Trial and Errors Journal

Hi rsd,

Just a few suggestions - I have no advice.

It seems as if you are spending a lot of time on market analysis, I don't like to assume but I bet you have conflicting trade signals all the time and so are unsure about taking a position. I work for one of the best prop firms in Chicago and none of the traders do nearly as much analysis. In fact most traders only have 1 or 2 indicators on their charts. Although one thing that all the traders do here is spend 3 times as many hours on self analysis compared to market analysis. I would highly recommend that after each trading day you go over each trade you made and identify what you did right, what you did wrong, and how you could have made the trade better. i.e. a loser into a winner or captured more profits in the winner. Track your equity, win/loss, average win/loss, etc etc. Make yourself a better trader, not a better analyzer.

No matter how good your analysis is, your emotions will take over and throw that hard work out the proverbial window.

Regards, and good luck with your trading.
 
Thanks HammerMan87. That sounds like very good advice. I've lost a lot already because of my emotions, so I understand what you mean. Oh, and I'm fairly active in the self-analysis department too.

Trade Number 1

I've entered a short trade on Xstrata at 710 (120 cfds), 20 points below the turn in the 20 bar MA (10 mins tf). My stop is placed at 1/2 ATR at 725 (risk of 40 pounds inc. comm, slippage).

Price currently at 699.

XstrataBuy.PNG
 
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I would be very interested to see, could you please post the completed chart of this trade and define your:

Entry and reasons for entry
Initial Stop loss and reasons for stop loss
Profit Target? - was it reasonable?
Exit and reasons for exit
Emotions you felt during the trade - were you tempted to get out too soon/late?
Your $ risk
Ways you could have made the trade better - make sure they are objective! (no hindsight bias - i.e. if only I sold at the top)

Some other things to do
print out the chart and go over the trade from left to right by covering up the data with a piece of paper - relive the trade.
Go back in your charts and find all the times that your rules are met and the outcomes - even loosing trades. Then trade these just like you relived this one - practice makes perfect.

Best of Luck,

HM
 
Reflection

HM, here goes;

lasttrade.PNG


Entry and reasons for entry

All my market analysis was telling me that momentum was building towards a dip in share price. I was expecting to see a sell-off due to profit-taking. Due to my job, I was able to get home and access to my trading platform at 8.30 UK time/4.30pm Japan. The markets were down across the board, banks and miners are the issues I monitor closely. I saw the price drop and then a pullback and so entered a short position as the price began to fall further.

Initial Stop loss and reasons for stop loss

I wanted to leave enough room with my stop loss to ensure that when the floor traders inevitably gunned for my stop, I wouldn’t be got. I’d read that putting the stop over the high point of morning trading could be a good thing, so I did that. I wanted to leave the stop there for the first day, then move it to break-even on the second day. I was thinking the dip would last two or three days.


Your $ risk, Profit Target?

I deposited 50 pounds on the trade for 120 cfds. If my stop was hit, I would lose about 50 pounds including commission. I expected the price to dip to about 610 over the whole move, which would have brought around 120 pounds in profit.

Emotions you felt during the trade

The trade started very well, the dip to 683 was quick, and momentum seemed to be building. The main index was falling rapidly. I was half-expecting a pullback through midday. Point 1 was attributed to this. Point 2 I started to get worried. It seemed like the dip wasn’t going to carry through. But then I looked at volume, which was very low, so my thinking was that people weren’t buying into any sort of rally. At point 3, there was quite a violent downward thrust in the ftse/wall st indices, and I thought this was confirmation of an imminent dip. Point 4 at the open of Wall St, whose futures were indicating losses, was a weak rally that I thought would give way to the inevitable dip. I moved my stop a couple of points to survive this. At point 5, I closed the trade, realizing that the market was unlikely to dip.

Exit and reasons for exit.

I didn’t want to carry my losses through to the next day, and risk a gap up at the open. I realized I had been wrong and the best thing was to close the trade.

Ways you could have made the trade better.

First of all, the big mistake I think was not noticing how light volume was on the initial dip into which I opened my short position. This was not backed with any real strength. Secondly, my stop could have been tighter to give a higher reward to risk ratio, and a trailing stop would have locked in profits. I could get stopped out, then re-enter at a later point if the market continued as I thought it would. Thirdly, I was guilty of sticking to preconceived ideas of how the market was going to act, a problem I often encounter. I should treat market analysis more as a rough guide. Finally, because I am trading cfds and must cover commission first, I was less inclined to lock in profits as I hadn’t made much more than commission by the time I should have been exiting the market. If I am using cfds, I should use more equity and run tighter stops. I think spreadbetting, as has been suggested, may be a better way to go.

Feel free to pick. Cheers. Rob


HammerMan87 said:
I would be very interested to see, could you please post the completed chart of this trade and define your:

Entry and reasons for entry
Initial Stop loss and reasons for stop loss
Profit Target? - was it reasonable?
Exit and reasons for exit
Emotions you felt during the trade - were you tempted to get out too soon/late?
Your $ risk
Ways you could have made the trade better - make sure they are objective! (no hindsight bias - i.e. if only I sold at the top)

Some other things to do
print out the chart and go over the trade from left to right by covering up the data with a piece of paper - relive the trade.
Go back in your charts and find all the times that your rules are met and the outcomes - even loosing trades. Then trade these just like you relived this one - practice makes perfect.

Best of Luck,

HM
Click to expand...
 
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Since I lost quite a few thousand pounds upon starting out, I've been trying to console myself with the thought that maybe it was a good thing to happen, which is why I was rather glad to stumble upon the following interview with Mark Minervini in New Market Wizards -- of course, I am not in any way suggesting I will be this successful, but perhaps the way I've done it isn't so terrible ;

What did you learn from your experience in losing all your money?

I realized that noone was going to do it (trade) for me; I had to do it for myself. My broker still got a commission, but I was sitting there broke. Incidentally, although I didn’t realize it then, I now fully believe that losing all of your money is one of the best things that can happen to a beginning trader.

Why?

Because it teaches you respect for the market. It is much better to learn the lesson that you can lose everything when you don’t have that much money than to learn the same lesson later on.

I guess that implies you are not an advocate of paper trading for beginners.

Absolutely. I think paper trading is the worst thing you can do. If you go from paper trading to real trading, you’re going to make totally different decisions because you’re not used to being subjected to the emotional pressure. (He recommends trading with just enough money to hurt)

How did you make the transition from failure to success?

My results were transformed when I understood that what counts isn’t how often you’re right, but how much you profit on your winning versus how much you lose on your losing trades.
 
A couple of things stand out to me.

1) You should definately be spreadbetting. CFD commissions will destroy your capital when trading for small amounts. You sold 120 shares at 7.10, which is £864. Commission is £20? So that's more than 2% profit plus the spread you have to make just to break even.

2) If you are looking for a trade to last a couple of days, you should not be looking at a 3 minute chart. You will see all kinds of signals on a 3 minute chart, but hardly any of them will last a couple of days.

3) You actually took a pretty good trade on the 3 minute chart, but given that it was a 3 minute chart you should have been day trading and closing your position for a small profit when it reversed at 10:30 around the 690 level.

4) It is far better to close a trade for a scratch profit or break even, than it is to let it run your stop. If you think you are wrong, get out. Capital preservation is the first thing you should be thinking about. For me there is an obvious signal to close the trade at 12:30 when price starts to take out the high at no 1.

All in all, there is a lot to learn from this thread and I respect your honesty in posting your experience. The thing I would highlight most strongly to you, is that you need to focus your attention on risk management and capital preservation. You still seem too focused on how much money you should be making, when in reality, most people lose money in the markets. Just as they do at the poker table. Focusing on how much money you could make will cloud your judgement and encourage a gamblers mentality.

Concentrate on how much money you could lose, and do everything you can to avoid that. If you can break even as a trader you are doing better than most people.
 
Thanks for the advice PokerBrat. It helps a lot. I need to start trading in the same way that I play poker - ultra cautious. I seem to have gone a bit gun-ho from the start, and I will think about that while I am away on holiday. I'm off for nearly two weeks. When I get back, I'll be opening a spreadbetting account. I'd appreciate it if you popped in every now and then and helped steer me in the right direction.
 
i think you need to stop trading news, you lost £7k? trade by the chart, trade the reaction to news, try to avoid news, watch out for earnings reports.
 
i think it's good , this thread, will help me too! Try keeping it simple, trade reversals using candlesticks (hammer/hanging man) , and instead of 'buying the high, selling the low'- try waiting for a retracement of these 'breakouts', and trade the retracement, as most breakouts are false
 
Rsd, Poker Brat pretty much sums it up. You held this position for too long. I would suggest going over all your trades - at least the last 30-50 and average out the time you are in a loosing trade and how much time you spend in a winning trade. On average you should be spending twice as much time in a winner than in a looser.

Also say you loose x amount this week, try to loose less than that amount next week. If you always say "right, next week I will make money" you are putting too much pressure on yourself and will make mistakes. A golfer will do very poorly if he/she approaches the course after a 90+ round and says "right, this round I will shoot under par" not going to happen! and is only going to lead to frustration.

I am impressed with your "how to make the trade better" answer - stick to this, use it as a guide for your next trade, and start to write down some concrete rules of if, then, else statements for your trading.

Good Luck,

HM
 
I'm back and have done a fair bit of reading and thinking over the last couple of weeks.

I like the idea of trading solid strategies as covered in street smarts, particularly the turtle soup plus 1, 80-20's, momentum pinball, Taylor's method with 2 period ROC, the holy grail, fakeout-shakeout, and the three little indians as I will be able to stick to well defined methods of entry and protective stop losses.

My starting capital is going to be a minimal amount of about 250 pounds for this new endeavour. I will try to breakeven over the first three months of trading in the first instance, and look to be making .5% profit per week by the end of this period. I will not trade more than 3% of total equity on any one position.

I will spend a few days identifying possible trading opportunities and will post them here, and will start trading once I am a bit more familiar with the strategies.

The Strategies:

Turtle Soup Plus 1

1 Market makes a new 20 day low. The previous low was at least 3 trading session earlier.

2 An entry stop is placed the next day at the previous low. (If not filled, cancel)

3 Place a stop one point under new 20 day low. Trail stop. Take profits within 2-6 days.
(or short sell new 20 day high)

80-20's day-trade only

1 Yesterday market opened in top 20% of daily range and closed in bottom 20%.

2 Today, market trades 10 ticks below yesterday's low and reverses.

3 Entry stop placed at yesterday's low. If filled, place protective stop at today's low. Trail stop.
(Do opposite for short sell. Look for reversals after bars with greater than normal daily range)

Momentum Pinball (Plot a 3 period RSI of a one-period rate of change)

1 Day 1 shows an RSI value of <30 (or short sell RSI value of >70)

2 Day 2, place an entry stop at high of 1st hour's trading.

3 If filled, place a protective stop at low of 1st hour's trading. (If stopped out, re-enter)

4 If closes with a profit, carry overnight and exit on follow-through the next morning.

Taylor's swing trading method

1 Ideal buy day comes after 2 or 3 day sell-off. Buy day should find support in morning at previous day's low, then reverses.

2 Enter long and place a protective stop at today's low.

3 If trade closes in profit, carry overnight and exit above high of our entry day.

4 Study 2 period ROC as a guideline for imminent reversals. Works best in choppy markets.

Holy Grail

1 A 14 period ADX must be over 30 and still rising.

2 Price retraces to 20 period exponential moving average. ADX turns downwards.

3 When price touches moving average, place an entry stop at high of previous bar.

4 If filled, put a protective stop at recent swing low. Trail stop to recent swing high.

5 Wait for ADX to go above 30 before looking for another trade.

Fakeout-shakeout

1 Market breaks from a ledge and comes back up to its breakout point.

2 Place a stop 1 tick above previous breakout point.

3 Place a protective stop under the recent swing low. Trail stop.

Three little Indians

1 Look for climax pattern formed by three symmetrical peaks. Short sell as price reverses from last peak.

2 Enter protective stop at high of last peak.

3 Look to carry position overnight and exit on a range expansion bar.

News reversal

One more pattern I've just read about on here is a news reversal pattern, whereby a breakout reaction comes back to its breakout point. One would trade this much like a fakeout-shakeout.

I've also just read on this site that some traders have back-tested many of these strategies and found they were not profitable. the turtle soup plus 1 particularly appealed to me, though the consensus seems to be these strategies were perhaps more suited to the US markets, and may have lost their edge in recent times. I haven't got the capability to back-test, I'm also keen not to spend too much time doing calculations such as the 2 period ROC, and I don't have access to the ADX indicator. I've seen a post that suggest the patterns work well, i.e. the fakeout-shakout, the three little indians and the news reversal. So I think the best thing I can do is start by focusing on these patterns.
 
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I wanted to know more about ADX as I don't get the indicator on my charts. I found this on wikipedia.

The ADX is a combination of two other indicators developed by Wilder, the positive directional indicator (abbreviated +DI) and negative directional indicator (-DI). The ADX combines them and smooths the result with an exponential moving average.

To calculate +DI and -DI, one needs price data consisting of high, low, and closing prices each period (typically each day). One first calculates the Directional Movement (+DM and -DM):

UpMove = Today's High − Yesterday's High
DownMove = Yesterday's Low − Today's Low
if UpMove > DownMove and UpMove > 0, then +DM = UpMove, else +DM = 0
if DownMove > UpMove and DownMove > 0, then -DM = DownMove, else -DM = 0

After selecting the number of periods (Wilder used 14 days originally), +DI and -DI are:

+DI = exponential moving average of +DM divided by Average True Range
-DI = exponential moving average of -DM divided by Average True Range

The exponential moving average is calculated over the number of periods selected, and the average true range is an exponential average of the true ranges. Then:

ADX = 100 times the exponential moving average of the Absolute value of (+DI − -DI) divided by (+DI + -DI)

I think I will have to move to a better trading platform if I want to trade this indicator, because I'm not about to calculate all that!
 
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Trading Patterns (as recounted in Street Smarts)

The following are distinctive reversal patters. They are climax patterns; the reversals occur from buying or selling exhaustion. Each has a set-up so you can anticipate the market's reversal. Once the market reverses from the distinctive risk points, it should not look back until some profits can be locked in.

These patterns are purely subjective. It is impossible to back-test them. All these patterns set up in any market on any timeframe. People who trade these patterns spend many hours after the market closes re-examining examples that were set-up during the day's session.

The best technique calls for monitoring the charts right when the anticipated reversal is ocurring. You must anticiapte the risk point or logical spot to put your protective stop before entering the trade. Once you see this low that the market should not come down to again, buy at the market. One has only a small window of opportunity.

An easy way to exit these trades is to wait for the market to stall in its movement or begin to give back some of the gains. Trail a stop, monitoring new support (resistance) levels as they are being formed, and move your stop up to just below (above) these points.

I'll try to find what I think are good examples and post them.

Spike and ledge

spike%20and%20ledge.PNG


A selling climax forms a spike. A long trade is entered on the breakout from the ledge that forms after the spike. The market should not come back to the ledge. A good exit point would be on a a range expansion bar. I would probably try to move my stop under each support until it got hit at point 1.

Alternatively, a buying climax forms a spike, and we buy the breakdown from the following ledge and place our stop on the other side of the ledge.

Fakeout-shakeout

thefakeoutshakeout.PNG


Once a market breaks from a ledge or triangle, it should not come back to the breakout point or the apex of the triangle. If it does, it sets up an excellent trade in the other direction. The market has trapped the short sellers and shaken out the long buyers. A buy stop is placed just above the point of the breakout and a protective stop loss is placed at the recent swing low. Quickly move the stop up to breakeven and then trail to lock in profits. One might choose to exit on a range expansion bar at point 1. I would probably rather place stops under supports at 2, 3 and 4 and try to let my profits run.

Three little indians

threelittleindians.PNG


This is a climax pattern formed by three symmetrical peaks. We must wait for price to reverse off the last peak before we enter a short position. We enter at the market and place a protective stop above the top of the last peak, quickly moving it to breakeven and then trailing to lock in profits.

These are the patterns I will try to focus on, along with the news reversal pattern I mentioned in the earlier post. Now I'll search my charts for examples.
 
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I'm gonna trade the patterns, spike and ledge, fakeout-shakeout and three little indians at the same time. You can't really back-test these patterns and I don't have a platform that enables me to back-test anyway. I will keep seperate records for each type of trade.
 
I've pretty much decided to move to candlestick charts (I was previously using bar charts) and trade 1 hour timeframes, with no moving averages or volume indicators.

I've started learning a bit about candlesticks and I thought I'd post what I've read here, so if I am wrong on something, maybe someone will put me right.

Candlestick%20patterns.PNG


I believe spinning tops and dojis tend to signal a trend reversal. Dojis are stronger signals than spinning tops. Green spinning tops are bullish signals, red are bearish. Hammer and hanging man tend to form early on, often preceeding the main breakout. Candlesticks long shadows and marubozu lead the main breakout and continuation of the trend. Dark cloud cover is a bearish sign of a possible trend reversal and piercing pattern is a bullish sign. Shooting stars are a strong bearish sign.

Edit: just seen a good page about candlestick patterns, including harami and kicker patterns at
http://www.swing-trade-stocks.com/candlestick-patterns.html

There are a few reasons why I think trading chart patterns and candlesticks will suit me. I previously did a lot of research into the stocks I was trading and spent hours doing calculations, and found that I had developed preconceived ideas about what would happen with the stock, which had disastrous consequences when it came to trading. I also suffered from indecision and having very wide stops, which I would invariably move if they were hit. I would let my losses run and cut my profits short.

I like the idea of having clear set-ups which allow you to anticipate breakouts. Protective stops are well-defined and are fairly tight, so I think I will be able to adopt the correct strategy and let profits run and cut losses short.

It could all go pear-shaped, but seeing as I have lowered my expectations, for now focusing just on breakeven trading, I feel quite a bit more confident about this next phase of the learning process.
 
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I've been looking at Kazarkhmys chart today and have tried to apply the knowledge I've been gaining to it.
KazarkhmysAug18.PNG


The following things grabbed my attention;

1 Three White Soldiers signify a bottom reversal. The price moves up to resistance at 860, breaks out from the ledge and moves up to new resistance at 940ish (point 2).

2 Here we see three doji in a row at the end of the ledge, signalling a reversal. Price breaks downward to point 3.

3 At the low of point 3, we see a hammer, which is a bullish pattern in a downward trend.

4 and 5 Big black candles indicate selling climaxes, which preceed the trend reversal. At 5, a distinct spike and ledge is formed, offering a clear entry point at about 850.

6 A doji with a long upper wick is very bearish, though the reversal does not carry through and price gaps higher on 17th. The gap up represents buying exhaustion, and a clear spike and ledge forms before the gap is filled.

7 The market gaps down and reverses, with both green and red bars trending upwards, signalling a breakout to the upside. If not before, one possibly might have gone long after the open today, at about 886.
 
NOTE TO SELF: DO NOT TRADE IN THE HOURS PRIOR TO KEY REPORT

So the price moved up about ten points, but then it faded and gave back some of the would-be profits; the market gets nervous before a key report - today's was the housing starts report, which showed an unexpected fall. Prices tumbled.
 
NOTES ABOUT CANDLESTICKS

One should consider the market preceding the candlestick patterns before concluding whether they are bullish or bearish signals. A bullish pattern is not a bullish pattern unless it is preceded by a downtrend. A bearish pattern is not a bearish pattern unless it is preceded by an uptrend.

Candlestick patterns, while they serve as valuable insight into the market, should not be used as the sole technical tool, but should compliment other technical techniques, such as drawing trend lines and identifying support and resistance.

Having just read an interview with Steve Nison, the King of Candlesticks, I was curious about the DVD’s he made. Turns out they come at the low price of $1,495. My definition of low and his seem to differ somewhat. By the by, he used a nice Japanese proverb to describe using candlesticks as the sole technical tool; ‘it’s like leaning a ladder against the clouds.’

I wish I could delete my earlier posts but I have compiled a more comprehensive list of bullish signals, with a bit more information about the market psychology behind them.

BullishCandlesticks.doc

And the bullish candlesticks patterns are here:

BearishCandlesticks.doc

I haven't had much practice drawing trend lines and working out suppport and resistance, but I drew up a chart today and identified some of the bullish signals mentioned in the word doc. Anyone know why the Rising Three Methods pattern isn't a conventional Rising Three Methods pattern?


TrendlinesandBullishCandlesticks.PNG
 
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