Trading is simple!

[ffsear]

My biggest problem with daytrading is getting dragged into stupid new trades or holds in order to make a profit on that day. I can't daytrade until I can get past this.

Same problem here. I'm now forgetting about the money and just trading my system. If its a winning or losing day is irrelevant tobme now. I just want to get through the day without making any mistakes. If I can do that, my system should do the rest for me.

Thats the idea anyway. Its working OK so far

 

[9samscott]

My biggest frustration was when after spending years studying and trading, I finally realized that I am not even making minimum wage trading when it's all said and done with all the time I've spent.

Hey Rexlord,

You may already be doing this but if not pick 1-4 stocks, indicies etc and go back to basics. Pick one pattern and become an expert in your chosen instrument then every day look at the charts for this pattern (That pattern could be a H&S or a particular trendline trade) By now you should have a feeling of what to look for or which one you have been successful in the past.

Get rid of all your indicators except for a moving average and only take short trades below the MA and Long trades above the MA. (Add instruments later if needs be but the successful traders I know don't use them!) Being able to see and feel what that stock is going to do will take time.

Having tight stops is important, the best trades will go in your favour straight away once you can read read and understand the pattern you choose and never get near your stop. I trade indices mostly and my SL is somewhere between 5-8 points which if you trade £1 a point to begin with the worst you will lose is £8.

I am not saying TA is the be all and end all it's just a starting point for you to get back to basics because it sounds like you've tried a lot of things so you need to forget what you've learned and just see what the market is doing then react to it rather than predict it.

 

[rexlord]

Hey Rexlord,

You may already be doing this but if not pick 1-4 stocks, indicies etc and go back to basics. Pick one pattern and become an expert in your chosen instrument then every day look at the charts for this pattern (That pattern could be a H&S or a particular trendline trade) By now you should have a feeling of what to look for or which one you have been successful in the past.

Get rid of all your indicators except for a moving average and only take short trades below the MA and Long trades above the MA. (Add instruments later if needs be but the successful traders I know don't use them!) Being able to see and feel what that stock is going to do will take time.

Having tight stops is important, the best trades will go in your favour straight away once you can read read and understand the pattern you choose and never get near your stop. I trade indices mostly and my SL is somewhere between 5-8 points which if you trade £1 a point to begin with the worst you will lose is £8.

I am not saying TA is the be all and end all it's just a starting point for you to get back to basics because it sounds like you've tried a lot of things so you need to forget what you've learned and just see what the market is doing then react to it rather than predict it.

Why would you trade stocks short below MA and long above MA? You would be fighting mean reversion. Do you have any quantitative evidence that this works over a long period of time? Trend is not your friend.
There are only two patterns in directional trading - 1. volatility contraction in pre-breakout or pullback, and 2. volatility expansion in test of prior top.
I'm going as far as to say that any other pattern is either some sort of variation of the above OR just your imagination.

 

[9samscott]

Why would you trade stocks short below MA and long above MA? You would be fighting mean reversion. Do you have any quantitative evidence that this works over a long period of time? Trend is not your friend.
There are only two patterns in directional trading - 1. volatility contraction in pre-breakout or pullback, and 2. volatility expansion in test of prior top.
I'm going as far as to say that any other pattern is either some sort of variation of the above OR just your imagination.

I feel like you're over thinking things. Why would you fight the trend and why would you try and predict the direction when the market can only do 2 things go up or down. Of course you can trade pullbacks/reversals etc and I know I'm over simplifying things here but to me it sounds like you're making it harder than it needs to be. I'm sure by now you see the same things happen over and over again, whatever they may be. Personally as I already said I would pick one of those things/patterns and look at the charts for a few stocks and spend a lot of hours watching how it moves so you can recognise the trade setup and minimise the loses.

As for my evidence, I make money 4 out of 5 trading days and only trade 2 things. So I must be doing something right. I see things differently to how you do thats why there's no point me giving you my "strategy" I'm just trying to help simplify an industry that relies on taking your money.
It took me a long time to see it this way even with a mentor and it's why he makes more money than I do because he sees things differently.

 

[dbphoenix]

I feel like you're over thinking things. Why would you fight the trend and why would you try and predict the direction when the market can only do 2 things go up or down.

While it's true that price can do only two things, they are not "go up or down". Rather they are (1) trending (either up or down) and (2) ranging (moving sideways). Understanding and distinguishing between trending and ranging is particularly important if one is relying on moving averages to tell him whether he ought to be long or short. If he doesn't understand the difference, he will be spending a great deal of time in chop.

Personally as I already said I would pick one of those things/patterns and look at the charts for a few stocks and spend a lot of hours watching how it moves so you can recognise the trade setup and minimise the loses.

I agree that watching price move in order to understand how and why it moves is key to trading profitably. However, patterns are less useful than understanding why the pattern is forming in the first place. If one doesn't reach this level, he will always be late and thereby become low-hanging fruit, assuming much greater risk than necessary.

 

[NVP]

Same problem here. I'm now forgetting about the money and just trading my system. If its a winning or losing day is irrelevant tobme now. I just want to get through the day without making any mistakes. If I can do that, my system should do the rest for me.

Thats the idea anyway. Its working OK so far

Perfect philosophy FF........I went on a seminar a while back with steve ward who wrote high performance trading and he has coached some of the best traders in the world......he spoke a lot about focusing his traders on execution .....aiming for 100% perfection in their actions with no distractions .....

He tells them that if they can do this the rest will take care of itself.......

N

 

[NVP]

While it's true that price can do only two things, they are not "go up or down". Rather they are (1) trending (either up or down) and (2) ranging (moving sideways). Understanding and distinguishing between trending and ranging is particularly important if one is relying on moving averages to tell him whether he ought to be long or short. If he doesn't understand the difference, he will be spending a great deal of time in chop.



I agree that watching price move in order to understand how and why it moves is key to trading profitably. However, patterns are less useful than understanding why the pattern is forming in the first place. If one doesn't reach this level, he will always be late and thereby become low-hanging fruit, assuming much greater risk than necessary.

And remember.....A range is a trend in a lower timeframe

 

[dbphoenix]

And remember.....A range is a trend in a lower timeframe

And a trend is a range in a larger timeframe. The key is to understand how and why price is moving as it does. Otherwise, whatever protocols he has developed will likely end up achieving disappointing results.

 

[9samscott]

While it's true that price can do only two things, they are not "go up or down". Rather they are (1) trending (either up or down) and (2) ranging (moving sideways). Understanding and distinguishing between trending and ranging is particularly important if one is relying on moving averages to tell him whether he ought to be long or short. If he doesn't understand the difference, he will be spending a great deal of time in chop.



What does the price do when it is trending sideways? It is going up and down in between two points. Once again you are over complicating things It is not about the pattern per say as the pattern is in your mind. Im trying to get you to find one thing to focus on and just look for that one thing every single day, over and over and over again until it becomes second nature and you master it.

The idea is you are not relying on any instruments. The MA is simply there to help simplify. Long trades only when above, short when below. If the price is on the moving average use your discretion. Thats why you need to focus on one thing/pattern so you start to get a feeling of what this living breathing thing we call the markets is about to do then react to it not predict it.

Guys even in a sideways market the price can only go up or down! The idea above of looking for one thing and focusing on that will mean you can increase your chance of success because you know how your instrument acts in that situation and what to look for

 

[dbphoenix]

What does the price do when it is trending sideways? It is going up and down in between two points. Once again you are over complicating things It is not about the pattern per say as the pattern is in your mind. Im trying to get you to find one thing to focus on and just look for that one thing every single day, over and over and over again until it becomes second nature and you master it.

The idea is you are not relying on any instruments. The MA is simply there to help simplify. Long trades only when above, short when below. If the price is on the moving average use your discretion. Thats why you need to focus on one thing/pattern so you start to get a feeling of what this living breathing thing we call the markets is about to do then react to it not predict it.

Guys even in a sideways market the price can only go up or down! The idea above of looking for one thing and focusing on that will mean you can increase your chance of success because you know how your instrument acts in that situation and what to look for

If it's "trending" sideways then it's not trending at all; it's trapped between two points. If one is scalping for ticks, this may not matter. But beginners are not particularly good at scalping for ticks. Focusing on "one thing" is not going to aid the trader if that one thing is irrelevant.

There's nothing inherently wrong with indicators or patterns or candles or bars or diagrams or whatever else the trader may elect to plot on his chart (if he uses a chart at all). If one is able to develop a consistently profitable strategy with them, more power to him.

However, he should understand that all the indicators etc. he's plotting on his charts are variations of the same thing, i.e., a means of determining trend. He can save himself a lot of time by learning how to determine trend, then by determining what timeframe is most comfortable to him.

Most traders are much like the deaf who don't know how to read lips, or at least aren't very good at it. Rather than focus on the person speaking, they instead focus on whoever is doing the signing, glancing at the speaker only occasionally, or perhaps not at all. Rather than "hearing" for themselves what's being said, they're relying on somebody -- or something -- else to tell them what's being said. Even if they can rely on the interpreter, they are still removed from what is being interpreted.

Therefore, I suggest they learn to read lips themselves.

 

[timsk]

. . .Guys even in a sideways market the price can only go up or down!. . .

Hi 9samscott,
I think everyone would agree that simplification is - in principle - a good thing. However, to say that price can only go up or down is over simplifying things. By way of example, here's a 1 hour chart on the German Dax for 06/06/2016.



Yes, there are up bars and there are down bars, but try adding a MA of any period and trading long above and short below. I'm afraid I'm with dbp on this issue, the ability to spot chop early and either sit on one's hands or switch strategies altogether will make a massive impact to one's PnL. I confess it's an issue that I really wrestle with. If you have the answer 9samscott - I'm all ears!
Tim.

 

[tomorton]

You're both sufficiently right to trade profitably most of the time, and your approaches could be traded profitably by most other people. Just get on with it.

But I can only think rexlord is perhaps deluded by his own success into thinking he has a fundamentally sound strategy. I suppose statistically there'll always be one person who can make money from doing it wrong.

 

[rexlord]

In my experience, when somebody says that there is not need to "overthink" - it is highly highly likely that the person doesn't actually trade.

Trend trading stocks is a zero-sum game even with outstanding risk management. You will be fighting mean reversion and mean reversion dominates stocks. Especially if you buy above MA and sell below MA - it is very easy to backtest.
You will be slightly better off selling above MA and buying below MA.
Trend trading futures probably could have been profitable (in the past)

"Price only goes up or down" - this concept is only applicable if your reward/risk is never above 1:1
And price can also do neither - not go up and not go down.

Range-bound markets are in a random walk. Any directional trade in a non-trending market is a coin flip. Any level you see in a random walk is a completely random line created by your imagination.
The only exception being Wyckoff Up Thrusts into market extremes.

I agree that it's important to understand what causes a pattern to form on the price chart.. as opposed to just looking for patterns. You are looking at randomness for the most part.

 

[metrader]

Why don't you post some live calls to show us the simplicity in action?

 

[tomorton]

Sounds clever.

 

[dbphoenix]

In my experience, when somebody says that there is not need to "overthink" - it is highly highly likely that the person doesn't actually trade.

Trend trading stocks is a zero-sum game even with outstanding risk management. You will be fighting mean reversion and mean reversion dominates stocks. Especially if you buy above MA and sell below MA - it is very easy to backtest.
You will be slightly better off selling above MA and buying below MA.
Trend trading futures probably could have been profitable (in the past)

"Price only goes up or down" - this concept is only applicable if your reward/risk is never above 1:1
And price can also do neither - not go up and not go down.

Range-bound markets are in a random walk. Any directional trade in a non-trending market is a coin flip. Any level you see in a random walk is a completely random line created by your imagination.
The only exception being Wyckoff Up Thrusts into market extremes.

I agree that it's important to understand what causes a pattern to form on the price chart.. as opposed to just looking for patterns. You are looking at randomness for the most part.

These are the sort of remarks that are made -- repeatedly -- by those who don't understand how and why price moves.

First, you yourself are "overthinking" the whole thing as evidenced by all the baggage you've carried into your view.

Second, trading is not a zero-sum game unless you are trading in a closed system.

Third, price does not move randomly. Those who don't understand how and why it moves resort to the randomness argument rather than work their way through and puzzle it out.

Fourth, R:R ratios are pointless as no one has any idea what the reward will be or even might be for any given trade. The only side to this equation that one has any control over is risk.

Fifth, it is possible for transactions to be equal and continguous, but only for a second or two, and rarely. Observe a tick chart sometime.

If you had been studying the market all this time as opposed to books and websites and wherever else you got your misinformation, you might have done much better. As it stands, it appears that you have only wasted your time, and you'll never get it back.

 

[rexlord]

Thank you for the response.
I do try to look at charts as much as possible and I do trade stocks.

It is very difficult for me to swallow the argument that "studying the market" will make one understand price movement.

There has to be a way to put it into words and explain price movement. Or at least put into words what exactly needs to be studied in the markets.

There are so many market participants making so many different decisions (rationally and irrationally) at the same time, that ultimately price movement becomes random.

If a backtest or a pattern clearly points to nonrandom price movement - I agree that it is not random. But whether it is tradeable is another question. Sometimes nonrandom patterns are only observed in certain stocks and it would have been impossible to pick and trade only the stocks with nonrandom behavior. And the main reason I think I am personally trading randomness is because the human brain cannot differentiate between random and nonrandom.

 

[dbphoenix]

Thank you for the response.
I do try to look at charts as much as possible and I do trade stocks.

It is very difficult for me to swallow the argument that "studying the market" will make one understand price movement.

There has to be a way to put it into words and explain price movement. Or at least put into words what exactly needs to be studied in the markets.

There are so many market participants making so many different decisions (rationally and irrationally) at the same time, that ultimately price movement becomes random.

If a backtest or a pattern clearly points to nonrandom price movement - I agree that it is not random. But whether it is tradeable is another question. Sometimes nonrandom patterns are only observed in certain stocks and it would have been impossible to pick and trade only the stocks with nonrandom behavior. And the main reason I think I am personally trading randomness is because the human brain cannot differentiate between random and nonrandom.

1. Looking will do no good if one does not see. And one will not see unless and until he understands what it is he's looking at.

2. There has to be a way to put it into words and explain price movement. Or at least put into words what exactly needs to be studied in the markets. As opposed to, I assume, studying price movement directly. And how has focusing on somebody else's words worked out for you?

3. There are so many market participants making so many different decisions (rationally and irrationally) at the same time, that ultimately price movement becomes random. You're confusing randomness with unpredictability, as is common amongst beginners. They are not the same thing. Study the market, not what dilettantes say about the market.

4. . . . the main reason I think I am personally trading randomness is because the human brain cannot differentiate between random and nonrandom. Of course it can. That's what the Scientific Method is all about, a method which is generally unknown amongst beginners. If you don't know how to observe, collect data, consolidate that data, formulate and test hypotheses and calculate win:loss and profit:loss ratios, that's hardly the market's fault.

If you are in fact trading randomness, which one might hypothesize is one of the primary causes of your lack of success, and you've been doing this for more than six months, I suggest you find something else to do with your leisure time.

 

[9samscott]

These are the sort of remarks that are made -- repeatedly -- by those who don't understand how and why price moves.

First, you yourself are "overthinking" the whole thing as evidenced by all the baggage you've carried into your view.

Second, trading is not a zero-sum game unless you are trading in a closed system.

Third, price does not move randomly. Those who don't understand how and why it moves resort to the randomness argument rather than work their way through and puzzle it out.

Fourth, R:R ratios are pointless as no one has any idea what the reward will be or even might be for any given trade. The only side to this equation that one has any control over is risk.

Fifth, it is possible for transactions to be equal and continguous, but only for a second or two, and rarely. Observe a tick chart sometime.

If you had been studying the market all this time as opposed to books and websites and wherever else you got your misinformation, you might have done much better. As it stands, it appears that you have only wasted your time, and you'll never get it back.

I have no Idea if Dbphoenix makes a lot of money trading but if he doesn't currently then I guarantee he will be one of the few people out there who do! I especially agree with this part...If you had been studying the market all this time as opposed to books and websites and wherever else you got your misinformation, you might have done much better Too many people search for the holy grail and trade signals when they should spend their time watching the markets but it's not their fault it's what you have been brainwashed in to doing.

I use a pattern in the market, most would be kicking themselves if they saw someone use it and be profitable. It wins about 80% but most of them are small wins, but when it does run I will usually hit my target for the week in under an hour.

People should spend time on charts looking for patterns and come up with new ideas to test. If anyone is really interested in becoming a successful trader they will spend time doing so, the others will just jump from one persons bad teaching to another.

 

[9samscott]

Hi 9samscott,
I think everyone would agree that simplification is - in principle - a good thing. However, to say that price can only go up or down is over simplifying things. By way of example, here's a 1 hour chart on the German Dax for 06/06/2016.

View attachment 226300

Yes, there are up bars and there are down bars, but try adding a MA of any period and trading long above and short below. I'm afraid I'm with dbp on this issue, the ability to spot chop early and either sit on one's hands or switch strategies altogether will make a massive impact to one's PnL. I confess it's an issue that I really wrestle with. If you have the answer 9samscott - I'm all ears!
Tim.

If I was looking at that chart and couldn't see the pattern I look for then I would simply change the timeframe to view it higher and lower maybe 1 day, 4 hours, 15 minutes, 5 minutes, 1 minute and if I still couldn't spot anything I would leave it. LIVE TO TRADE ANOTHER DAY. But no matter what you say the price is still only going up or down. The strategy you choose should help you eliminate bad trades or at least lessen your losses