Trading Systems from ET

Several traders here have provided full details of how they trade: Anekdoten (http://www.elitetrader.com/vb/showt...&threadid=99283), Saliva (http://www.elitetrader.com/vb/showt...threadid=144884), SusanaDT (http://www.elitetrader.com/vb/showt...40&pagenumber=1). They've taken time to provide in great detail what they do.

Geez (http://www.elitetrader.com/vb/showt...threadid=148752) provided a journal of live calls last year demonstrating how a 1:2 risk:reward ratio using a relative strength/weakness with-trend strategy makes it possible for a 50% annual return in day trading quite likely when you follow this simplest of strategies with strong risk management. (I believe he ended the year with much greater than 50% return, but sadly his journal was spammed and he stopped posting.)

If you can read, put in some chart study and live screen time to memorize what price action patterns indicate most of the time, set rules for yourself and stick to them, you can get everything you need to be a profitable trader right here on ET for free.

Option trading-options spreads

experience is the culpit of anxiety trading.

human brain learns things by experience through association, generalization etc. driving a car most time is fun, but if you once had an accident, particularly serious one or almost killed you, you will never forget, when you pass that place again, you will pay particular attention to cars or yourself, you will be very nevous it seems you will have another one again.

trading is the same thing. when you win, you have fun. when you lose,even a small loss, next time when the similar situation occurs, you may freeze or hesitate or second guess a good trade(you do not want to get hurt again subconciously), ...

the only remedy is: accept the fact you will have losers, but do not put a too big bet enough to knock down your whole account ( a well predefined risk that you can accept or will not hurt you much, my rule is not affect my account liqidity: even I take that loss, I still can trade as usually), this will create severe anxiety. for example, a 5k account, you can take 50~100 buck loss per trade, will not have great impact on your account liqidity. if you take 1k loss, that will seriously threat your account survival.

actually, there is good trades in option with 50~100 bucks loss/risk. you just trade one lot penny option or using spread, easily limit your risk under this level. of course if you trade future, 100 bucks just several ticks, a random move will knock you out, so that is not suitable or you will be very nervous, if you are nervous, that means you lose objectivity and you can not trade that thing. take AAPL option, when you see most option price is very expensive compared to your account, but when spread strategy is employed, your risk can be easily defined to your acceptable level. spread methods is used to minimize option premium risk.

I trade future a lot, but late I found option is better. one, I can easily define my trading idea; second can clearly define my risk; third, I can adjust my size easily; fourth the most important is the leverage is far better than future, less money better reward, double/ten fold reward is easily achieved. with future, often my idea is right, but the market easily hit my stop loss ( I am right, but I lose), if I do not use stop loss, when the market trends long time against me, I lose more, so that puts me in a bad dilama: if I place a stop loss, I may lose with good idea because of market noises, if I do not place a stop loss, I may be totally wrong and lose big, so I must put a stop loss there. the stop loss thing makes me nervous, that seriously affect my trading reaction speed ( I need setups to initiate trade, not my sound judgement), for example, when in a uptrend, I bought EMA touching, but because of risk/setup definition, often I buy the thrust in order to put a stop loss (saw the low).

I normally trade ES/CL/NQ, but I found I can not easily define my risk because of volatilty, the reality is "right/wrong is vague, you can not exactly pindown where to drop/to rally". with my stop loss, I get hit easily or frequently. like this week, I saw ES has good support at 1220~1230, if I bought 1220, then use recent new low to place a stop loss, I may be stopped out at 1218.75 (former low is 1219.75). I bought 100lots of SPY 124 call with averaging price 0.93, sold at closing friday with 2.8, that is three times gain. but if I bought 9k ES, just two lot(overnight), or the best 4lot for intra-day, suppose I bought the lowest 1220, and out at friday closing 1263.75, I just net 43.75 points, or 2 times 50 and 43.75=4.5k gain, you may say ES is not risker than spy option, when you bought 9k ES not means you take 9k risk, in option 9k option may be worthless this friday (real risk),but in order to take real 9k risk in ES, you may need far larger margin (you may need trade 20lot, that needs a 100k account).

with no stop loss to consider, I am not nervious any more. I do not need frequently check the quote or worry about overnight/weekend adverse development (pay too much attention to market noises) to take my stop loss then late it is just some crap market noise. I can ignore those noises totally, focus on those good trades. I am happy. I do not over trade any more (try to recoup stop loss created loss, that greatly reduce the quality of my trades, most are impulsive, there is no sound thoughts).

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=230183&perpage=6&pagenumber=5

NoDoji about trading plan

If you've done thorough research and backtesting, selected setups and defined trading rules based on probability offering you a statistical edge, then real-time qualitative assessments can lead to failure.

Qualitative assessments are made during the mathematical analysis phase (research and backtesting to develop the plan). The trading plan (business plan) is designed based on the quality setups you choose to trade. Because successful trading is the result of a statistical edge based on tossing the coin every time a pre-qualified setup presents, consistent profitability depends on trading all setups and managing them according to the plan.

Ask any struggling trader here who has an edge what their biggest problems are and I assure you the majority of them will fall into one of these categories: hesitating/failing to trade a setup (picking and choosing), taking profits smaller than target, moving stops to break even, moving stops further away inviting larger losses, getting impatient and jumping the gun on trades.

A proper trading plan doesn't allow allow this kind of micro-management. By trading that way, you're messing with your statistical edge. You're trading as if you believe you know what's going to happen next. You don't.

IMHO, qualitative assessments and necessary adjustments should be made at the end of the trading day, not while trading.

I'd have twice as much money in my account right now had I followed the original trading plan I developed last year without any real-time qualitative intervention on my part.

Option trader tip

I've been trading profitably for a for over 12yrs. At the beginning, was very lucky to have found a group that to be a member you had to prove consistency. Their mantra, one stock can make a living.

Today I trade only GOOG(traded POT before the 3:1 slit). This last week it had swings of 10.56, 6.11, 5.52, 7.77, 7.12, 5.82, 5.49. Using weekly options and only buying ATM(when you get good try synthetic L/S's and your ROI will skyrocket), assume you can capture 50% of each swing and with your ATM option you'd net 50% of that. So 49pts X.50 X.50 = $12.25X100= $1225 per contract, and GOOG ATM contracts average $500 over the week.

And, every turning point was a CCI divergence...it doesn't get easier than that

NoDoji about edge and confidence

05-29-11 08:30 PM

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Quote from DEM BONES:

How were you able to create a healthy balance in confidence and restraint?

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Defined a set of statistical edges, back-tested them manually, defined rules for entry/stop/target that placed the edges further in my favor (risk:reward), micromanaged the system instead of simply trusting and trading it, got really frustrated by the fact that my daily post-market analysis consistently demonstrated results 200% better (at minimum) than my discretionary results, and finally gave up trying to have 100% perfect trades and just traded the system, knowing that even the #1 team has wins, losses and ties.

As for restraint, I use a protective stop on every trade and I trade size that allows a "black swan" event to result in as much slippage as 100x my max stop loss (I believe that would be a limit down move) without reversing more than a couple months profit.

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Quote from DEM BONES:

How did you develop a mechanism to avoid being overconfident and taking on excessive risk?

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That mechanism was developed early on when I was sometimes overconfident and took on excessive risk. At that time I was not a consistently profitable trader.

When these disastrous trades were closed, I studied the charts to find clues as to why what I was so certain would happen failed to materialize. These really bad trades were all swing trades and all counter-trend; my day trading was always just fine because it either worked or didn't during the course of the day. I found I was entering a trade based on the intraday chart and price action, when my intention was to hold for a longer term move. When I studied the daily charts, I found that I was putting on these counter-trend swing trades at levels where the trend was consolidating for the next push or was showing no sign of a reversal whatsoever.

So, I wanted to learn how to be the trader on the other side of my bad trades. I wanted to be the one sitting on an unrealized gain of $2000, $4000, $6000 or more, not holding a loss that size and just hoping to get back to break even.

I learned to recognize trends and trend continuation signals (I was mistakenly interpreting these as signs of weakness in an uptrend or strength in a down trend), and eventually learned how to trade with the trend.

When you trade against a trend, you're fighting the #1 team. I imagine that's why so many traders gravitate toward this high risk tactic. It boosts our ego to try and beat the overconfident #1 team, to be able to say, "Look at these dumbasses buying way up here, I'll show them who the smart guy is."

Counter-trend, you're making the assumption you know approximately when price will turn based on indicators such as Keltners, Bollingers, stochastics, "it's too f*cking high to go any higher", etc. It can work beautifully for a long time, giving you a sense of invincibility, of having mastered the market. You come to believe that when price becomes overextended by at least X%, Y will always follow. You become so confident you put on excessive size, or continue to average down as price runs further. This is where that one bad trade can wipe out everything you've gained (or worse).

When you trade in the direction of a trend, the strongest team has your back. The moves are stronger and longer than counter-trend pullbacks, offering the opportunity for larger profits as well. The best part is the risk management. If you're positioned against the trend, price can remain overbought or oversold for days, weeks, even months before a strong pullback or a reversal occurs. This is a biggest danger of counter-trend trading. But in a trend, there are lines in the sand beyond which a trend reversal or very deep pullback is likely. You take your remaining profits (or a small loss, if you were late to the party) at these levels and wait for the next setup.

Bighog trading tips 3

From notebooks of trading tidbits collected over the years.

First one from a 1969 book on trading Commodities:
Rules can be forgotten! But once the trader has developed the ability to look at the major market symptoms and arrive at a valid judgement about it's technical health, he has (sorry, Nod, this was from 1969, ha) moved permanently into the elite group who put every confidence in skill and knowledge--- and let others depend on others and guesses and hunches.

Identify 1 or 2 tactics that consistently work, then refine them to result in highest probability within your own mindset of comfort, etc. Some of the best traders are successful because they trade only 1 strategy. You work your strat while controlling risk. Belveal, 1969.

Never SELL a dull mkt short.

You're either ahead of the mkt or you're running behind it. For most trading being late with the order can turn a possible profit into a loss. It's better to anticipate a trend change, a pivot level etc and be wrong while taking a small loss than it is to "wait" for a confirmation and be sure to have a small chance of winning. " I've never been a successful chaser of price." Kaufman

Anticipate---- Be ahead of the crowd.

The most fundamental concept is how to recognize what a chart looks like just prior to an important breakout.

When you think you can not win - you are done.

Playing defense when you should be playing offense.

You must be able to handle small losses. Losing is just part of the game.

No, no, no, NO hesitation at your numbers. It is not an option.

If winning trades should work immediately, then it must mean losers should be immediately dumped.

Is this trade you are in now getting hotter or colder? Always trade with reference points. This works within your technical tragets for a profit or a loss. Always have a worst case STOP and the only choice for the stop is to pull the trade out quicker.

STOPS are like taxi fare for a blind date. If he is a loser you can still get home safely.

Bighog trading tips 2

Well, i like that. Congrats, when you said a consolidation is what a 'continuation" trader sees i am willing to shake hands.

My way of thinking as a trend follow person is quite simple. I see a move either way and immediately think "TREND". Ok, i see the momentum stall and usually will grab that profit with the intention to get back in with the trend because experience has taught me the odds say a continuation is in order. Since a consolidation sideways move is considered NORMAL i do not give fading a thought. Many good trends might not even show much consolidation at all, but will show a retrace. I do not consider a retrace, as long as it does not surpass 50% of the previous legs move a reversal signal where by that time many other newer players will be filled in the opposite direction and get hammered when the odds work in my favor and the trend continues on for another leg before repeating the whole process again. Yes, i do stay alert for a possible reversal signal which will nullify the TREND. But i never look to just fade a move for that singular purpose.

No signal is perfect, thats well known. As traders we find our own way. I prefer to trade with a crowd of like traders and in my world that means the odds are in my favor. If the odds were not in my favor, how else could i assume i was playing the same game? Fading seems to be a game the second stringers like to play because they have yet to fully understand the mechanics of trend following. If it works for you, so be it.

Ok, i adjusted your grade. Good answer as it will give some others fodder to consider.

PS: Cold also in Michigan, but not to bad. The Holidays are over and usually after the Super bowl is over winter gets very boring. This year we have the Winter Olympics. That will be great watching, especially here because we get Canadian TV stations also and Canada is not about bragging constantly about how fantastic their guys and gals are. American tv, even in sports is a lot of bragging up some idiot and waving the flag instead of a sporting event to enjoy.

Trading rules

1. Learn to identify the main trend and master that first

2. Counter trend trading is much more risky and requires greater skill and faster trading

3. As a guide, using a 20 ma lets you see when pa is overbought/sold. When the excursion is allowing a safe trade, look for the set up

4. Look at how pa is setting up. If the approach is messy the risk is higher.

5. Consider how long the trend has been in place. Markets need pull back breathers even in strong trends

6. Look left! How is the evidence building up that a counter is justified.

7. Learn to distinguish quality from risky set ups. It not just the pa signal but the prior movement that tells you a trade is coming

8. Make sure your trend line is well defined/confirmed

9. Multiple time frame reading will let you know if the trend stands a chance of terminating. At that point a counter trend trade can become the new trend

10. While it is a skill well worth learning, you can make all you need sticking with the confirmed trend. Counter trend is not just the opposite of trend trading - it is much more advanced

interesting quotes

http://www.forexfactory.com/showthread.php?p=3684074#post3684074

seting the profit target.
Rob(ptice action) asked me by pm thats why i am explaining.
first of all remember u have to change your trading plan day by day until ur fully confident .change your bad habits.train ur self to trade like a robot.
what does it mean?
it means everyday keep doing whats works for u and dont do what does not.
review your trades every night .while u u are trading mark them if u can .where u entered and where u exited and why.that will be very first step to become a successfull trader.
if u are biginner set stop to 3:1.what does it mean is that u can have more wrong trades and still make money. and if u still dont make money there is no need to worry.
after that if u think your profit target doesnot reach 3:1.
than reduce it to 2.5:1.and still if u think ,your trade does not reach your profit target.than reduce it to 2:1.
it doesnot mean u cant get out of the market if momentum changed.allways manage the trade actively
when u will find a R:R ratio that suits u .stick with that.
if u are experiance u can go for low R:R ratio.but u need higher hit rate.and u have to be very fast.
every person is diffrent and their risk tolarence as well.some people doesnot have gut to hold a possition too long.some loves to hold onto trades.
now i will tell u how i manage the trade in fx day trading.i manage difrent time frame diffrenly.i will call it its an Art.
what i have found is in fx day trading.most of the pairs will give u 2:1 then it will give u a pullback .thats why my basic profit target is 2:1.but if i see it was first or second impulsive move of the the current intraday trend than i will hold it as long as momentum stays strong.if its 5th or more than that than will close most of the trades for 1:1 .and i manage quick in and out.dont wait for bigger R:R.
specialy choppy day if i trade i manage to get quick in and out.u cant expect bigger move in the choppy market.
choppy days mean supply and demand (sellers and buyer) levels are equally respected by the market .
those days are tough to trade.if u can spot .stop trading as soon as u realise its a flat day.or if u trade,do that very carefully.