brutusdog
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Excellent advice
Thank you for the very good advice in your post, hope everyone takes notice and actually does it as I know for a fact it will help them a lot........
Dan
Thank you for the very good advice in your post, hope everyone takes notice and actually does it as I know for a fact it will help them a lot........
Dan
Over the years of gradually getting better I've run into lots of useful stuff on the internet. So I thought I'd start a thread and put some of it in here along with a link to where it came from to avoid offending the original authors:
My best advice:
1. Do not trade all day. Trade the first 90 minutes or so. Many of the best opportunities happen in the morning while price discovery is taking place. If you must trade to the close, come back for the last hour! I personally find that after making a number of good trades in the early part of the am, if I continue to trade its often a case of getting stuck in the chop and giving back the easy money made earlier. Its just not worth it.
2. Limit the number of trades you do. Teresa Lo limits herself to 3 and rarely breaks that rule. She has a ton of discipline. I wish I had inherited her discipline much earlier in my trading career. That one step improved my trading tremendously. If you know you only have three stabs and then you are out, you aren't going to waste them. Trust me on this.
3. Know what you are trading. No one, in real time, can be master of all setups and trading styles. Until you can be consistently profitable day trading, I would pick one or two setups and only trade them. You may go all day without having a single setup appear (unlikely) but if thats the case, don't do it. Even now I have only two primary setups - test
4. Get your mind around why overtrading is happening. If you can quash that "problem" (I believe it to be, been there done that) you will probably succeed in enforcing the discipline required.
Position and swing trading is much easier, in stocks, IMO. You have time to contemplate your moves and are not under the real time gun. You might even question why you want to day trade. Some people I think switch to day trading just to get an adrenaline kick, when in fact they might be far more successful as position traders.
There is something very appealing about getting all that time back. Using only end of day data, orders transmitted at the open, you then get the day to yourself to do something else.
I switched to day trading futures some time ago and do not day trade stocks at all, much to my (stock) brokers disappointment I am sure. I have never looked back - futures allowed me to focus on improving my trading, not trying to find 'the' best stock(s) to trade on a given day.
Just some musings. Oh, a final comment. I believe a person makes it as a trader when the act of trading becomes boring. I tell ya, sitting all day waiting for a setup to happen along is boring!
mw
http://www.dacharts.com/articles/MW_Best_Advice.htm
nine
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And here's a gem from a rock'n'roller over at forex factory, Strat.
"I’m not here to fight with anyone over whether to use indicators or not for we have a larger fight with the market makers than amongst us little guys. I respect the traders who can make consistent profits with indicators as it is something I have tried and cannot do. If anyone has an indicator that produces CONSISTENT profits then, please, show us the way.
In the meantime, I will continue with what works for me: raw price action using price, volume, S&R, momentum, exhaustion, cycles, time, harmonic analysis, market sentiment with a splash of funny mentals thrown in.
With regard to my transition from having indicators up the ying yang on my charts to now with just volume and the 20ema and the 50sma, I need to share my experience with an old time trader, Dr. Joe, which will also show how stubborn I was.
Back in the early 90s when I was getting really serious with my trading, I was buying signals via fax. In those days there was no email and no computer trading and we had to either plot our own charts or buy them from a charting service. We then had to calculate our own indicators and then hand draw them on our charts. This really helped in understanding what indicators did (take the data from “n” days ago) and how they worked.
One time I faxed my questions back to the signal service and the reply I got back was that I had sent it to the wrong number. Also written on my fax was that I was wasting my money on signals and to contact Dr. Joe. After a few fax exchanges, he sent a handwritten fax saying something like “trading is easy, you don’t need nuthin fancy (he was a good old Texas boy) just buy when it’s going up and sell when it’s going down, that’s all there is to it”.
Dr. Joe used to work for NASA as a nuclear physicist on the Space Program and was a Professor, PhD with just about every physics and maths qualifications there are or you could think of. He got fed up of the bureaucracy and politics at NASA and as a part time investor in stocks , decided to go full time as, in his own words, “the price cycles are just some sort of fancy sine waves with decay and acceleration distorting them and should be real easy to plot and forecast.”
Well after over 5 years doing triple integrated, double differentiated Fourier transforms, harmonic frequency analysis, fractal filters and theorems and goodness knows what else that, although I have a PhD, just ran circles around me. He said he got so frustrated that although he could plan and predict space craft trajectories, orbits, landings etc, he could not forecast even one bar of prices into the future. Not one to quit, he decided that there was some external force that he was not taking into consideration and the only place it could be was on the trading floor where the action took place.
Through his connections, he eventually got an invitation to the Chicago Mercantile Exchange (CME) and was shown the futures or commodities pit (can’t remember which). His sole purpose of going there was as a spy or detective to find out exactly how things worked so that he could write it into his software. He told me he was “amazed and dumbfounded” at what he saw and heard which forever changed his life. (I had all this written up in my trading notes in my files but I can’t find them so I’m using this post to “replenish my notes”).
He arrived at the pit before opening time and saw all the floor traders congregated together in a meeting. He saw this as strange as he thought they were out and out competitors with each other.
What he saw in the first 15 to 30 minutes he would never have believed even if his best friend had told him. At the open, the overnight trades, which were long positions, were put through but he detected the traders entering them were giving signals to the other traders. After the orders were put through there was “nothing” – they just waited to see how the market reacted to those orders.
He then observed what he thought were illegal practices but later learned it to be what actually goes on each and every day. During this “dead” time, the floor traders were reviewing their orders in the pipeline and then on a given signal, a group started selling followed by another group. Then when a certain lower price had been reached, another signal was given and the same groups then bought back amongst themselves. He later learned this was called “Running the Stops” and what they had done was found out where all the orders were, which were below lows, swing lows and elsewhere, and just driven the price down to fill them and take them out so that they had a clean order sheet! Not satisfied with that, they then collectively took the price back to where it opened!
After this and now with the market moving, orders started to come in and when a large order came in from a bank, fund or other large institution, the trader with the order gave a signal before entering it. After entering it, the traders went quiet again. They were looking to see how the market reacted to that order. When they saw more buy orders coming in, they just bought more and more and kept on buying until a signal from a trader that he had a large sell order. Again the sell order was entered and the traders went quiet as they waited for a reaction from the market. He learned that the floor traders were waiting to see whether the sell order was going to be accepted as profit taking or full blown shorting. He said this went on all day long with the floor traders just “piggy-backing” on which ever way the market moved. He said he could see no skills or qualifications (other than being a whore – a very rich whore, he said) whatsoever in what the floor traders did.
On his way back to Houston, he thought about how to use what he witnessed to HIS advantage.
His first action was to throw out all his indicators, forecasts and technical analysis. He told me that there is no analysis, indicator or other program now or in the future, that can analyse or predict human behaviour and specifically, human emotions. He had seen for himself that there was nothing technical or logical in how the floor traders (now better known as Market Movers) traded and therefore any analysis or thinking from “off the floor” was an absolute waste of time.
His second action was how to beat “those whores” on the floor as he called them. He said he thought over just about every scenario imaginable and just as he was running out of ideas, it came to him. If you can’t beat, them join them although as a very devout and God fearing Christian, he didn’t think it was ethical. Unable to find another alternative, he decided he had no options left but to try and do, “off the floor” what they did on the floor.
From this came his very simple method:
Buy when it goes up and sell when it goes down.
He went on to make $millions doing this and I subsequently learned he passed away a very rich and contented man knowing that he had beaten the “whores” at their own game.
I learned all this in a few telephone conversations with him but he lost his patience with me when I still questioned his method. He wouldn’t answer my calls so I reverted back to faxes. Again, I can’t remember it word for word but I sent a simple fax saying:
“How do you know when to stop buying?”
On the same fax was his handwritten reply, “When it stops going up.”
So I wrote on it, “How do you know when it stops going up?”
His handwritten reply, “When it starts going down.”
So I wrote on it, “How do you know when it stops going up and starts going down?”
His handwritten reply, “When people start selling.”
After going round like this in riddles, I pleaded with him to “just give it to me straight”.
He sent a fax saying this would be his last communication with me and that if I didn’t understand how to buy when it goes up and sell when it goes down, I had no business trading.
His final paragraph was one which I ignored, like everything else he told me, until a couple of years ago when I realized what a dumb, stupid, arrogant, stubborn idiot I had been:
He said I would only be wrong twice using his simple method:
“Once when you buy at the top and once when you sell at the bottom.”
I just ignored this as a smart – ass answer but still tried to do what he said. Unfortunately, and as Sod’s law dictates, I tried to do it in a consolidation and lost on every trade which had me buying when I should have been selling etc.
I tried and lost again and then eventually lost my way in the quest for the Holy Grail in Indicator Land.
Now, with all my experience and thousands of lost $ behind me, the light came on!
My understanding of what he was telling me is this:
Buy when prices are moving up. Buy each retrace/dip. Keep buying until the last retrace becomes a trend change which is the one trade you lose on.
Sell when prices are moving down. Sell each retrace/rally. Keep selling until the last retrace becomes a trend change which is the second trade you lose on.
I have not traded like this as I have my own method/style now but on the look backs I have done it works very well. Obviously, the trendier the price, the better it works.
In my later communications with other floor traders, I told them about Dr. Joe and what he told me, and asked them if it was true. As you would expect, each and everyone vehemently rejected it as absolute rubbish.
Sometimes I wonder if old Dr. Joe was smoking something but then when I see those long legged neutral dojis before a significant move, I know he was right.
Thank you, Dr. Joe"
"I’m not here to fight with anyone over whether to use indicators or not for we have a larger fight with the market makers than amongst us little guys. I respect the traders who can make consistent profits with indicators as it is something I have tried and cannot do. If anyone has an indicator that produces CONSISTENT profits then, please, show us the way.
In the meantime, I will continue with what works for me: raw price action using price, volume, S&R, momentum, exhaustion, cycles, time, harmonic analysis, market sentiment with a splash of funny mentals thrown in.
With regard to my transition from having indicators up the ying yang on my charts to now with just volume and the 20ema and the 50sma, I need to share my experience with an old time trader, Dr. Joe, which will also show how stubborn I was.
Back in the early 90s when I was getting really serious with my trading, I was buying signals via fax. In those days there was no email and no computer trading and we had to either plot our own charts or buy them from a charting service. We then had to calculate our own indicators and then hand draw them on our charts. This really helped in understanding what indicators did (take the data from “n” days ago) and how they worked.
One time I faxed my questions back to the signal service and the reply I got back was that I had sent it to the wrong number. Also written on my fax was that I was wasting my money on signals and to contact Dr. Joe. After a few fax exchanges, he sent a handwritten fax saying something like “trading is easy, you don’t need nuthin fancy (he was a good old Texas boy) just buy when it’s going up and sell when it’s going down, that’s all there is to it”.
Dr. Joe used to work for NASA as a nuclear physicist on the Space Program and was a Professor, PhD with just about every physics and maths qualifications there are or you could think of. He got fed up of the bureaucracy and politics at NASA and as a part time investor in stocks , decided to go full time as, in his own words, “the price cycles are just some sort of fancy sine waves with decay and acceleration distorting them and should be real easy to plot and forecast.”
Well after over 5 years doing triple integrated, double differentiated Fourier transforms, harmonic frequency analysis, fractal filters and theorems and goodness knows what else that, although I have a PhD, just ran circles around me. He said he got so frustrated that although he could plan and predict space craft trajectories, orbits, landings etc, he could not forecast even one bar of prices into the future. Not one to quit, he decided that there was some external force that he was not taking into consideration and the only place it could be was on the trading floor where the action took place.
Through his connections, he eventually got an invitation to the Chicago Mercantile Exchange (CME) and was shown the futures or commodities pit (can’t remember which). His sole purpose of going there was as a spy or detective to find out exactly how things worked so that he could write it into his software. He told me he was “amazed and dumbfounded” at what he saw and heard which forever changed his life. (I had all this written up in my trading notes in my files but I can’t find them so I’m using this post to “replenish my notes”).
He arrived at the pit before opening time and saw all the floor traders congregated together in a meeting. He saw this as strange as he thought they were out and out competitors with each other.
What he saw in the first 15 to 30 minutes he would never have believed even if his best friend had told him. At the open, the overnight trades, which were long positions, were put through but he detected the traders entering them were giving signals to the other traders. After the orders were put through there was “nothing” – they just waited to see how the market reacted to those orders.
He then observed what he thought were illegal practices but later learned it to be what actually goes on each and every day. During this “dead” time, the floor traders were reviewing their orders in the pipeline and then on a given signal, a group started selling followed by another group. Then when a certain lower price had been reached, another signal was given and the same groups then bought back amongst themselves. He later learned this was called “Running the Stops” and what they had done was found out where all the orders were, which were below lows, swing lows and elsewhere, and just driven the price down to fill them and take them out so that they had a clean order sheet! Not satisfied with that, they then collectively took the price back to where it opened!
After this and now with the market moving, orders started to come in and when a large order came in from a bank, fund or other large institution, the trader with the order gave a signal before entering it. After entering it, the traders went quiet again. They were looking to see how the market reacted to that order. When they saw more buy orders coming in, they just bought more and more and kept on buying until a signal from a trader that he had a large sell order. Again the sell order was entered and the traders went quiet as they waited for a reaction from the market. He learned that the floor traders were waiting to see whether the sell order was going to be accepted as profit taking or full blown shorting. He said this went on all day long with the floor traders just “piggy-backing” on which ever way the market moved. He said he could see no skills or qualifications (other than being a whore – a very rich whore, he said) whatsoever in what the floor traders did.
On his way back to Houston, he thought about how to use what he witnessed to HIS advantage.
His first action was to throw out all his indicators, forecasts and technical analysis. He told me that there is no analysis, indicator or other program now or in the future, that can analyse or predict human behaviour and specifically, human emotions. He had seen for himself that there was nothing technical or logical in how the floor traders (now better known as Market Movers) traded and therefore any analysis or thinking from “off the floor” was an absolute waste of time.
His second action was how to beat “those whores” on the floor as he called them. He said he thought over just about every scenario imaginable and just as he was running out of ideas, it came to him. If you can’t beat, them join them although as a very devout and God fearing Christian, he didn’t think it was ethical. Unable to find another alternative, he decided he had no options left but to try and do, “off the floor” what they did on the floor.
From this came his very simple method:
Buy when it goes up and sell when it goes down.
He went on to make $millions doing this and I subsequently learned he passed away a very rich and contented man knowing that he had beaten the “whores” at their own game.
I learned all this in a few telephone conversations with him but he lost his patience with me when I still questioned his method. He wouldn’t answer my calls so I reverted back to faxes. Again, I can’t remember it word for word but I sent a simple fax saying:
“How do you know when to stop buying?”
On the same fax was his handwritten reply, “When it stops going up.”
So I wrote on it, “How do you know when it stops going up?”
His handwritten reply, “When it starts going down.”
So I wrote on it, “How do you know when it stops going up and starts going down?”
His handwritten reply, “When people start selling.”
After going round like this in riddles, I pleaded with him to “just give it to me straight”.
He sent a fax saying this would be his last communication with me and that if I didn’t understand how to buy when it goes up and sell when it goes down, I had no business trading.
His final paragraph was one which I ignored, like everything else he told me, until a couple of years ago when I realized what a dumb, stupid, arrogant, stubborn idiot I had been:
He said I would only be wrong twice using his simple method:
“Once when you buy at the top and once when you sell at the bottom.”
I just ignored this as a smart – ass answer but still tried to do what he said. Unfortunately, and as Sod’s law dictates, I tried to do it in a consolidation and lost on every trade which had me buying when I should have been selling etc.
I tried and lost again and then eventually lost my way in the quest for the Holy Grail in Indicator Land.
Now, with all my experience and thousands of lost $ behind me, the light came on!
My understanding of what he was telling me is this:
Buy when prices are moving up. Buy each retrace/dip. Keep buying until the last retrace becomes a trend change which is the one trade you lose on.
Sell when prices are moving down. Sell each retrace/rally. Keep selling until the last retrace becomes a trend change which is the second trade you lose on.
I have not traded like this as I have my own method/style now but on the look backs I have done it works very well. Obviously, the trendier the price, the better it works.
In my later communications with other floor traders, I told them about Dr. Joe and what he told me, and asked them if it was true. As you would expect, each and everyone vehemently rejected it as absolute rubbish.
Sometimes I wonder if old Dr. Joe was smoking something but then when I see those long legged neutral dojis before a significant move, I know he was right.
Thank you, Dr. Joe"
nine
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Thanks Tricks,
Here's another post of Strat's that I felt talked to some important issues:
"For those posting and PMing me wanting to know what my method/strategy is and where is it posted, I think within these first 4 pages it is pretty obvious.
My method is very basic and simple:
Price Action at Support & Resistance
The key is to know what Price Action IS and what it DOES at Support and Resistance.
Compared to other Price Action traders, I know I over analyse the charts too much but I have to use my hard earned and learned education somewhere!
I use raw price action using price, volume, support and resistance, momentum, exhaustion, cycles, time, harmonic analysis, elliott wave (only when I can figure the damned thing out!), market sentiment all with a splash of funny mentals thrown in.
After recalling my Dr. Joe experience, which I had chosen to ignore, I am now questioning myself as to why am I analysing so much on something over which I have no control. From now on, I will start to drop out some of the extranneous stuff and see what effect it has on my trading. I suspect (deep inside I know) I will just end up with price action, volume and support and resistance. Anyway, we are all here to learn.
What is important is not to use any one aspect of my method in isolation. For example, it would be foolish just to use Price Action without Support and Resistance. Next it would be foolish to use both of them without knowing where we are in the big picture etc.
My method/strategy will all be revealed here in this thread over time and in and among trading discussions and opportunities.
For those looking to find an entry and exit indicator of some sort then sorry, this is not for you. To be really profitable trading, there is NO shortcut or substitute to learning the basics and what I will post here is starting with the basics through where I am today.
Like every other successful and profitable trader, I have developed what works for me and I am not perfect. In fact, I am far from perfect, I get many of my analyses wrong and make many wrong trades. As we have read and heard over and over, the trick is to limit your losses so that your wins are always far greater. I accept that I will be wrong and I accept that I will have losses. The next trick is to move on. Forget your losses, just treat them as history and part of your learning curve.
Unknowingly, I think I have just written my first lesson!
Also, my style of teaching is like my humour - weird! So again I apologise for it right now. I was never spoon fed anything and had to learn the hard way so don't expect to be given everything on a plate. I will say or post something to stir up your imagination and thinking and provoke questions.
For those reading this thread who know far more than I, please feel free to question anything I say or do. I am still learning and open to any suggestions (Yes, Mrs Robinson!).
And, for those looking for the Holy Grail, I know what it is!
And for those wanting to know why I end my posts with "Rock n Roll"; as soon as I write that it takes my mind off trading and reminds me of the good times I had and that there are far more important things than price bars on a chart!
Rock n Roll,
Strat"
Here's another post of Strat's that I felt talked to some important issues:
"For those posting and PMing me wanting to know what my method/strategy is and where is it posted, I think within these first 4 pages it is pretty obvious.
My method is very basic and simple:
Price Action at Support & Resistance
The key is to know what Price Action IS and what it DOES at Support and Resistance.
Compared to other Price Action traders, I know I over analyse the charts too much but I have to use my hard earned and learned education somewhere!
I use raw price action using price, volume, support and resistance, momentum, exhaustion, cycles, time, harmonic analysis, elliott wave (only when I can figure the damned thing out!), market sentiment all with a splash of funny mentals thrown in.
After recalling my Dr. Joe experience, which I had chosen to ignore, I am now questioning myself as to why am I analysing so much on something over which I have no control. From now on, I will start to drop out some of the extranneous stuff and see what effect it has on my trading. I suspect (deep inside I know) I will just end up with price action, volume and support and resistance. Anyway, we are all here to learn.
What is important is not to use any one aspect of my method in isolation. For example, it would be foolish just to use Price Action without Support and Resistance. Next it would be foolish to use both of them without knowing where we are in the big picture etc.
My method/strategy will all be revealed here in this thread over time and in and among trading discussions and opportunities.
For those looking to find an entry and exit indicator of some sort then sorry, this is not for you. To be really profitable trading, there is NO shortcut or substitute to learning the basics and what I will post here is starting with the basics through where I am today.
Like every other successful and profitable trader, I have developed what works for me and I am not perfect. In fact, I am far from perfect, I get many of my analyses wrong and make many wrong trades. As we have read and heard over and over, the trick is to limit your losses so that your wins are always far greater. I accept that I will be wrong and I accept that I will have losses. The next trick is to move on. Forget your losses, just treat them as history and part of your learning curve.
Unknowingly, I think I have just written my first lesson!
Also, my style of teaching is like my humour - weird! So again I apologise for it right now. I was never spoon fed anything and had to learn the hard way so don't expect to be given everything on a plate. I will say or post something to stir up your imagination and thinking and provoke questions.
For those reading this thread who know far more than I, please feel free to question anything I say or do. I am still learning and open to any suggestions (Yes, Mrs Robinson!).
And, for those looking for the Holy Grail, I know what it is!
And for those wanting to know why I end my posts with "Rock n Roll"; as soon as I write that it takes my mind off trading and reminds me of the good times I had and that there are far more important things than price bars on a chart!
Rock n Roll,
Strat"
new_trader
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Very Good
Exactly. You need to survive long enough to become proficient by limiting your losses to an absolute minimum, all else is peripheral.
Great stuff.
Exactly. You need to survive long enough to become proficient by limiting your losses to an absolute minimum, all else is peripheral.
Great stuff.
i agree with you, he always gives me great ideas. keep up the good work Nine.
nine
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Something of my own recent experience:
For the past five or six years I have been a discretionary day trader. Every order has been entered by hand ... well by click.
I started this because I was convinced that day trading was way to make real money trading. Why? Because in microswing day trading you get 3-6 opportunities per day per market. So if you risk 2% every time your return per day is much higher than in EOD trading where the 2% might only be risked once a week.
But I was pretty convinced it had to be hand driven. So I commenced learning. And at that stage I loved spending 3-8 hours a day watching the markets.
I learned about trends, how to read them with mas, how to read them with lines and channels, how to read them with market profile concepts. I learned about pullbacks and I learned a lot from the trend dynamics course. I learned about profit improvement on entry and the conditions that would suggest a conservative or an extended target.
Then I learned all the stuff that Mark Douglas talks about: getting out too early, getting out too late, entering without a signal, failing to enter with a signal, fear, frustration, boredom and all the secrets that lie within myself and come out when pressured to make very quick decisions with your money and your ego on the line. This generated a thread of mine: Useful things I've found on the net
After 4 years where I evolved from gbl to euro to hsi the HSI made a huge change of its nature when a bunch of big swinging disks from China bought megayuan to the market and totally screwed it up. So I went in search of another market. And I found two, the Aussie SPI and the Taiwanese STW. They were half as fast as HSI so two wasn't too difficult. And I adapted all the things I'd learned on HSI to these two; and three months later I had two great variations on my original strategy and was sucking the bucks from them.
Then came the GFC and the markets halved their ranges and STW became a little too quiet so I checked out HSI. Well the bsd's from China has burnt their yuan and it as back to normal almost. So now I'm trading HSI again although I'm better than ever because I had to evolve to the other markets ... and that learning has come back with me.
BUT. Damn it. I don't enjoy the process of trading 1m charts any more.
What to do?
OK. Time to apply my brains instead of simply my attention. Two weeks ago I decided that my exits were the most mechanical part of my strategy and that because SierraChart now permitted you to control the IB TWS interface with dlls I'd write some code to mechanize my exits - I'd still enter intelligently but I'd let the computer do the exit. After a week and a half I had code that was doing it quite well. And wow, it was a joy not to have to track the market intensely for the 3 minutes it usually takes me to close a position (for 50 points targeted). Exiting mechanically brings these advantages:
- it saves you 3 minutes four or five times a day (yes, hardly worth the hours of testing and programming)
- it prevents entrainment in the market during the time of risk (steenbarger talks about the problem that people face changing behaviours because they decide what to do in one mental state but then try to do it in another one) thus reducing emotionality & thus stress & propensity to make errors
- to change an entry into a straight gamble (one of the things that makes trading harder than gambling is that a gambler sees the chance, takes the bet, and then sits back to see how it runs; a trader because he then manages the position has much higher chance of self-blame and can't see it as a simple bet because he can do (usually wrong) things that affect the outcome.
So, wow, I put the trade on and then I sit back and watch the horse. I'm rooting for it but if it loses, well it lost. Such is life.
Then, 4 days ago, I thought, why not mechanize my main entry (I have two and the other one is to put a limit at a critical point and wait to see if the market will take the bait). On my main entry I'd sometimes miss it - often when I shouldn't. So I thought that if the exit was so much fun I'd program in the entry too. Well it turns out that after I get an entry signal there are 4 different limit points at which I can take the trade and they are determined by 5 different decisions about market micro-timeframe structure. No wonder I missed the odd trade ... I had less than 30 seconds to make the decisions, validate them, and place the correct order.
So now, when the trend is up and the structure is right, I just press a button and "Buy" or "Sell" appears on the chart. The software waits for the entry signal and when it gets it, in microseconds it calculates the correct one of my four entry points and submits it to IB.
Two days now. Wow, its relaxing. I've rediscovered the computer program and its a labour and stress saver.
Next step. I think I can program a state machine that will generate a series of entries as long as a) conditions don't tell it that the trend is suspect, and b) I don't remove the "Buy Sequence" command because I have decided that conditions might have changed.
So I will check the market from time to time to make sure that conditions are such that "in the old days" I'd be looking for trades and as long as that holds ..
I'll just watch the fire.
For the past five or six years I have been a discretionary day trader. Every order has been entered by hand ... well by click.
I started this because I was convinced that day trading was way to make real money trading. Why? Because in microswing day trading you get 3-6 opportunities per day per market. So if you risk 2% every time your return per day is much higher than in EOD trading where the 2% might only be risked once a week.
But I was pretty convinced it had to be hand driven. So I commenced learning. And at that stage I loved spending 3-8 hours a day watching the markets.
I learned about trends, how to read them with mas, how to read them with lines and channels, how to read them with market profile concepts. I learned about pullbacks and I learned a lot from the trend dynamics course. I learned about profit improvement on entry and the conditions that would suggest a conservative or an extended target.
Then I learned all the stuff that Mark Douglas talks about: getting out too early, getting out too late, entering without a signal, failing to enter with a signal, fear, frustration, boredom and all the secrets that lie within myself and come out when pressured to make very quick decisions with your money and your ego on the line. This generated a thread of mine: Useful things I've found on the net
After 4 years where I evolved from gbl to euro to hsi the HSI made a huge change of its nature when a bunch of big swinging disks from China bought megayuan to the market and totally screwed it up. So I went in search of another market. And I found two, the Aussie SPI and the Taiwanese STW. They were half as fast as HSI so two wasn't too difficult. And I adapted all the things I'd learned on HSI to these two; and three months later I had two great variations on my original strategy and was sucking the bucks from them.
Then came the GFC and the markets halved their ranges and STW became a little too quiet so I checked out HSI. Well the bsd's from China has burnt their yuan and it as back to normal almost. So now I'm trading HSI again although I'm better than ever because I had to evolve to the other markets ... and that learning has come back with me.
BUT. Damn it. I don't enjoy the process of trading 1m charts any more.
What to do?
OK. Time to apply my brains instead of simply my attention. Two weeks ago I decided that my exits were the most mechanical part of my strategy and that because SierraChart now permitted you to control the IB TWS interface with dlls I'd write some code to mechanize my exits - I'd still enter intelligently but I'd let the computer do the exit. After a week and a half I had code that was doing it quite well. And wow, it was a joy not to have to track the market intensely for the 3 minutes it usually takes me to close a position (for 50 points targeted). Exiting mechanically brings these advantages:
- it saves you 3 minutes four or five times a day (yes, hardly worth the hours of testing and programming)
- it prevents entrainment in the market during the time of risk (steenbarger talks about the problem that people face changing behaviours because they decide what to do in one mental state but then try to do it in another one) thus reducing emotionality & thus stress & propensity to make errors
- to change an entry into a straight gamble (one of the things that makes trading harder than gambling is that a gambler sees the chance, takes the bet, and then sits back to see how it runs; a trader because he then manages the position has much higher chance of self-blame and can't see it as a simple bet because he can do (usually wrong) things that affect the outcome.
So, wow, I put the trade on and then I sit back and watch the horse. I'm rooting for it but if it loses, well it lost. Such is life.
Then, 4 days ago, I thought, why not mechanize my main entry (I have two and the other one is to put a limit at a critical point and wait to see if the market will take the bait). On my main entry I'd sometimes miss it - often when I shouldn't. So I thought that if the exit was so much fun I'd program in the entry too. Well it turns out that after I get an entry signal there are 4 different limit points at which I can take the trade and they are determined by 5 different decisions about market micro-timeframe structure. No wonder I missed the odd trade ... I had less than 30 seconds to make the decisions, validate them, and place the correct order.
So now, when the trend is up and the structure is right, I just press a button and "Buy" or "Sell" appears on the chart. The software waits for the entry signal and when it gets it, in microseconds it calculates the correct one of my four entry points and submits it to IB.
Two days now. Wow, its relaxing. I've rediscovered the computer program and its a labour and stress saver.
Next step. I think I can program a state machine that will generate a series of entries as long as a) conditions don't tell it that the trend is suspect, and b) I don't remove the "Buy Sequence" command because I have decided that conditions might have changed.
So I will check the market from time to time to make sure that conditions are such that "in the old days" I'd be looking for trades and as long as that holds ..
I'll just watch the fire.
blancspa
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Hi Nine thats perfect stuff
I have recently tried to use fractals on MT4 to determine break outs on forex.
and started trading it mechanically. It was amazing first day - "watching the fire".
But then day after none of my 12 trades had worked out.
What a dissapointment again.
Its wearing me out ( but I dont think I have another choice than to achieve the goal)
I have recently tried to use fractals on MT4 to determine break outs on forex.
and started trading it mechanically. It was amazing first day - "watching the fire".
But then day after none of my 12 trades had worked out.
What a dissapointment again.
Its wearing me out
( but I dont think I have another choice than to achieve the goal)
nine
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Another great article by Kurt E:
"Every now and then during a rough patch I think to myself, "a blind monkey throwing darts could trade better than me." On paper trading seems like a pretty simple equation -- the market can either go up or it can go down. Set a 50 point profit target along with a 50 point stop and over an infinite sample you'd be even Steven. Yet if we examine traditionally accepted failure rates among traders it's clear that the majority of traders lose more money than mere chance should statistically allow. Is it truly possible that traders as a class perform far worse than random?
Seinfeld viewers may remember an episode when after a series of poor decisions the hapless George Costanza decides he's going to do the opposite of his every inclination. George's results were astonishing. Instead of nervously sniveling or lying in pressure situations he became honest and bold. He even snared the dream girl and dream job. Like George many traders have certainly considered, "if I'd only made the opposite trades I'd be rich."
By stipulating fact - the vast majority of retail traders lose, would it not be equally true that doing the opposite of retail traders would be immensely profitable? Certainly some losing traders would have made money if not for excessive churning and commission costs but the reality is most traders lose because they all think the same.
What motivates traders looking at virtually identical data to do the exact opposite of each other? Don't both counter parties have equal knowledge of key information? We can presume other traders are aware of the same chart points or heard the same report that we're acting on.
Consider the action after a key report. If the data is perceived as bearish the market will auction down quickly to a new value area-a price band mutually agreed upon by buyers and sellers as reflective of the new information. Traders then put their betting caps on and position themselves with the thought of either "this bear information is aberrational, dips are to be bought" or "this bearish report is a harbinger of further bad news". Two traders, the same information, two vastly opposing viewpoints. Here's an important philosophical rub - technical traders are positioning along with discretionary traders and making similar statements. One system is saying "breakout I'm short", while the other system that's buying is saying "support off a key moving average". One system is placing greater faith in a particular set of technical data than the other. Not only do traders argue at price but so do software applications.
Now we have two competing camps. Longs and shorts. Regardless if you're discretionary or technical it's important to observe who is gaining and losing control. Let's state the obvious: Future prices are dependent upon who becomes more aggressive-buyers or sellers. Who are the most aggressive traders? Those who're taking losses. Profitable trading means you're successfully front running orders. Comfort isn't derived by the number of people long with you-that's instead a warning of soon to be long liquidation. When a market makes a contract low what's one thing we know? Every existing long is under water. If you're long and believe your fellow longs will begin taking losses then what are you waiting for? In trading there's zero nobility in being the last on the sinking ship. The cautious traders are scoping out the lifeboat the moment they hear a thud. You are paid for your ability to be positioned ahead of new buyers or sellers.
Here are some ways and methods to think in a manner different than the crowd.
1. Learn how to read sentiment indicators. Here's a link to an article I wrote on the ISEE put call ratio. How to Utilize the ISEE Index when Trading Options. Be aware of one way sentiment expressed by options traders, the media and financial bloggers. If too many people agree or are pumping the same view they're probably late and out of step with evolving, contrary information. If universally disseminated news is seemingly bullish but the market breaks then take it as a sign of real weakness. Most of the hardest breaks in stocks the past year have come immediately on the heels of "good" news from the Fed, Treasury or Congress.
2. Be a cynic. Don't argue with the tape but look at the other side of every coin. I've long noticed that as a group Russian and British traders are better than average. Why? Because by nature they question widely accepted beliefs. New opinions translate to revaluations. Leave your dogma at the door and be open to the unexpected and seemingly illogical. Winning traders have a reason to be in the trade. Even if based on nothing more than a vague, ethereal feel, a good discretionary trader has a profile in his mind and the moment his thesis is no longer provable or valid he is out of the position.
3. Even profitable trades can lay the groundwork for bad habits. My friend is an excellent trader who bought the S&P's on a temporary low several weeks ago. The market rose about 20 points within a few hours of his purchase. He took the profit and the market immediately tanked and made a new low. I called and congratulated him, "Great trade. You bought the old move low and got out on the swing high." His reply both surprised me and displayed the mind of an expert speculator. His view was "I bought the market thinking the low was in and the cover while profitable and seemingly adept was the wrong play. If the market had continued higher I would have been out with too small a profit. I don't trade for the expectation of being paid for the 'wrong' trade but I do expect to maximize the 'right' trade." Human nature is much easier addicted to the pleasurable than the beneficial.
4. Recognize past mistakes and eliminate them. This month's Golf Magazine has an article analyzing each shot of Tiger Woods career. Tiger's success is less predicated by the good things he does than by virtue of doing far fewer bad things than other PGA golfers. All of us have a particular bad habit that consistently costs us. You should get an occasional feeling of deja vu when repeating a stressful event. Embrace that personal information as a signal. Your worst habit is potentially your best fade.
Kurt J. Eckhardt began his trading career in 1982 as an active floor trader in the Treasury Bond pit at the Chicago Board of Trade. Today Kurt is president of Eckhardt Research and Trading which offers the first ever futures pool to trade live on line while educating clients. Please go to Ecktrade.com for details and contact information."
Original at TtMarkets with other great material no doubt.
"Every now and then during a rough patch I think to myself, "a blind monkey throwing darts could trade better than me." On paper trading seems like a pretty simple equation -- the market can either go up or it can go down. Set a 50 point profit target along with a 50 point stop and over an infinite sample you'd be even Steven. Yet if we examine traditionally accepted failure rates among traders it's clear that the majority of traders lose more money than mere chance should statistically allow. Is it truly possible that traders as a class perform far worse than random?
Seinfeld viewers may remember an episode when after a series of poor decisions the hapless George Costanza decides he's going to do the opposite of his every inclination. George's results were astonishing. Instead of nervously sniveling or lying in pressure situations he became honest and bold. He even snared the dream girl and dream job. Like George many traders have certainly considered, "if I'd only made the opposite trades I'd be rich."
By stipulating fact - the vast majority of retail traders lose, would it not be equally true that doing the opposite of retail traders would be immensely profitable? Certainly some losing traders would have made money if not for excessive churning and commission costs but the reality is most traders lose because they all think the same.
What motivates traders looking at virtually identical data to do the exact opposite of each other? Don't both counter parties have equal knowledge of key information? We can presume other traders are aware of the same chart points or heard the same report that we're acting on.
Consider the action after a key report. If the data is perceived as bearish the market will auction down quickly to a new value area-a price band mutually agreed upon by buyers and sellers as reflective of the new information. Traders then put their betting caps on and position themselves with the thought of either "this bear information is aberrational, dips are to be bought" or "this bearish report is a harbinger of further bad news". Two traders, the same information, two vastly opposing viewpoints. Here's an important philosophical rub - technical traders are positioning along with discretionary traders and making similar statements. One system is saying "breakout I'm short", while the other system that's buying is saying "support off a key moving average". One system is placing greater faith in a particular set of technical data than the other. Not only do traders argue at price but so do software applications.
Now we have two competing camps. Longs and shorts. Regardless if you're discretionary or technical it's important to observe who is gaining and losing control. Let's state the obvious: Future prices are dependent upon who becomes more aggressive-buyers or sellers. Who are the most aggressive traders? Those who're taking losses. Profitable trading means you're successfully front running orders. Comfort isn't derived by the number of people long with you-that's instead a warning of soon to be long liquidation. When a market makes a contract low what's one thing we know? Every existing long is under water. If you're long and believe your fellow longs will begin taking losses then what are you waiting for? In trading there's zero nobility in being the last on the sinking ship. The cautious traders are scoping out the lifeboat the moment they hear a thud. You are paid for your ability to be positioned ahead of new buyers or sellers.
Here are some ways and methods to think in a manner different than the crowd.
1. Learn how to read sentiment indicators. Here's a link to an article I wrote on the ISEE put call ratio. How to Utilize the ISEE Index when Trading Options. Be aware of one way sentiment expressed by options traders, the media and financial bloggers. If too many people agree or are pumping the same view they're probably late and out of step with evolving, contrary information. If universally disseminated news is seemingly bullish but the market breaks then take it as a sign of real weakness. Most of the hardest breaks in stocks the past year have come immediately on the heels of "good" news from the Fed, Treasury or Congress.
2. Be a cynic. Don't argue with the tape but look at the other side of every coin. I've long noticed that as a group Russian and British traders are better than average. Why? Because by nature they question widely accepted beliefs. New opinions translate to revaluations. Leave your dogma at the door and be open to the unexpected and seemingly illogical. Winning traders have a reason to be in the trade. Even if based on nothing more than a vague, ethereal feel, a good discretionary trader has a profile in his mind and the moment his thesis is no longer provable or valid he is out of the position.
3. Even profitable trades can lay the groundwork for bad habits. My friend is an excellent trader who bought the S&P's on a temporary low several weeks ago. The market rose about 20 points within a few hours of his purchase. He took the profit and the market immediately tanked and made a new low. I called and congratulated him, "Great trade. You bought the old move low and got out on the swing high." His reply both surprised me and displayed the mind of an expert speculator. His view was "I bought the market thinking the low was in and the cover while profitable and seemingly adept was the wrong play. If the market had continued higher I would have been out with too small a profit. I don't trade for the expectation of being paid for the 'wrong' trade but I do expect to maximize the 'right' trade." Human nature is much easier addicted to the pleasurable than the beneficial.
4. Recognize past mistakes and eliminate them. This month's Golf Magazine has an article analyzing each shot of Tiger Woods career. Tiger's success is less predicated by the good things he does than by virtue of doing far fewer bad things than other PGA golfers. All of us have a particular bad habit that consistently costs us. You should get an occasional feeling of deja vu when repeating a stressful event. Embrace that personal information as a signal. Your worst habit is potentially your best fade.
Kurt J. Eckhardt began his trading career in 1982 as an active floor trader in the Treasury Bond pit at the Chicago Board of Trade. Today Kurt is president of Eckhardt Research and Trading which offers the first ever futures pool to trade live on line while educating clients. Please go to Ecktrade.com for details and contact information."
Original at TtMarkets with other great material no doubt.
I have gone through some websites and finally I got this URL, it contains many simple Forex strategies.
Please have a look and let me know your view, will these strategies work??
Simple strategies | Forex strategies revealed
Please have a look and let me know your view, will these strategies work??
Simple strategies | Forex strategies revealed
The whole site is "useful", to be honest, but this is a setup combining a bit of Crabel with Inside Bars.
Although the money management ideas are very short-hand, you can get the general gist.
Inside Bar NR4
And this great site has a wealth of information regarding pivots, fib levels, market profile, and the Crabel NR numbers.
I've picked DAX June for the link, but most of the popular futures are included.
DAX Index Future June 2009
Although the money management ideas are very short-hand, you can get the general gist.
Inside Bar NR4
And this great site has a wealth of information regarding pivots, fib levels, market profile, and the Crabel NR numbers.
I've picked DAX June for the link, but most of the popular futures are included.
DAX Index Future June 2009
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nine
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Support and Resistance
And a series of articles by Tim Morge. I won't copy them over here but newbies in particular struggle to understand where support and resistance are ... and why.
Tim explains it very clearly.
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders (Part 1)
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 2
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 3
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 4
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 5
And a series of articles by Tim Morge. I won't copy them over here but newbies in particular struggle to understand where support and resistance are ... and why.
Tim explains it very clearly.
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders (Part 1)
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 2
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 3
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 4
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 5
nine
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And a series of articles by Tim Morge. I won't copy them over here but newbies in particular struggle to understand where support and resistance are ... and why.
Tim explains it very clearly.
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders (Part 1)
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 2
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 3
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 4
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 5[/quote]
I'll just ping this into the menu again ... anyone looking for a clear discussion of support and resistance is likely to benefit from the above post. A long time a go I learnt a lot about andrews median lines from Tim Morge ... and what he has to say about s&r is worth reading too. It certainly made me some bucks today :cheers:
Good trading all.
Tim explains it very clearly.
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders (Part 1)
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 2
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 3
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 4
How to Tell Where Other Traders Have Placed Their Stop and Buy Orders Part 5[/quote]
I'll just ping this into the menu again ... anyone looking for a clear discussion of support and resistance is likely to benefit from the above post. A long time a go I learnt a lot about andrews median lines from Tim Morge ... and what he has to say about s&r is worth reading too. It certainly made me some bucks today :cheers:
Good trading all.
dick_dastardly
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Saw this site featured on the News yesterday
Spotify ? A world of music. Instant, simple and free
streamed music for those fed up with the current tif between youtube and the artists.
free if you don't mind the advertising
dd
Spotify ? A world of music. Instant, simple and free
streamed music for those fed up with the current tif between youtube and the artists.
free if you don't mind the advertising
dd
montmorencyt2w
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Pretty interesting Nine; thanks.
Barry Burns is also quite good for this sort of thing (I don't think I've read this specific info from him before, but this kind of thing ... reading the market...trying to work out what the pros are doing and trading with the "House" and not with the gamblers; trying to put all the odds in your favour before making a trade, and passing up anything but high-probability trades.
p.s. "Wash and Rinse"
I'll bet I've been washed and rinsed a few times, and then been hung out to dry!p.p.s. His "Fishing for Home Run Trading Profits" is also interesting; linked from same page.
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elitejets
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Dr Joe does electronic trading
A follow up from the same author as post 124
------------------------
Dr. Joe does electronic trading – Part I
I have promised this many people shortly after my first Dr. Joe post and started it a few times but could not get it finished because I couldn’t find all my notes, paperwork etc. The Easter recess has given me time to get some of my stuff together.
From Dr. Joe’s visit to CME, we know a little bit about what went on in the Futures/Commodities pits at CME in the early 90s. Before we move on to the crazy 21st Century world of trading with electronic wizardry and gadgetry, we need to understand how we worked with our brokers at that time.
In the late 80s and early 90s BC (Before Computers) when we were drawing our own charts, doing our own indicator calculations and drawing indicators ahead of charting packages, we had a similar mechanical order placing process. Once we had decided on a trade, we had to place our order with our broker. We would call our contact at the broker (or fax, in my case, when I was living and working overseas) and give him our trade. Even though the broker knew what we meant, we still had to speak “their lingo”, so we had to say something like “Account abc123, Long 1 March Deutschemark at 2.1020 or better”. The broker would then give us a ticket number which we recorded in our files.
The broker would then send our order, now with a ticket number, to either their “runner” at the exchange who in turn would give it to their assigned trader in the pit, or send direct to their trader in the pit depending on the size of the broker.
The pit trader would read the order and try and find a seller to take the other side of the trade. Remember, this is a ZERO SUM BUSINESS, someone wins and someone loses – always. The pit trader would find a seller with his “hue and cry” by screaming and shouting and waving his arms frantically until another pit trader screamed, shouted and waved back with a price. That price was then recorded on the ticket number and sent back to your broker. Now, depending on your broker and how big of an account you were at your broker, he would either call you back immediately with your “fill” or wait for later to do all his calls.
So then hours later, in my case, I would be notified of my “fill” against my ticket number which was duly recorded in my files. Sometimes I wouldn’t get my “fill” until a day later and after receiving the previous day’s data. Talk about “trading blind”
After receiving our “fill” we would then call the broker with our Stop Loss order. “Account abc123, Short 1 March Deutschemark at 2.0020 on a Stop.”
When it was time to get out of our position, we had to do the same thing again. Call the broker, “Account abc123, Short 1 March Deutschemark at the market.” In those days, and still with Futures and Commodities, you had to take the opposite of your original position to Close your order. The same routine then happened with the broker and their pit trader until eventually, they would get back to you with your “fill”. Because of all this “mechanical” delay, your fill would be nothing like you expected and often times when you were expecting a small profit or break even, your “fill” would be at a loss.
In those days, the “little trader” really got stuffed between the brokers and the pits because we were a “nuisance to them”. Our little “1 contracts” were a pain in the armpit to them and the pit trader would always put these “little” orders to the bottom of his pile while he focused on the huge orders from the “big boys”.
Instead of adding an extra “1 contract” to the big boys’ fills, which would have been at far better prices, the pit traders would wait while they had cleared all the orders and then start on ours. This meant that we would ALWAYS get the worst fills – our fill price would always be far away from our original price. Trying to use Limit Orders was a joke for exactly the same reason and they would never get filled.
We had to keep meticulous records because there were so many errors and mistakes in those days. Most of the errors would be on our part where we would have extra positions still open because we would have not closed our open positions correctly. This got real crazy when you were trading different currencies and commodities.
Now fast forward to the 21st Century AC (After Computers). I am indebted to this information from a Professional Trader of some 40 years trading vintage who visited the CME Exchange many times through his golf buddies who were either floor traders or in some way connected with the Exchange. I thought this information was from a couple of years ago but when I eventually found my notes, it was from 2005. How I wish my trading account grew as fast as my idea of a couple of years did!
His initial observation in visiting the Exchange was one of shock. He had seen the Exchanges and Pits on TV many times and thought he knew what to expect.
Like all of us, I guess, he envisaged a very busy open pit for futures trading but what he didn’t expect was the size of the Exchange Floor with hundreds of people each sat in front of a wall of computers!
On closer inspection, each Market Maker had 30 or 40 monitors on his “wall” all linked together so that he could access each individual screen with a touch of his mouse. He was just absolutely amazed that one person could follow what was happening on so many monitors as he personally, had difficulty following his 3 monitors and still retain his sanity!
What really surprised him was that there were very few charts, sometimes none at all, on the monitors. What was on just about every monitor was price, price activity, buying and selling pressure and other information related to price. “What were these guys doing with all that information?” he wanted to know. Well, 10 years or so later from Dr. Joe’s visit, with the latest computer hardware, software, electronic wizardry and gadgetry, these guys are not doing anything any different to what Dr. Joe observed. They are WATCHING and REACTING to PRICE.
The big difference now is technology. The data shown on each monitor is integrated and networked into other computers and their software which automatically responds to changes in volatility, bid and ask spreads, volume spikes and abnormalities, exceptional order quantities, institutional trades, Government Bank trades and everything and anything influencing price activity.
For example, if volatility changed on a particular instrument, the percentage increase or decrease was immediately reflected in the Market Makers bids and asks automatically without any human input whatsoever. Similarly, and at the same time, if there were bids and asks which were incorrectly matched or “discounts” based on their software, trades were instantly and automatically initiated by the software based on the programming and parameters set by the Market Maker.
The Market Makers have their plans programmed into their software so that when all the criteria are met, their software takes over and issues the trade. This then highlights the importance of the trading plan. Where ours is mechanical, theirs is fully automated.
So, the bottom line has not really changed, the Floor/Pit traders/Market Makers are still “piggybacking” on what the market does – buy when price goes up and sell when price goes down – it’s just that now, they have very sophisticated computers and software to give them advanced notice and automatically place their trades for them.
Understanding what we are up against, (the big boys with their sophisticated hardware and systems), confirms how difficult it is (not impossible) for the little trader and how important it is for us to thoroughly know and understand PRICE ACTION and trade WITH the big boys (not against them).
In Dr. Joe does electronic trading – Part II, we will discuss the role Brokers and Exchanges play in Forex.
A follow up from the same author as post 124
------------------------
Dr. Joe does electronic trading – Part I
I have promised this many people shortly after my first Dr. Joe post and started it a few times but could not get it finished because I couldn’t find all my notes, paperwork etc. The Easter recess has given me time to get some of my stuff together.
From Dr. Joe’s visit to CME, we know a little bit about what went on in the Futures/Commodities pits at CME in the early 90s. Before we move on to the crazy 21st Century world of trading with electronic wizardry and gadgetry, we need to understand how we worked with our brokers at that time.
In the late 80s and early 90s BC (Before Computers) when we were drawing our own charts, doing our own indicator calculations and drawing indicators ahead of charting packages, we had a similar mechanical order placing process. Once we had decided on a trade, we had to place our order with our broker. We would call our contact at the broker (or fax, in my case, when I was living and working overseas) and give him our trade. Even though the broker knew what we meant, we still had to speak “their lingo”, so we had to say something like “Account abc123, Long 1 March Deutschemark at 2.1020 or better”. The broker would then give us a ticket number which we recorded in our files.
The broker would then send our order, now with a ticket number, to either their “runner” at the exchange who in turn would give it to their assigned trader in the pit, or send direct to their trader in the pit depending on the size of the broker.
The pit trader would read the order and try and find a seller to take the other side of the trade. Remember, this is a ZERO SUM BUSINESS, someone wins and someone loses – always. The pit trader would find a seller with his “hue and cry” by screaming and shouting and waving his arms frantically until another pit trader screamed, shouted and waved back with a price. That price was then recorded on the ticket number and sent back to your broker. Now, depending on your broker and how big of an account you were at your broker, he would either call you back immediately with your “fill” or wait for later to do all his calls.
So then hours later, in my case, I would be notified of my “fill” against my ticket number which was duly recorded in my files. Sometimes I wouldn’t get my “fill” until a day later and after receiving the previous day’s data. Talk about “trading blind”
After receiving our “fill” we would then call the broker with our Stop Loss order. “Account abc123, Short 1 March Deutschemark at 2.0020 on a Stop.”
When it was time to get out of our position, we had to do the same thing again. Call the broker, “Account abc123, Short 1 March Deutschemark at the market.” In those days, and still with Futures and Commodities, you had to take the opposite of your original position to Close your order. The same routine then happened with the broker and their pit trader until eventually, they would get back to you with your “fill”. Because of all this “mechanical” delay, your fill would be nothing like you expected and often times when you were expecting a small profit or break even, your “fill” would be at a loss.
In those days, the “little trader” really got stuffed between the brokers and the pits because we were a “nuisance to them”. Our little “1 contracts” were a pain in the armpit to them and the pit trader would always put these “little” orders to the bottom of his pile while he focused on the huge orders from the “big boys”.
Instead of adding an extra “1 contract” to the big boys’ fills, which would have been at far better prices, the pit traders would wait while they had cleared all the orders and then start on ours. This meant that we would ALWAYS get the worst fills – our fill price would always be far away from our original price. Trying to use Limit Orders was a joke for exactly the same reason and they would never get filled.
We had to keep meticulous records because there were so many errors and mistakes in those days. Most of the errors would be on our part where we would have extra positions still open because we would have not closed our open positions correctly. This got real crazy when you were trading different currencies and commodities.
Now fast forward to the 21st Century AC (After Computers). I am indebted to this information from a Professional Trader of some 40 years trading vintage who visited the CME Exchange many times through his golf buddies who were either floor traders or in some way connected with the Exchange. I thought this information was from a couple of years ago but when I eventually found my notes, it was from 2005. How I wish my trading account grew as fast as my idea of a couple of years did!
His initial observation in visiting the Exchange was one of shock. He had seen the Exchanges and Pits on TV many times and thought he knew what to expect.
Like all of us, I guess, he envisaged a very busy open pit for futures trading but what he didn’t expect was the size of the Exchange Floor with hundreds of people each sat in front of a wall of computers!
On closer inspection, each Market Maker had 30 or 40 monitors on his “wall” all linked together so that he could access each individual screen with a touch of his mouse. He was just absolutely amazed that one person could follow what was happening on so many monitors as he personally, had difficulty following his 3 monitors and still retain his sanity!
What really surprised him was that there were very few charts, sometimes none at all, on the monitors. What was on just about every monitor was price, price activity, buying and selling pressure and other information related to price. “What were these guys doing with all that information?” he wanted to know. Well, 10 years or so later from Dr. Joe’s visit, with the latest computer hardware, software, electronic wizardry and gadgetry, these guys are not doing anything any different to what Dr. Joe observed. They are WATCHING and REACTING to PRICE.
The big difference now is technology. The data shown on each monitor is integrated and networked into other computers and their software which automatically responds to changes in volatility, bid and ask spreads, volume spikes and abnormalities, exceptional order quantities, institutional trades, Government Bank trades and everything and anything influencing price activity.
For example, if volatility changed on a particular instrument, the percentage increase or decrease was immediately reflected in the Market Makers bids and asks automatically without any human input whatsoever. Similarly, and at the same time, if there were bids and asks which were incorrectly matched or “discounts” based on their software, trades were instantly and automatically initiated by the software based on the programming and parameters set by the Market Maker.
The Market Makers have their plans programmed into their software so that when all the criteria are met, their software takes over and issues the trade. This then highlights the importance of the trading plan. Where ours is mechanical, theirs is fully automated.
So, the bottom line has not really changed, the Floor/Pit traders/Market Makers are still “piggybacking” on what the market does – buy when price goes up and sell when price goes down – it’s just that now, they have very sophisticated computers and software to give them advanced notice and automatically place their trades for them.
Understanding what we are up against, (the big boys with their sophisticated hardware and systems), confirms how difficult it is (not impossible) for the little trader and how important it is for us to thoroughly know and understand PRICE ACTION and trade WITH the big boys (not against them).
In Dr. Joe does electronic trading – Part II, we will discuss the role Brokers and Exchanges play in Forex.
Hello Friends
I have got the formula of calculating pivots..
The formula for calculating Pivot points is next
Major 5 levels:
R2 = Pivot + (High — Low) (same as R2 = Pivot + (R1 — S1))
R1 = 2 * Pivot — Low
Pivot = (High + Close + Low) / 3
S1 = 2 * Pivot — High
S2 = Pivot — (High — Low) (same as S2 = Pivot — (R1 — S1))
Additional levels:
R3 = High + 2 * (Pivot — Low)
S3 = Low — 2 * (High — Pivot)
Midpoint between R1 and R2 = R1 + (R2 — R1) / 2
Midpoint between Pivot Point and R1 = Pivot + (R1 — Pivot) / 2
I have got the formula of calculating pivots..
The formula for calculating Pivot points is next
Major 5 levels:
R2 = Pivot + (High — Low) (same as R2 = Pivot + (R1 — S1))
R1 = 2 * Pivot — Low
Pivot = (High + Close + Low) / 3
S1 = 2 * Pivot — High
S2 = Pivot — (High — Low) (same as S2 = Pivot — (R1 — S1))
Additional levels:
R3 = High + 2 * (Pivot — Low)
S3 = Low — 2 * (High — Pivot)
Midpoint between R1 and R2 = R1 + (R2 — R1) / 2
Midpoint between Pivot Point and R1 = Pivot + (R1 — Pivot) / 2
