The Story of a Beakeven Trader !

DAVIEGRANT

Junior member
The Story of a Breakeven Trader !

The Story of a Breakeven Trader.
The above title I think sums up my experiences to date with trading the stock market, which overall has been a spare time affair, with the simple goal of making money?

Looking back I have traded the markets for the last 10 years. I first got started trading ‘Penny Shares’. I subscribed to a Newsletter and away I went. I bought various small cap shares, that all showed some sort of potential for rapid growth (according to the Newsletter?). I did this for about 2 years and in that time had a few success’s, one being Sleepy Kids. A company who had at the time bought the rights to Budgie the Helicopter, which was written by Sarah Fergurson. These nearly quadrupled in value within 6 months and I sold them. I don’t mind saying I made a large sum of money relative to the amount of effort it took me, (reading a Newsletter is pretty easy as long as you can stay awake!). Flushed with success, I ploughed a lot of the profit back into various ‘Penny Shares’, all tipped by this Newsletter. Now guess what happened……yep, I bet you all got it……half the portfolio started taking a dive (only a few pence in some cases, but that’s a lot when they are only a few pence anyway!). The other half just didn’t move at all. Then I found out that when you wanted to sell your penny shares, liquidity was a BIG problem, especially when the stocks were pretty dormant. “What do you mean nobody wants to make a market for my penny stocks” I said, to my very patient broker. So I learnt the hard way and lost money, but also made some. After 2 years of penny shares and various newsletters all touting undervalued shares etc I was still to my amazement only just above breakeven , so I thought to myself, well at least I haven’t lost money in those 2 years!

Now, what I had discovered during that time, was I loved the Buying and Selling of various stocks, but penny shares didn’t offer much ‘Cut and Thrust’ on a regular basis. So I looked at Options. Wow…..these are great, they have leverage, they have liquidity and best of all they are available on most of the major stocks I follow anyway. This was to be the start of a period for me where I became massively interested in the Technical Analysis of Stocks and Indices. I read every book I could on the subject and I also went on a FTS course in Porlock, where for 3 days they taught us the subtleties of Option trading. The last day was a competition where they simulated 1 years worth of live trading and we had to trade our pretend account. To make it even more interesting all the Traders put money into a pot at the start, on the agreement that the Winner takes all! That winner ended up being me…hoorah!!! That helped me cover the cost of the course and I was break even again. A very familiar feeling.

I carried on studying Technical analysis and then devoted my life(not literally, I’m not that sad?) to try to find the Holy Grail of trading systems. Yep…. never one for setting myself small goals, I really thought that somewhere out there was a set of magic numbers and set-ups that could take me to the promise land where in a fair world, I could shack up with Kyle Minogue and Trade everytime I needed the lastest Aston Martin. After all I WAS meant to be a mathematical genius?(According to Mr Watson my Pure Maths teacher, circa 1982. I’m not sure he was known for his judgement on these matters?) Over the next months I had developed a system that when back tested could make 650% per year on the FTSE 100 index. Wow…I thought…get me my broker and lets make stacks of cash. For the next 3 months I had a hit rate of 80% correct trades and I was feeling pretty good about my system….Now guess what happened next…..yep, you got it again……my system started losing….. 3 consecutive losers, then 4, then 5, then 6…. OH MY GOD LET THE PAIN STOP!!! I bailed out of my system….I could take no more. It was a relief just to be out of the market. I gathered my wits and calculated what sort of hole my trading account showed. Well…it was at near break-even!!! Time for reflection I thought……I had now been trading for about 4 years and my account was no bigger than at the start. If the money had been in the Bank I would have made more than this. But how can this have happened, I’m Davie Grant, I’m a mathematical genius, I’ve got a system that says I can make money, well in the past 3 years on paper at least…just not now??? Well at least I haven’t LOST any money! So I soldiered on.
Options soon got me interested in the Futures markets. They had excellent liquidity, they were in lots of different markets and trading an account on the US market was simple. The only downside was, if your not careful, the downside!! Meaning, unlike Options, Futures that went against you quickly could hurt big style. So I studied and played around with Money management and combined this with another system I had developed for the S&P’s. Now this was one of my first revelations. Proper intelligent use of Money management improved my bottom line more than any improved system could have at the time. After a while of trading Futures, which mainly consisted of Indices, I started to read about various systems for sale. A lot of them were American and a few for the FTSE were from the UK. The promised figures were amazing on some, and a few even came with money back guarantees. These systems seemed considerably better than my humble effort, so lets give a few a try. These I paid for out of Trading profits and thought I would soon recover the money on my first few trades. One of the systems got off to a flying start and tended to trend every 2 or 3 days the others were based more on breakout systems or retracements and traded on average every 6 to 10 days.
It soon became apparent that depending if the market was trending or trading the systems became useless in certain market conditions or the drawdowns were too scary for a mere mortal like me to psychologically endure. So after a good year or so of trading mechanical systems I was hovering AGAIN around the Break-Even level on my trading account. The only thing I felt I’d achieved in all these years was to make market makers, spread betting companies and brokers richer than they were already. Well……at least I was providing an income for other people and like I had said many, many, times before, I HADN’T LOST ANY MONEY!!!
I took a break from trading for about 6 months and just sat on the sidelines. I still followed the markets I was interested in, but didn’t actually Trade. During this time I started to put down on paper my golden rules for trading, so I wouldn’t forget what I’d learnt over the past 8 years. When I went back to trading after this rest, I found I was approaching trades differently. My technical methods were the same but I was starting to consider fundamentals more. I was devising trade set-ups that were more original and soundly based on price action created by the crowd. I felt after just WATCHING the markets for 6 months and not being financially involved with them, I’d become more in tune with the ebb and flow and could see certain things developing just from the price action rather than an overbought/oversold indicator or some self proclaimed guru. As long as I followed my strict money management rules and showed no emotion, matter if the trade was good or bad, my equity curve started to consistently point upwards. My drawdowns were minimal and my consecutive loses are very rarely more than 3 in a row. Now after more than 2 years, my account has grown 450% and I feel I’m no longer a BREAKEVEN TRADER. How did I do it?……….Well…for me it was my Golden beliefs, it was the fact that I believed in them, not someone’s else’s system etc. They were rules that I had learnt the hard way, and for me that has always been the best way. In addition, it was the realisation that trading the markets is WAR….Yes WAR….It is easy to forget that trading is a zero sum game. I have to take your money before you take mine, its maybe overly simplistic, but is true never the less.
On that note I will leave you with some of my Golden beliefs that, for me at any rate improved my Trading and my bottom line…..so far anyway!!!


GOLDEN BELIEFS

· Set a realistic goal for returns. We can’t all be Richard Dennis. A lot of system hype and legendary stories lead us to believe tripling our accounts, year on year is common. IT IS NOT!
· Good Money and Risk Management combined with market knowledge separates us from the gamblers.
· Accept the disorder, randomness and chaos in the markets as part of the game. The market is often far from logical.
· Always stand apart from the crowd. Learn to be your own guru. Don’t rely on someone else’s system or hot tips. One day they won’t be there!
· Match your style of trading to the market conditions. Often the one method is not suitable for all markets and conditions.
· Avoid Greed.
· Never Forget, the behaviour of 90% of traders, creates an advantage for the other 10%. BE IN THAT 10%.
· Success in trading is not purely technical, it is also an art.

Well for what it was worth, that was my little story so far. Everyday is a new battle in the markets and I love every minute of it. I find it very interesting to talk with other traders and their experiences, we traders all have a common goal outside the markets and you at T2W are my equals, but rest assured if we are in the same market together, I will try to empty your wallet before you empty mine (smile).
 

options

Senior member
A fine tale Davie, and one that rings true to a few of us I dare say.
The only way to trade the markets is to develop your own style regardless of using 'systems', newsletters, or the mess the tea leaves make in the bottom of the cup. I believe you have to 'do the time' of study before you become competent enough to trade the markets, though I mainly speak of futures and the indices as opposed to shares.
I dare say that there might be a 'system' out there that 'works' more often then not, but I'm not going to hold my breath looking for it.
If anyone knows of one. please let us know.

Couple of things though.
Trading is a negative sum game. Right from the off, as soon as you place the trade you are losing. You then have to make up that loss and cover the break even before you start to be in profit.
So which broker you use is paramount.

The other thing is, you should name the 'systems' you have tried, avoiding any slander and libel suits of course.

I tried a system from First software for trading the indices and our future (nice people actually) but by their own addmission the 'system' gave almost as many wrong sigs as right ones, yet they claim you could still make money by trading the signals.

Aftre trialing it alongside my own 'style' of trading for a few days I found out that I was able to take a trade on, get ten points and close while the system was still showing an opposite move.
In short, you had to be able to suffer the drawdowns.

Well, first question is why?
If I enter a trade and it starts going ten or more points against me. I'm out, 'cause I must have got the timing wrong. How many times have we all held on just that little bit too long and instead of losing say 5 points end up losing a lot more?

Bottom line is that 'systems' will work some of the time for some of the people. Funny how they all work well in bull markets?

All the best with your trading.

John (Options)
 

Morris

Well-known member
Hi Options.

Re that system, it isn't necessary to have a win rate greater than 50% to make money, providing your money management is good.

In fact, many profitable traders have win rates as low as 30% I think.

With a win rate of 40%, if you risk R on each trade, and make 3R on winning trades, then over 10 trades, you should be up 6R.

Thats the theory anyway.
 

options

Senior member
Hi Mo,
Yes m8, the average futures trader gets no better than 4 out of ten trades right, yet (can) still makes money, down to as you say, money management.

The search for the ultimate system that people will always look for stems from our inherent lazyness and eagerness to let a 'system' be responsible for our actions rather than place that weight squarely on our own shoulders.

ie, when it goes wrong, we have something to blame.

That's why all these different services and systems make money (for the person selling it)

Happy trading.

John (options)
 

stevet

Established member
"Accept the disorder, randomness and chaos in the markets as part of the game. The market is often far from logical. "

i have always assumed that any trader who felt the market was random or illogical would not be succesful, since it is trading off the order of the market that makes me money - but as you are making money, i suspect you are the exception that proves the rule, and i also supect that if you examined your strategy, it is based on "order" that you can see, but that does not mean that there is not "order" at other times, that you have not learned to recognise yet
 

ChartMan

Legendary member
Depends on time-scales. On the intraday tick by tick , one could say it's random...move on a bit and the randomness turns into predictability....go on further and that turns back to randomness. And it goes on I guess. So everyone is right. Play the wrong timescale and the result is not random, it's totally predictabe.
 

stevet

Established member
ChartMan

understanding how the market operates in time scales, is one of the keys to learning the market is not random

even some random generators are not random, the markets are never random, although it might appear that way if you dont understand how and why they move
 

stevet

Established member
ChartMan

in fact, i have just seen that you seem to be a big fan of the dow, and that ironically is one of the markets which even to the uninitiated appears to be the least random, since it's illiquidity takes out a lot of apperent noise

it moves in just the same way as any other market such as the S&P or Nasdaq, but due to the illiquidity it will appear to jump to a destination, rather than work its way there, so it is a good market to learn exactly how markets are not random at all
 

stevet

Established member
options

the dow is way down the list in liquidity, and thats the pit traded contract, the electronic is way way down, but that might change with the new emini dow

the most liquid index contract is the emini S&P, and growing all the time, as is the second which is the euro stoxx 50, but even adding these top two together, is still less than the volume of either of the real heavy weights such as euro bund or 3 month euro dollar - but a lot of this volume is arbitrage, whereas index products are more outright positions
 

stevet

Established member
options

who? not sure what you mean - if you mean broker, i am not into advertising brokers, and they are all only interested in your money, and they all have problems at one time or another, but i would choose one based on a robust trading platform that i can access through its api, and the one with the cheapest commision rates, as well as offering fungibility on contracts

i have a proprietary computer based system that uses multiple indicators, in multiple time frames, some on all time frames, some only on day periods, as well as historic and intraday support and resistance, to provide key trading support and resistance levels for intra-day trading -

i never use anything like RSI or Stochastics, or anything that does not give a specific non-ambiguous tradeable level
 

options

Senior member
Hi Stevet;
You say you don't use rsi etc.


"i have a proprietary computer based system that uses multiple indicators, in multiple time frames, some on all time frames, some only on day periods, as well as historic and intraday support and resistance, to provide key trading support and resistance levels for intra-day trading -

i never use anything like RSI or Stochastics, or anything that does not give a specific non-ambiguous tradeable level"



I incorporate key resistance and support levels, congestion etc, yet I also use rsi and stochs etc to give me an overall view of when to enter, and more importantly when to get out.
We all trade differently and all see the same market from a different view point. It is this which gives us a market to trade in.
but just what are your 'multiple indicators'?
I'm always prepared to listen to different methods and try to take something from all of them if it will help my trading.
Unlike some, I am not pig headedly focused on just one way and will listen to all views. I am eager to find out different things if it will assist in my trading. The next 'new' thing I learn maybe the missing link in the defence.
So, what are your indicators?

Options
 

stevet

Established member
options

my main indicators for ex-USA markets - is the S&P pit traded contract, and the Nasdaq pit traded contract, and the Dow cash

and for the US markets - i use a combication of the above and also work in a number of time frames and use a proprietary system to obtain the key support and resistance levels and to show breakdowns and reversals of trends - which for a nervous market, may mean taking 50 round turns per market per day of which the majority maybe scratches, some are pure scalps and some ride the trend from reversal - but, regardless, i never ever sit on a losing position that has broken a key level, nor sell at the first sign of weakness - except of course when scalping
 

stevet

Established member
options

and i am in the market the whole time, so dont need a lagging indicator such as rsi to tell me what the market is doing
 

DAVIEGRANT

Junior member
stevet

Just got back from holiday to read the various comments. i agree with you that some of the movements I consider to be random in the market, are just movements or situations I have not yet learnt to reconise. Thats what makes this such a great way to try and earn a living.
I have an endless amount to learn about the ever changing intricies of the market. I am at the moment exploring level 2 trading as i feel this is more in line with the way I would like to trade. But one thing is worrying me and I need other people to tell me there experiances with level 2 scalping. I have for the last month been using a training platform for sim trading and have done very well using my plain old tape reading methods. I don't believe it can be this straightforward as soon as I go live.

Any comments good or bad would be welcome in your experiances to date

DAVIEGRANT
 

stevet

Established member
daviegrant

It is important to realise that every single move in the markets is caused by an action by one or more other factors, and that the markets move to specific points as a result of those factors - so the markets are definetly not random - and the idea of them being random was only initiated and promoted in order for someone to make money by publishing a book on the subject

You are right to recognise that trading markets is an ongoing learning process, and that is part of the enjoyment and disapointment of trading, but it is the gradual accumulation of knowledge and understanding of markets that will unltimately cause you to be a successful trader.

Level 2 is not a way of trading as such, it is a way to view more information that may help or hinder your trading, dependent on the validity of the data you see and also your interpretation of it.

Scalping is a style of trading, but is very dependent on momentum and volatility, and a lot of very experienced scalpers in the states have given up trading as they just could not make a profit, as they discovered that what they thought was a skill, was in fact totaly dependent on a type of market action that only existed for a few years and may never return.

I guess sim trading is simulated trading, and for sure this is a waste of time. Firstly liquidity is of prime importance and in simulated trading, this cannot be allowed for, secondly, in your P&L, you may be ignoring brokerage fees, and thirdly, it is a lot easier to a) take a position, b) hold a winning postion and c) cut a losing postion - when you are not trading for real

The key if you want to be a successful trader is to understand that you have to learn yourself and that learning is going to cost you money in trading losses, but if your learn from those losses, you can ultimately make a lot of money

A lot of people fall by the wayside, they learn a lot, can talk the talk, but never end up making consistent and ongoing profits - some dispear, never to return, some come back and become succesful, second or third time round, some end up using what knowledge they did acquire to make money writing books or training people - but these were losing traders, and like brokers, they are just after your money, so all you can learn through them is how to lose money trading, but not how to make money, unless you write a book or become a trainer yourself!

Trading is not a part time occupation, or a simple way to make money, it is complex, both from a technical and phsycological perspective, but if you can crack it, you have a skill that can make you as much money as you choose - so it is worth having a go!

I know you have been trying for a while, but this maybe the point it all comes together for you, so just have another go, but think of it as science and business combined, there is no artistic side to trading.
 
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Naz

Experienced member
Stevet

Once again i enjoyed your comments but have to say i disagree with a lot of what you have to say.

Your comments about level 2 and scalping in the US are almost like talking about overheard gossip.As one who has traded this in the US and continued it in the UK.As well as trading it in the the times of high volatility a few years back and still trading it today i'll just say a few things.

The more basic level 2 trader only sees Nasdaq level 2 as just a depth of market and a way to view information.If a trader followed your idea of just getting on with it and loose money whilst you learn.He would not undersatnd the compexities that exist underneath the surface that a trainer wouild be able to point out,this would save the trader an awful lot of money in loosing trades.

I agree that scalping is dependent on momentum and volatility.It was easier to scalp a few years back when stocks were very high prices.Some as you say dropped out but this was because they couldnt adapt to the changing style of the market.Many had two accounts and whilst scalping would intra day swing with the other.This stood them in good stead for when market conditions changed.There are still many left who are using their skills in this different way.Gone of the days of trading 200 times a day.But the skill they have is to be able to spot turning points in the market intraday and to profit from these with what ever style they now play.

All traders exist at different levels of skill and it is easy for the more experienced to turn around and say simulated trading is a waste of time.Of course it has its limitations but for some it is a way of trying out various ideas without risking any cash.If this gives them confidence to progress then it has made a contribution to that persons advancement.

Finaly some styles of trading are difficult to explain other than to see in real time such as Nasdaq level 2.However difficult your style might be why not try and give us some more insights.Criticism is easy, trying to help is hard.
 
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stevet

Established member
Naz,

Do you see my comments as negative?

Do you agree with the this comment below, that i made earlier and is it negative?

"Trading is not a part time occupation, or a simple way to make money, it is complex, both from a technical and phsycological perspective, but if you can crack it, you have a skill that can make you as much money as you choose - so it is worth having a go!"

I ask genuinely, as I respect the fact you are addressing my points - although i must admit, although you seemed to say that you disagree with my points - in reality you seem to agree with most of it, but just add little caveats which might affect the more sensitive potential trader

Naz, i will tell you a secret - there are no sensitive winning traders and you dont have to nurse or cajole the guys who will make it - they go in head first, get battered and love it and some make it, not many, but enough

Any point i make about simulated trading or paper trading, is just saying to someone, that once they have traded for real, they will realise what a waste of time anything else is

Trading is not a game, its maybe one of the hardest endeavours in the world - since you cant blame anyone else for your failure - its all down to you - there is no one between the bucks and you

The upside of trading is that once you get it right - dependent on the liquidity of the product you trade, you can make as much money as you want - i know traders who pay $5M in brokerage fees and they are only paying cents over clearing

I primarilly trade the S&P emini and I am extending this from taking outright postions to arbitraging with securities, SSFs, options, and sector indexes across all US, Asian and European markets - one step at a time

I use a small number of simple indicators that I trade off using a proprietary computer trading system with multiple data inputs, and backed up with CQG charting with at least four markets with different time intervals

I only trade intraday, when the cash market is open, and my style is to enter at the levels i feel is right, always a contrarian postion, mostly when fair value is at a discount or premium, cut if i got it wrong and hold till i reverse, adding to the postion if it has legs

I firmly believe that some people can make it in trading and some never will, but even those who can, will be crap at first until they start to understand how markets work, and also realise that no one thing only works - a rule in the markets is only a rule until its a rule - you have to learn and keep learining by trading until you have learned enough and seen enough and suffered enough that you start to see various things repeat, and you ride that train for a period of time, watching for the next thing that will take over and then change trains

No matter what you think, all the things i have said in each message offer insight - it may not be what most want to hear, it may not make sense at a certain point in someone's learning curve, but for someone out there it will have value
 
 
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