support and resistance and I'd rather translate it as follows. "Uptrend" is a breakout above resistance. "Down trend" is a breakout below support. The other two situations are "range". Since all these patterns are necessarily oversimplified we have to draw some lines somewhere. Obviously nothing is clearly defined like in geometry. This is how I prefer to draw my lines and make my simplifications.

In terms of how often these 4 situations happen, I am just referring to the charts of the "chart game". Don't object that the EUR is different or other things. I am ony talking about the charts I am playing and it's just an estimate. I am open to changing my mind, if someone shows me I am wrong.

I realize that all these situations and their frequency all depend on how you define s/r, trend... and I don't know yet a univocal way of defining s/r or else I would have automated it already. But if there's no univocal way of defining s/r, then it's not going to be easy to discuss them.

Lowest low, swing low... there's some formulas out there that attempt to define them, but I suck at formulas anyway. Let me know if you can help me in any way regarding these matters.

 

[Yamato]

Market Wizards: Richard Dennis (again)

Here's another interesting quote by Richard Dennis from Jack Schwager's Market Wizards:

A trend could easily be defined using a simple system. Is there something special that you look for to define a trend?
No. If I see a trend developing, I know eventually I'll have to get in. The question is whether I get in earlier or later, and that might depend on how I see the market reacting to news. If a market goes up when it should go up, I might buy earlier. If it goes down when it should go up, I'll wait until the trend is better defined.

This stuff about using the news jointly with technical analysis is tempting me, as all these traders interviewed in Market Wizards do it.

 

[Yamato]

Here's two links I am looking at, in order to try and connect how the market (in my case, the dollar) is reacting to the news:

http://www.dailyfx.com/calendar/
http://biz.yahoo.com/c/e.html

From dailyfx.com, I find out that this is today's most important news:
USD ISM Manufacturing (JAN)

Here I find out what it means:
http://www.wikinvest.com/index/ISM_Manufacturing_Index

Here I read the forecast:
http://biz.yahoo.com/c/e.html

So I find out that the news was better than expected (58 instead of 55). Also more on this here:
http://jutiagroup.com/2010/02/01/the-dollar-rallies-inspired-by-ism/
http://finance.yahoo.com/news/Stock...tml?x=0&sec=topStories&pos=main&asset=&ccode=

So I will now look at my charts (currencies and stock indexes) and see if they show a good reaction at 9 CST or not...

YM


EUR


They had an impact, definitely. But just up and down impact, on both YM and EUR chart, and causing more volatility on the EUR chart. However, both markets kept on going where they were going earlier, regardless of the news. The dollar to the euro slightly down, and the YM higher.

Of course I still don't know enough to weigh this kind of news or any news. For now the good info I'll retain is that from the above web site I know when the news will come out and I know which news will affect the market's volatility. Unfortunately I am rarely home, or else I could trade the news quite easily (they make prices go one way and then come back very quickly, 5 minutes up and then 5 minutes down, or viceversa).

 

[Yamato]

I'll now practice the SHORT trades on the Chart game. The first one I'll learn is the easiest, the bounce on resistance.

 

[Yamato]

danger... danger... danger...

I will now resume my simulated trading (see above), after winning twice on real trading: yes, because that's when it gets dangerous for me. Usually, emotionally I can bear no more than 2 wins per day. Maybe I'll do one more trade in 4 hours.

I will now practice short trades, as I had decided to do in the post above.

 

[Yamato]

I finally doubled capital by going only SHORT. It was very easy and fast, after trying and failing 4 times, but it wasn't just luck and I can do it again. However, you can lose your money quite fast. This type of trading really teaches to use a stoploss. For example, I could never bring 10k to 50k without using the stoploss.

The SHORT opportunities are there similarly to the LONG opportunities, except that it's hard to spot them if you're looking for both types of trades at once. It's easy to spot them if you just focus on them. To focus on the SHORT trades, you almost exactly reverse your thinking of when you're looking for LONG trades. It's very hard to identify them simultaneously.



If you catch a move below support, you can quite easily double your capital with just one trade, but you get that situation (like in my first stock) only in one out of 10 trades. The majority of charts present the exact opposite situation: price above resistance. Once again, these charts go more up than down.

 

[freedreamer22]

Re: danger... danger... danger...

Travis,

I like your discipline bud... it's easy to get caught up in the game and feel "invisible"

Do you usually stick to this 2 wins and done mindset everyday?

Thanks!

I will now resume my simulated trading (see above), after winning twice on real trading: yes, because that's when it gets dangerous for me. Usually, emotionally I can bear no more than 2 wins per day. Maybe I'll do one more trade in 4 hours.

I will now practice short trades, as I had decided to do in the post above.

 

[Yamato]

Read my profile... Unfortunately I write the best anti-gambling posts because I've been the worst gambler for over a decade. I still have not found a way to be profitable except with automated trading. I'll let you know if I ever turn profitable. My most recent experience with discretionary trading was that, after I got my capital to 30k thanks to automated trading, I've brought it down to 3k thanks to my discretionary gambling.

In the past 12 years I've lost over 50k (in US dollars) thanks to my discretionary trading. That's partly why I started this journal (see "my journal" for what I wrote before this one), in order to try everything, in my quest to become a profitable trader. So far I've been the most undisciplined and reckless trader there could ever be. I am a rebel in every field, and in trading I rebel against my own rules. Even today. After those two trades, two hours later, I went back and made another 2 trades, of which one went right and the second one went wrong and made me lose what I made in the other one. So I was right that I should have just stopped at 2 trades instead of 4.

What's your experience with compulsive gambling?

 

[Yamato]

http://megavideo.com/?d=WUCX2WI5

 

[Yamato]

Oh yes! Another doubling up just by doing SHORT trades. Yes yes yes! Learning to make money by both going SHORT and LONG. I never thought I'd be able to figure it out, regardless of the fact this is only simulation. I guess I have learned to read stock charts.



This is exactly like learning how to land on the flight simulator, or to learn to win at risk, or like learning any other video game. Why isn't real trading like this? Because fear of losing money paralyzes your learning skills!

 

[Yamato]

Here's my plan

I'm just going to keep on doubling up until this becomes second nature, and then I'll try the IB's paper trading account again. Maybe in time I'll learn to make this happen with real money, and defeat the two enemies that I don't have in the chart game:

1) fear from trading real money
2) boredom from trading in real time (which is slower, and makes you second guess yourself)

In real trading you're going to make a decision, and then the chart won't get where you expect it to go in a few seconds but in a few hours (at least). And in those few hours your thinking will change, because no one can be such a slow thinker as to think one idea every 4 hours. Making a good trade takes a few seconds. What do you do in all the hours you have? You will second guess your trade, and this is a problem.

That's the one problem I wouldn't have with day trading. But then daytrading may actually go too fast.

I don't know... regardless of all this talk, these will be my steps since I have no choice: ace the chart game with all 4 types of trades (below/above support/resistance) and then move to IB's paper trading account. Then, if I can manage to be profitable at that, I can be profitable on a daily basis with real trading.

 

[Yamato]

Meet your violent and boring professor, Real Trading

Why does the chart game work and trading doesn't work as easily? Why can you learn the chart game and not trading?

Because the chart game gives you the answer right away, and that's what learning requires. Imagine if you were in school, and took a test, or in any learning situation, and were given the feedback a few hours later. With the chart game i get the feedback in a few seconds. That's why it is so powerful.

With real trading I get the feedback in a few hours and it is so expensive that I can only afford one guess, one class, one lesson per day, and not 1000 guesses per hour like in the chart game.

No one is going to learn if you delay the answer for so long, and kick them in the balls every time they are wrong (by taking their money). In this sense, I'd say that the market is an awful teacher. Would you want to be with a teacher who tells you if you are right or wrong a few hours later, for every question you ask him, and who kicks you in the balls every time you are wrong? Nope. Yet that's exactly what kind of a teacher "real trading" is.

The market, or rather real trading (vs accelerated paper trading with the chart game) is a bad teacher in that it gives you crappy lessons, very costly... in that:

1)It teaches you too slowly (it gives you the right answer hours later at best)
2) and it hurts you too much when you are wrong (so that you can only learn one lesson every so often).

In summary, real trading is a boring, ineffective and costly teacher. That's why few people can learn how to trade.

Real trading as a teacher reminds me of that girl I knew who was always so enigmatic about her answers: she wanted to spend time with me, but she wasn't really interested. She held hands, but she wasn't sure. As frustrating as ever. We want clear and constant feedback from the market and from women, but with Italian women, this is rarely the case, and with the market, it's never the case. It makes you wait, it keeps you waiting, just like an Italian woman, never letting you know whether it's a yes or a no, until you've wasted more time than you can afford, and have given up out of boredom.

 

[Yamato]

Now, unless you're a scalper and you're good at making 100 trades per day, which I am not because I'd get killed, this is the chart I'm usually looking at: 2 weeks of hourly candles.



Now, regardless of what this chart is, I am pretty good at interpreting it.

It's 3 PM CST so a reversal is impending. We're up against some sort of resistance, having bounced on it repeatedly. We're highly overbought... We've gone up for the past few hours, so we'll reverse and go down for the next few hours now. A SHORT trade is a pretty safe bet for the next 12 hours, with stoploss above resistance.

It's easy... but was I patient enough to wait until 3 PM CST? Nope. I've placed 4 trades already. Once I'll place my overnight trade will I be patient enough to wait another 12 hours? Only if I'll sleep but even that is not a certainty.

That's the difference between the chart game and real trading. And also: how did I learn all these things? Years of back-testing. Whereas how did I learn to be profitable in the chart game? Just a few days of practice.

What takes you years of efforts and thousands of dollars with real trading, only takes you a few days of practice with accelerated simulation. Real time simulation is also no good.

This web site is a masterpiece and the most useful trading web site there is:
www.chartgame.com

 

[Yamato]

Being profitable is easy. You look at the chart, make your trade, and let it be for a few hours. But if you can't just do it with a click and you have to do it very slowly, you're going to blow it, or rather I am going to blow it, because I am restless and I will look at the chart over and over again, and change my trade over and over again, and make a trade even if I see nothing in the chart. So, the chart game works because if I see nothing, I click one week ahead, but real trading doesn't work, because if I see nothing I can't click and make time go by, and so, being restless, I make my trade anyway.

Being rested tomorrow is easy: I'll just have to fall asleep now. But I won't do it, because I am restless. Too restless to go to bed on time each night. I can rarely go to bed on time, because I am troubled and frustrated. I am not in peace with myself. Rarely have been.

Restlessness has screwed me in many fields before. Even with girls. I'll do some courting, then I say "hey, do you want me or not?", **** it, I am not going to wait around. If you don't want me, screw you, I don't need you... then the girl will reject you before you have even given her a chance. I basically want a yes before I even ask her out.

I guess that having a life would make time go by faster and I wouldn't trade if I see no opportunities, but i can't get a life unless I first succeed in trading, because getting a life requires money, and yet I can't succeed in trading unless I first get a life... it seems like an impossible situation.

 

[Yamato]

All 100% profit made by going SHORT. After all, that reader of mine, revealed to me that stocks are not necessarily going more up than down. Indexes are indeed. But stocks don't necessarily do that, because they get "demoted" and similar. This remark by him, plus my motivation to try and explore all types of trades is what enabled me to make profit on the chart game, both by doing LONG and SHORT trades. I am very satisfied, but I will keep on practicing. Especially since this practice keeps me from overtrading (with real money) and it's effectively teaching me to use the stoploss (especially the SHORT trades).



The chart is also teaching me a lot about timing. It is a marvelous web site.

 

[Yamato]

Good! Doubled up, had losses, and handled them well

Good! Another series of doubling up just with SHORT trades. I like this better, because I've gone down and managed to handle my losses. I hope to get some losses each time I double up or else I'll get used to winning and not be ready when a loss comes. And potentially blow out my account (in simulation).



With the chart game I am really learning how to handle losses, and how to read the charts.

 

[Yamato]

AWESOME.

What's great is that I've learned to play the SHORT side on just about every single chart I am offered. I was thinking you couldn't lose by going LONG. And now I am looking at the SHORT side and I am thinking just the opposite. It seems almost easier.

Another thing I've learned is to let go of a stock where I've lost money, because then I'll feel vengeful towards that stock, and I'll lose more money. My rule right now is that I can't lose more than 10% on any given stock.

And I doubled my capital yet another time. After a few more weeks of this practice, I'll have to find a way to turn this into real money skills. In real trading, i am not doing well. In these tests, the rule seems to be that whichever chart I trade, I make money, whichever side I trade it. I am very satisfied with myself. It seems like a dream.

I must mention that it wasn't always this easy, and that when I started playing this game I was close to thinking it was an impossible feat. I was this close to giving up on it. I felt and I wrote it here that I could do no more than 5 trades per day. Well, now I am making over 100 trades per day, and making money almost on every trade and every stock I play. In this simulation "practice makes perfect", but in real trading, 12 years of practice didn't even make me profitable. I don't think it's just due to money making me scared of losing. I think it has to do mostly with the (slower) speed of real trading. Here I can make a week go by with just a click. With real trading I have hours and hours to anticipate entries, to second-guess myself once I'm in a trade, and to anticipate exits. And that's how i lose. Even today. The slowness of trading really screws up your thinking, together with the fear of losing real money.

 

[Yamato]

Ok, it's getting so easy... this one I achieved always by going SHORT, but it took only 2 trades:

 

[Yamato]

Ok, the chart game won't let me play anymore, because I've been using it too often... unbelievable. So I looked for something similar, and it might turn out to be better:

http://sites.google.com/site/testmytrades/

 

[Yamato]

I was told by a reader to clean my cookies and that it would work again, but unfortunately it's not the case. Here's the message I get: