Tuesday, October 30, 2012

Live Trading - POSTPONED!

As I mentioned earlier, I am using a 70 tick chart for my charts.  I assumed that the tick count started at the beginning of the session each day.  With the platform I am using, that is apparently NOT the case.

I noticed this because of end of session, I print a screenshot of my entries and exits.  When I went back to the platform (and closing and opening it), I discovered completely different looking charts.  It looks like the start point for counting is not session start.  Maybe it is the first bar in memory.  I don't know.

What does this mean?

Well, for starters, it means that all the backtesting I did is worthless.  So, I have to go back and do it again.  This time I will use 30 second bars, or 1 or 2 minute bars.

Bottom Line:  I am not ready to trade this live, until I re-evaluate things.  Maybe the beginning of next week.  I am in a hurry to trade live, but not in a hurry to lose money!

Monday, October 29, 2012

My Entries and Exits

I will talk about "Tracking My Progress" in the next post...

OK, so I am on track for starting live trading Thursday.  After spending some time this weekend working on things, I have settled on 2 basic entries, and 1 simple exit.

Earlier, I had mentioned that I was using the book by Volman** to guide my discretionary trading with this system.  After working through the book, though, I now will be using a very, very small portion of his book, at least initially.

Here are my entry and exit rules, and other assorted info...

1.  Volman's** Second Break entry.  BUT, I have modified it.  I have specific criteria for when it applies, and even then, the signal could be in either direction, depending on the shape of the pattern.  My technique is unique and unorthodox, and I probably will not be sharing any more about it.

2.  Entry 2 is based on a specific chart pattern.  It occurs multiple times per day, usually a couple of times between 9-11 AM.  The trick is that once the pattern is established, it can go long or short depending on the shape.  Again, unique and unorthodox.

Because I think my edge is in the entries, I probably will not be showing exact details on it.  I may show the bar of entry, and direction - we will see.

3.  I will take entries in sequential order.  If, for example, Signal 1 triggers a long, and 3 bars later, signal 2 triggers a short, I will reverse to a net short position.  If I am long, and another long signal comes along, I'll just ignore that second signal.

4.  Profit target always 10 pips.  Stop Loss always 10 pips.  No changing or moving of either one.  Exit at end of day, if neither is hit.

5.  Trade from 9-11 AM ET.  But, I won't neglect an entry at 8:58 AM, or 11:04 AM, if I am at my trading station.

6.  Usually, these 2 entries will have about 4 trades per day total.  My goal is to extract 5 pips per day.  In backtest and real time simulation, I have averaged about 13 pips per day.  But, backtests and sim testing is always better than real life, right?

7.  Doing the math, with 4 trades per day, and aiming for 5 pips per day, if I average 56% winning trades, I will achieve my goal.  I think I can get to 60-65% winning trades, which would mean 8-12 pips per day. 50% wins or less, and I am a net loser.

8.  I have not included slippage in item #7 calculations.  Also, with the spread, a totally random strategy should win about 45% or so.  So, I have to do a lot better than random!)

** The book "Forex Price Action Scalping - by Bob Volman"

Friday, October 26, 2012

My Goals and Objectives

My overall goal with this discretionary method is for 5 pips per day.  Eventually, I'd like to get 10+ pips per day.  Of course, I have no illusions that I'll get that 5 pip average right off the bat.

To get this, I am willing to risk 50% of my initial capital.

With the position sizing I intend to use, where the percent risked will vary from 1 to 3 percent per trade (details to follow soon), this will provide a nice income stream.

As stated earlier, though, to get there I want to first have a profitable week span on the simulator.

Week 1 was terrible.

Week 2 was much better, very close to breakeven, but still negative.  The last 3 days were the best, after I incorporated a new entry technique.

So, if the first 3 days of next week plus the last 3 days of this week are positive, I will start live trading on November 1, 2012.

Next post:  How I will track my progress in this blog.  (Spoiler: I'll be tracking avg pips per day, percent risked and error rate).

Thursday, October 25, 2012

3 More Reasons Why I Fail at Discretionary Trading

Last time I told you about how I was going to overcome 2 reasons I have failed at discretionary trading.  Here are 3 more reasons, and how I plan to defeat those.

The reasons I fail:

Overtrading/Revenge trading - sometimes in discretionary trading, sometimes everything looks like a signal.  Worse yet, sometimes I'd force signals to get back lost money

Too Many indicators/rules - Confusion reigns supreme, when the charts get complicated

Not Practicing Enough - Many people don't practice at all!

My plan for overcoming these obstacles:

1.  I have a set list of approximately a half dozen setups.  The potential trade HAS to be meet one of the setups. This will take mental discipline, and I might resort to step 2 to ensure I am not overeager to trade at the start of the day.  I may or may not be sharing these setups later on.

2.  At the beginning of the day, I am usually amped up a bit, and excited to trade.  Many times, I notice that I "see" setups that aren't even there!  So, I will track my first trades of the day.  If they look to be particularly bad, I might do one or two crazy things:
    A.  If I have enough indication that I am doing things backwards with the day's first trade, I might just take the opposite of the intended signal.

    B.  If I notice that I constantly take first trade signals that are not there, I might just take a random (coin flip) entry, and manage the exit.  This might take away that "first trade of the day" excitement.

   I'll be the first to admit that these options are pretty wacky, and I don't want to use them.  But realize what I am doing - I have identified a specific weak spot in my trading, and therefore developed a plan to overcome the weakness.  That is the takeaway lesson here.

3.  I am only going to be trading from 9 AM - 11 AM each morning.  That will leave me time for all the other trading activities I do (writing, developing mechanical systems, consulting, etc).  In that 2 hour period, I'm guessing 5 trades should be my maximum.  So, to prevent overtrading, I'll never take more than 5 trades in one day.  I think most days will be even less.

4.  I estimate I should hit 50% wins.  So, the odds of getting 3 losers in a row is 12.5%, or about 1 day every 2 weeks.  Since "revenge" trading usually hits after a string of losses, I will shut down for the day after 3 consecutive losses.

5.  For indicators, I'll just use candlesticks, and an EMA line.  I may also have a few pattern detectors programmed in, but for the most part I'll keep it very simple.  Simple is usually best.

6.  Every night, I will practice, either looking through days trades, old charts or by studying reference material.

Next time, I'll write about my specific goals and objectives.

Tuesday, October 23, 2012

Overcome Backtests, and Emotions

2 of the biggest reasons I think I have historically struggled at discretionary systems are:

No backtesting possible - makes it hard to have confidence in trading a new method

Emotions - decision making under stress is always tough

Here's why these are a problem (for me), and how I will get around them.

Backtesting - I cheat on discretionary backtests.  I go through trades, and invent reasons that I would not have taken certain losing trades.  So, I end up historical results that will never occur in real time.

The good thing is I know I do this.  I suspect most people who do this do not even realize it!  Trading books are notorious for this.  How come you only see examples of when a setup worked?  Wouldn't it be more appropriate to show some of the same setups that lost?  

Emotions - In the heat of trading with real money, I sometimes let emotions get the best of me.  I make trades I should not, and trade differently that I do if I am doing historical testing, or even trading on a simulator.

So, here is my plan for minimizing the impact of these 2 roadblocks to discretionary trading...

1.  I am not going to do a traditional backtest at all.  My method is based on a trading book, with some other setups added in.  I will make the assumption that these reference sources have given me solid ideas to work with. I may be totally wrong on that.  We will see.

2.  I am going to test the method, in real time, using a realistic simulator.  If you don't know what a "realistic" simulator is, or for example the difference between a simulator and an emulator, I HIGHLY recommend you take the time to find out.  Working with an unrealistic simulator can be worse than random guessing.

3.  Once I have 1 week of profitable simulator testing, I will jump to live trading.  I realize this is really quick.  (By the way, my first week on sim was REALLY bad, so it may be a while!).

4.  With real money, I am starting out with an amount that I consider insignificant.  If the money doesn't matter, then my emotions should be in check.  If this doesn't work, and I still notice emotions clouding my judgment, maybe money isn't the issue.  In that case, I'll have to do more self examination.

5.  Since this will be "on the job" training and testing, I will start with risking 1% of equity per trade.  On days I make money, I'll bump it up by 0.1%.  On days I lose, I'll drop by the same.  There will be some limits to this, but the idea is that until I get consistently profitable, I won't be risking much.

There might be some other things I do, but I think this is a good start to overcoming the lack of backtest, and minimizing emotions.

Comments and questions are always encouraged!

Sunday, October 21, 2012

Why I Think Most People (Including Myself) Fail at Discretionary Trading

If you've read through this blog, or found my history on the Internet, you'll know I'm a much better mechanical/systems trader than a discretionary one.  I suspect there are a lot of people like me (or at least people who fail at discretionary trading).

Here are the main reason why I think I have failed at discretionary trading:

No backtesting possible - makes it hard to have confidence in trading a new method

Emotions - decision making under stress is always tough

Overtrading/Revenge trading - sometimes in discretionary trading, sometimes everything looks like a signal.  Worse yet, sometimes I'd force signals to get back lost money

Too Many indicators/rules - Confusion reigns supreme, when the charts get complicated

Not Practicing Enough - Many people don't practice at all - they just start trading!

The good news for me is that I have a plan to overcome all of these issues.  I'll be presenting them in the next few blog posts.

Thinking ahead, I hope to give all readers a good process for developing and trading a discretionary trading. I may or may not reveal exact details of how I am trading (and honestly, it probably would not matter if I did), but I think knowing the steps to take will help everyone.

Next time, I'll probably talk about the first few steps.

By the way, if you are looking for a blog with lots of good info, MBA Gearhead's Blog is the place to go:  http://mbagearhead.blogspot.com/   It is one one the few blogs I follow, mainly because his experience is so similar to that of most traders.

Thursday, October 18, 2012


Why in the world would a successful mechanical trader try a discretionary approach?

Throughout my 20+ years of trading part time, and now full time, I have had much more success with mechanical systems than discretionary ones.  Hopefully that is pretty obvious to anyone who has read my bio.  Winning 3 World Cup Trading trophies, all with mechanical systems, should convince you of my ability to create successful mechanical systems.  I guess at heart I am just a numbers guy, and creating rigid rules appeals to me most.

But, there are things about mechanical systems I just hate:

First, once you turn a mechanical system on, you basically lose all control.  And since most of my systems run for days or weeks, the day to day variation sometimes gets emotionally overwhelming.  I resist the temptation to interfere, but it is always there.

Second, in the back of my mind I always wonder if/when a mechanical system will stop working.

Third, sometimes mechanical systems take trades that make me think "what did the strategy just do?!?"  Many times - but not always - these trades turn out to be losers.

Finally, I've always had limited success in creating a day trading system with mechanical rules.  Maybe it is the way I test, maybe it is the market, but since my goal is a day trading system, I need to look beyond mechanical type systems.

There is definitely a challenge here that motivates me: "Can I become a great discretionary trader?"

So, I added that all these reasons up, and concluded that a day trading, discretionary approach is what I should be looking at.

The problem is that throughout my trading career, I have very limited success with discretionary trading...

Next post: Why I Think Most People (Including Myself) Fail at Discretionary Trading

Tuesday, October 16, 2012

Intro - New Approach

As you may have noticed from the new title, from this point forward the blog will be focused on a new discretionary trading approach I am trying.

During the 20+ years I have been trading, I have had a lot more success in mechanical/robot type systems than discretionary/human systems.  The 3 times I won trophies in the World Cup trading contest, I traded with a mechanical system.  In 2011, I tried a discretionary approach.  I failed.

Just to be clear, here is what I mean by those terms:

Mechanical/Robot System:
1) Any system where the rules have been fully defined.
2) All the trader has to do is to enter orders, or if the system is automated, just monitor that orders are placed correctly.
3) There should be NO trading decisions made with such a system.
4) Ideally, the system can be accurately tested on historical data for the last 5 to 15 years.
5) Since the trader is not making any decisions once the sytem is developed, during drawdowns he will feel helpless - since he is not in control (unless he shuts the system off).

Discretionary/Human System:
1) Any trading system where the rules are "fuzzy" - where the trader has to make entry/exits decisions to some extent.
2) This might be because the rules cannot be programmed, or because the rules evolve with time, etc.
3) Such a system may have rules or guidelines, but ultimatley the trader has to process all pertinent info and make a decision.
4) Typically, these systems can only be sufficiently tested in real time, with real money.  Emotions may play a big role in decision making.
5) Backtesting such an approach, or trading on a simulator, typically leads to overly optimistic results.

Next post:  Why in the world would a proven successful mechanical trader try a discretionary approach?

Monday, October 15, 2012

Changes Coming Soon

Ever since PFG stole my money, and ended the 2012 trading contest, I have been looking at ideas to keep this blog going.

I finally found something that will be worth your time to read (and my time to post about).

So, coming soon, this blog will be embarking on another trading journey.

I have no idea how it will turn out.

I hope you will join me!


Sunday, October 7, 2012

Still Waiting For My Money!

3 Months after the PFG theft, I'm still waiting to see even a dime of my money.  Soon, they say.

I'm not holding my breath, hoping it will come soon!

In other news, I am putting on a VERY informative webinar this week - on Position Sizing.

Best news: it is FREE!

Please register for "Position Sizing 101" on Oct 9, 2012 8:30 PM EDT at:

How can position sizing influence results? By using optimal position sizing, can you really get unlimited reward with limited risk?

In this 60 minute webinar, we will look at 5 position sizing techniques, applied to my Trender Euro and Trender Gold system. We'll investigate some of the common position sizing myths out there, and hopefully give you sound advice for your own trading.

After registering, you will receive a confirmation email containing information about joining the webinar.

I hope you are able to join me!!!!