"Borrowing" trade signals

[brownsfan019 17]

For those that trade multiple markets, do you exclusively look for your setups on each respective market or do you initiate a position if one of your correlated markets shows a trade?

 

Example: we know that the US indexes move in correlation most of the time. Very rarely are you going to find the ES down while the YM is moving up. Knowing that, could you not take a trade on more than one market if you get a signal on one of your charts?

 

Here's my thoughts - as I've been looking at better exits with WRB's and such, I've also noticed that if I have a YM trade and it works, odds are that an NQ trade would have worked as well, even if the NQ did not provide an actual setup for me. The thought process being that if my analysis is correct, why not exploit that on multiple markets.

 

If we assume that one can implement that, you could trade some sort of combination of the ES, YM, ER2 and NQ.

 

Now, I know the next question will be why not just focus on the one and trade larger lots there. Good question. First, unless you are just trading the ES, trading larger lots could create some slippage issues. Second, and more importantly in my opinion, while your analysis can be correct it's not always clear to tell which market will provide the most bang for your buck. In other words, if you just trade the YM at $5/pt, your 'opportunity cost' is another consideration.

 

Anyways, just thought I'd share something that hit me like a ton of bricks this week since we have some great volatility here with us this week.

PS

Not exactly sure what part of the forum this should be categorized under, so feel free to move it mod's if need be.

[notouch 10]

I can't see the point personally. You mention slippage but fiddling around trying to put in different orders on different contracts is going to take time so you might lose out that way. I can't see how trading several different contracts would reduce the risk of slippage. As for the opportunity cost it could work both ways. You could see a great ES set up and then decide to trade YM and NQ too only to see ES outperform YM and NQ so you would have been better off just putting it all on ES.

[brownsfan019 17]

I guess the point notouch is that if you focus on one market and one market only, you may not even get a setup to begin with; whereas the other markets may have given you a setup. Since I use candlesticks, how things form on the chart is paramount.

 

And since going into a trade there is no way to know for sure which market will 'pop' I'd rather be in the one that does for sure vs. hoping that I am. You have a 75% chance of being 'wrong' in terms of picking the one of the four that pops. Those odds are terrible. If you are in all 4 or all 3, you have a 100% chance of being in the one that does 'pop'.

 

We know that the US indexes typically move in the same direction, but there's no correlation between the move and the amount of that move. A move on the NQ can easily produce more profit in terms of $$$ than the ES. Why would you want to restrict yourself to just one?

[brownsfan019 17]

Here's another interesting tidbit in my analysis - by 'borrowing' signals, you can actually get much better fills in the other markets that you are trading vs. the one that showed the signal.

 

Why?

 

Easy - one market may lead the others. And since there is no dominant leader each day, you are simply using the leader to your advantage... Thereby your 'borrowed' signals may in fact show more profit simply b/c of better fills, even if placing those borrowed signals at the market.

 

Some food for thought.

[Guest cooter]

Sure, for example, the grains. Look for some correlated activity in Corn, Wheat or Soybeans, especially on or around limit-down/up days, as has been discussed on this forum elsewhere.

[weiwei 10]

I trade YM only but watch all other 3 index markets. A lot of time, one market will give lead to another. In my case ES.

 

So far, base on observation, YM and ES act more closely corelated, where as ER2 and NQ are more corelated.

 

I personally do not jump on different markets on day-trading bases, but on swing trading, I do look at which market gives better risk reward ratio.

 

weiwei

[wrbtrader 10]

For those that trade multiple markets, do you exclusively look for your setups on each respective market or do you initiate a position if one of your correlated markets shows a trade?

 

Example: we know that the US indexes move in correlation most of the time. Very rarely are you going to find the ES down while the YM is moving up. Knowing that, could you not take a trade on more than one market if you get a signal on one of your charts?

 

Here's my thoughts - as I've been looking at better exits with WRB's and such, I've also noticed that if I have a YM trade and it works, odds are that an NQ trade would have worked as well, even if the NQ did not provide an actual setup for me. The thought process being that if my analysis is correct, why not exploit that on multiple markets.

 

If we assume that one can implement that, you could trade some sort of combination of the ES, YM, ER2 and NQ.

 

Now, I know the next question will be why not just focus on the one and trade larger lots there. Good question. First, unless you are just trading the ES, trading larger lots could create some slippage issues. Second, and more importantly in my opinion, while your analysis can be correct it's not always clear to tell which market will provide the most bang for your buck. In other words, if you just trade the YM at $5/pt, your 'opportunity cost' is another consideration.

 

Anyways, just thought I'd share something that hit me like a ton of bricks this week since we have some great volatility here with us this week.

PS

Not exactly sure what part of the forum this should be categorized under, so feel free to move it mod's if need be.

 

Hi brownsfan019,

 

At first glance when I read your question I thought you were asking for example...

 

There's a trade signal in ES but you take the trade in NQ for whatever reasons.

 

Many futures traders only trade one market but it shouldn't prevent them from monitoring other markets that are highly correlated to prevent missing trade opportunities when their trading instrument doesn't have a pattern signal

 

I talk about this a lot in the Trading Hammers (revisited) thread at ET and I use the term Sister Trading.

 

This involves using a correlated market (+90% correlation at the minimum) to help with more trade opportunities in your trading instrument because there will be times when your trading instrument doesn't have a pattern signal while the correlated trading instrument has a valid pattern signal to merit a trade in your trading instrument that doesn't have a valid pattern signal.

 

For example, I mainly trade ER2 but can easily trade any other Index Futures.

 

When I trade ER2...I closely watch the exchange traded fund IWM of the Russell 2000.

 

Therefore, if ER2 doesn't have a valid pattern signal and IWM does have a valid pattern signal...it gives merits to opening a position in ER2 based upon what's occurring in IWM.

 

However, whenever I do sister trades...I manage the trade via the price action of the trading instrument I took the trade in and not via the price action of the correlated trading instrument that produced the valid pattern signal.

 

Also, in the second half of your message it seems like your asking about managing trades in different markets at the same time that are correlated.

 

For example, going Long in both ES and NQ at the same time.

 

I personally don't like to take trades at the same time in correlated markets unless there's a broker platform problem.

 

For example, your Short YM and broker A system goes down while your backup broker B is still working.

 

If YM goes against you...you can open up a Long position in YM via broker B.

 

This is a type of hedging to protect your original position even though I know your not talking about this situation.

 

I just wanted to mention such to give an example of the benefit of having a backup broker.

 

Anyways, if I'm going to open trades in different markets at the same time...

 

They aren't going to be correlated or they aren't going to be via the same trading style.

 

For example, a Long position in ER2 and a Long or Short position in Copper futures at the same time.

 

Another example, a day trade in YM and a swing trade in T-Bonds at the same time.

 

Thus, the above types of trading multiple markets at the same time are good examples of when such is appropriate in comparison to a more difficult type via taking the same position in two highly correlated markets via the same trading style.

 

Simply, diversity in our trading is good as long as it doesn't put all your eggs in the same basket sort'uv speak.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

[notouch 10]

I definitely think it's better to follow different markets than to follow only one but I wouldn't put different positions on correlated markets e.g. one position on ES, one on YM, one on NQ and one on ER. Better to go all in to the market where you see the best signal that way managing your trade post execution is easier. I think it's far more beneficial to look at multiple non-correlated markets to spread your risk. I look at YM and ES, GBP/USD, EUR/USD and EUR/GBP and QM. I'm also looking to start trading FTSE again, DAX and ags.

[Anonymous 11]

Price Action traders in particular can benefit from using the " UP/DOWN and Out" method.

 

That is, while the trader may have a particular market they trade and a particular timeframe that is favored, he can benefit from looking at higher and lower time frames (the UP/Down) AND other correlated markets (the Out).

 

This is especially true the more exacting the PRICE ACTION requirements needed to enter a trade.

 

In the case of the UP/Down the trade would be taken on the timeframe that meets the rule set. In the case of the Out, the trade is taken in the FAVORED market on the same timeframe.

 

Take a look at the attached chart.

 

Here a trade is taken on the 15 min because there is a valid High Close Doji pattern that forms at 0915. Yet, if on looks at both the 5 and 10 minute timeframes neither shows a valid bullish dark hammer pattern or bullish white hammer pattern respectively. A trader looking at only the 5 would therefore not enter a trade (assuming that was the only pattern he looked for). Nor would a trader looking at the 10 min.

 

Now, it is possible that a highly correlated market, like the Swiss Franc, does have a valid pattern on the 5 min at this time (it does not). If that was indeed the case, a sister trade on the 5 min Euro could be opened.

 

Before you ask, let's take the Dow as an example. If you trade the YM and look for signals in the $indx (or whatever the symbol for cash Dow is) as well, you take the trade in the YM. If for no other reason than most cannot afford to trade the cash index.

 

Simply, one is basing a trade on the cash index but making the trade in the more affordable futures contract. Nothing here about which leads the other, just using similar markets to broaden the signal universe. This is a better alternative than simply increasing the amount of signals used, and thus possibly diluting the overall Price Action signal strength used. In other words, rather than going from 10 signal types to 20 in order to increase opportunities, you remain with the 10 but look for them in more than just one place.

[brownsfan019 17]

Mark & Pivot - good examples and advice. It all makes sense even though I may not agree 100%.

 

notouch - we simply do not agree on the idea here.

 

--------------------

 

In a nutshell here's what I am attempting to do - instead of focusing on just one market while in a trade (which is very easy to do) and missing other opportunities, I am simply taking the 'opportunity' that is in front of me and executing this on 3 markets (no ER2 for me ... just yet...).

 

And the reason is simple as I stated above - there is no possible way to know which of the three markets (ES, YM, NQ) are going to move after you enter the position the most. You just simply do not know. So to throw all your contracts into one market is extremely risky based on that premise in my opinion. It also comes down to slippage issues as well. I can't throw a 50 lot on the YM and expect little slippage and/or that to be unnoticed. I can take that 50 and spread it over 3 very easily, esp the ES and NQ. But if the YM is what ends up moving the most and I am not in that market simply b/c I forced myself to choose just one, that would be cause for concern later.

 

I guess if you feel that your trading methodology is solid and you can make serious money trading, why would you limit yourself? Look at the AM moves this week - having traded all indexes together would have been a nice week of trading and all you do is simply enter positions based on your analysis.

 

Now, if you are trading 2 or 4 contracts, this probably doesn't make much sense at all. That would be more of a nuisance than anything. But if/when you are trading some lots and slippage is something you have to consider, spreading your trades out over 3 markets is something to consider vs. forcing your hand on one market.

[brownsfan019 17]

I definitely think it's better to follow different markets than to follow only one but I wouldn't put different positions on correlated markets e.g. one position on ES, one on YM, one on NQ and one on ER. Better to go all in to the market where you see the best signal that way managing your trade post execution is easier.

 

notouch - please do not think I am attacking or anything, just opening this discussion up some more.

 

Your comments ring very true to me. I thought the same thing - why not just focus on one of the indexes and push your hand there. The problem arises when that one market does not give you a signal to trade, meanwhile another index or instrument may have (as Mark illustrated).

 

Now, the part I put in bold raises a question - you said to go all in on the 'best signal'. What does that mean? I only take my 'best' setups period. I don't consider an 'ok' or 'mediocre' setup... I don't understand why someone would enter a trade that they consider anything but their best. We know trading is hard enough as it is, but if you take a trade w/ little confidence, I can't see how that would work out in the long run.

 

And in the end, even your very best setup can fail or not provide as much move as you expected; whereas by simply applying your best setup to another index may have provided the profit target you expected even though the setup didn't even appear on that chart. The best example I can provide is the ES vs the NQ. The ES doesn't always move nearly as much as the NQ can. I realize the points are worth different amount of money, but even with that difference, there are times when the NQ is by far the best choice at that particular time. Again, there's no way to know that going into the trade, so if you are in the ES, NQ, and YM and all move in your favor, you made money. And of those three, one will normally provide a bigger return than the other 2. The problem however is that you don't know that till the trades are completed.

[brownsfan019 17]

The other part of this equation is of course your psyche. The human mind is a beautiful thing, but it can be your own worst enemy. How many times has anyone here taken a trade and while you made money, you could have made more and your mind turns a winning trade into a mental struggle? So, if you make money, your mind thinks 'what if we had made more' and if you lose money, your mind thinks 'that does not feel good'.

 

Point being that if you focus on just the ES and the YM was where the 'money was at', why not be there? Why not have a position in all three markets and guarantee to yourself (and your mind) that if the trade does what you think, you are going to make the most money possible? Instead of wondering if the YM or NQ was the better trade that you missed....

 

I really think that a topic like this can do more for your psyche than anything else. It's too easy to get wrapped up into one market and one trade and miss the bigger picture that is right in front of you...

 

In addition to putting the odds on your side that you will maximize the return on the trades, your mind will be much more stimulated and active in the trades themselves. Instead of staring at one chart, you now must stay focused and manage all three positions. Yes, that can seem overwhelming at first, but for me (and I think I might have ADD) this is great! I know this will not sound right, but by having three open positions it's like a game for me. My brain is incredibly active and reacting at top levels; whereas taking one trade on one market can literally bore me to death. And the setups/risk/reward/etc is all the same - it's just over 3 markets at the same time.

 

I should also note that I am not recommending increase your position size by 3 to do this. If you are comfortable trading 3 contracts, then you could in theory do this over 3 markets at 1 contract each.

[Anonymous 11]

First, the astute among you may have noticed that a valid pattern might of appeared on the 3 minute Euro. That is the Down aspect.

 

Now, B.F., how would you be entering the trade(s): at the market or limit ?

 

Wouldn't your quick style hamper your ability to both get in and out of all the markets? Just curious, not criticizing.

[Guest cooter]

bf,

 

I think you are being a bit too myopic by limiting your focus to just the equities.

 

For example, try trading the 30yr bonds off the 10yr signals. Similar moves per tick, but double the profit. ($31.25/tick for 30yr vs. $15.625/tick for 10yr).

 

Or try trade one of the grains (say Corn), off of Soybeans or Wheat. Or Soybeans, off of Soybean Oil or Meal.

 

But I do see notouch's point.

 

If your signals are correct and sound, you should be able to go ALL-IN that market that gave you the signal (assuming the signal was valid for that contract to begin with...)

 

And if you can't commit your capital to your signals, well, you'd probably best stick to simulation until you've got it just right, or risk only a portion of your capital.

 

In fact, as I think about this, what it means to me is that you're not psychologically ready to risk ALL your capital on one shot, so you may as well cut back until you are.

 

So, in your example, instead of spreading 3 cars (1 each) across 3 markets, just trade the 1 car in your chosen market until you feel that the risk/reward ratio is suitable for you to ramp up the volume.

[Anonymous 11]

notouch - ............. Now, the part I put in bold raises a question - you said to go all in on the 'best signal'. What does that mean? I only take my 'best' setups period. I don't consider an 'ok' or 'mediocre' setup... I don't understand why someone would enter a trade that they consider anything but their best. We know trading is hard enough as it is, but if you take a trade w/ little confidence, I can't see how that would work out in the long run.

 

Nice.

 

I have never understood why some people have more than one signal type AND trade different amounts on each. For example, 10 contracts on signal A. 5 contracts on B and only 1 on signal type C.

 

If signal type C does not warrant a full position, then why take it in the first place?

 

If signal type A does not show up enough, then trade MORE markets. Here I would of course favor the SISTER trade idea, where you actually trade one market but are taking the clue from another correlated market. Or alternatively trade more timeframes. Even better: do both and using A only.

[wrbtrader 10]

...Again, there's no way to know that going into the trade, so if you are in the ES, NQ, and YM and all move in your favor, you made money. And of those three, one will normally provide a bigger return than the other 2. The problem however is that you don't know that till the trades are completed.

 

Hi brownsfan019,

 

My experience with this type of trading is that it was too stressful for me and things seem to be occurring too fast when the markets were moving.

 

Simply, most of the time it was overwhelming and difficult to manage especially when sometimes I got a trade signal to reverse the position into the opposite direction.

 

It's the only reason why I don't recommend such even though it was profitable.

 

By the way, I was using DAX, CAC-40 and ER2 sometimes and other times I was using ES, ER2 and NQ.

 

Also, I do remember having a rule where as soon as one of the trading instruments reached a WRB profit target...I exited all the positions at the same time.

 

With that said, if someone can do that and not have that feeling of being overwhelmed...keep doing it.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

 

"Volatility Analysis will open the door to consistent profits."

[brownsfan019 17]

bf,

 

I think you are being a bit too myopic by limiting your focus to just the equities.

 

For example, try trading the 30yr bonds off the 10yr signals. Similar moves per tick, but double the profit. ($31.25/tick for 30yr vs. $15.625/tick for 10yr).

 

Or try trade one of the grains (say Corn), off of Soybeans or Wheat. Or Soybeans, off of Soybean Oil or Meal.

 

Understood; however with my smaller VBC charts, I simply cannot have 20 charts up of all different things. I am looking to exploit in the indexes due to liquidity.

 

But I do see notouch's point.

 

If your signals are correct and sound, you should be able to go ALL-IN that market that gave you the signal (assuming the signal was valid for that contract to begin with...)

 

And if you can't commit your capital to your signals, well, you'd probably best stick to simulation until you've got it just right, or risk only a portion of your capital.

 

In fact, as I think about this, what it means to me is that you're not psychologically ready to risk ALL your capital on one shot, so you may as well cut back until you are.

 

So, in your example, instead of spreading 3 cars (1 each) across 3 markets, just trade the 1 car in your chosen market until you feel that the risk/reward ratio is suitable for you to ramp up the volume.

 

cooter - perhaps some was lost in translation but I am not a sim trader. Way past that part of my trading life. When I said that I was concerned about trading 50 contracts, that was not a random number.

 

The point was lost as well - a signal showing on the ES simply tells me that the market may move up or down. That's it. Now if the ES is going to move up, so too will the YM and NQ.

 

Now, we also know that just b/c the ES provided the setup does not mean it will provide the most profit. There's no correlation. Actually, as I stated earlier, you can actually get a BETTER fill on the other markets b/c the one that provided the signal happened to be leading the others at that point in time.

 

So knowing that, would you not want the best possible fill on a winning trade? If so, then perhaps this should warrant consideration. If you only want to trade the market that showed the actual signal, so be it, but I am quickly realizing the amount of $$$$ being lost by doing so.

 

And, like I said, if you drop 50 contracts at one level on the YM, not only is slippage going to be a concern, I'm not looking to 'raise red flags' either. Perhaps that's just being paranoid.

[wrbtrader 10]

Nice.

 

I have never understood why some people have more than one signal type AND trade different amounts on each. For example, 10 contracts on signal A. 5 contracts on B and only 1 on signal type C.

 

If signal type C does not warrant a full position, then why take it in the first place?

 

If signal type A does not show up enough, then trade MORE markets. Here I would of course favor the SISTER trade idea, where you actually trade one market but are taking the clue from another correlated market. Or alternatively trade more timeframes. Even better: do both and using A only.

 

Hi PivotProfiler,

 

The main reason why some traders have different strategies (signal types) is for different types of market conditions and/or different types of price action.

 

For example, a simple example, the Bullish White Hammer pattern is for one market type and the Bearish Engulfing pattern is for another type of market.

 

Now here's a more complex example, a method designed for breakouts and another method designed for fading breakouts.

 

Lets talk a little about position size management (different positions for the same pattern signal or different pattern signals).

 

Some traders know the statistical value of their strategies.

 

Pretending, lets say signal A is 78% reliable and signal B is 69% reliable during normal volatility to high volatility market conditions.

 

However, during low volatility or stagnant volatility (no volatility peaks)...signal A is 71% reliable and signal B is 58% reliable.

 

Lets say I trade anywhere between 1 to 9 contracts and today is a high volatile market action due to something said by the Fed Chairman.

 

If I get a signal A pattern...I most likely will go in with 9 contracts.

 

Later if volatility declines dramatically after the market begins to absorb the Fed Chairman comments and signal B pattern appears...

 

I most likely will do 3 contracts.

 

Now, lets pretend there's a new strategy called signal C that needs to be tested with some real money after passing my backtesting course.

 

For a few weeks or months I will only trade signal C with 1-3 contracts to complete the testing process.

 

Later upon completion of the new strategy testing process...I'll allow trading it as I trade the other signals.

 

My point with all the above is that the market is different from one trading day to another trading day (big trend, small trend, tight trading range, choppy, flat, earnings driven, breaking news driven, driven by foreign markets, driven by geopolitical situations et cetera).

 

Position size managment will allow you to be properly position to better manage your risk exposure as the risk levels change from one trading day to the next trading day.

 

For example, lets say you have statistical facts that most of your profits occurs in the morning trading session and most of your losses occurs in the afternoon trading session.

 

You need to have a good explanation why you will trade with the same position size or trade at all in the afternoon trading session as you did in the morning trading session.

 

Simply, to trade the same position size every time is to imply the price action is always the same along with having the same risk exposure.

 

This is far from the truth about the dynamically changing markets.

 

Therefore, knowing when to increase your position size and when to decrease your position size is an edge.

 

By the way, today's market environment I'm trading with 1/3 of what I use to trade many years ago when the markets had more volatility.

 

Thus, as the volatility declined over the years, I've managed the increased risk exposure via reducing my overall position size.

 

P.S. Some traders don't trade on FOMC Announcement days because they tend to lose money.

 

Staying on the sidelines even though they had valid pattern signals is a position size management (0 contracts).

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

 

"Volatility Analysis will open the door to consistent profits."

[brownsfan019 17]

First, the astute among you may have noticed that a valid pattern might of appeared on the 3 minute Euro. That is the Down aspect.

 

Now, B.F., how would you be entering the trade(s): at the market or limit ?

 

Wouldn't your quick style hamper your ability to both get in and out of all the markets? Just curious, not criticizing.

 

Pivot - good question. The Euro is actually a problem based on my analysis here. Reason being there is no other 'sisters' that I am comfortable with.

 

I have not considered the multiple timeframes as that is just too much up at one time. In order to keep things simple, I have one ES, NQ and YM chart up at shorter VBC intervals and that's plenty. If one triggers a setup, trades are entered on all markets.

[GCB 10]

Nice.

 

I have never understood why some people have more than one signal type AND trade different amounts on each. For example, 10 contracts on signal A. 5 contracts on B and only 1 on signal type C.

 

If signal type C does not warrant a full position, then why take it in the first place?

 

If signal type A does not show up enough, then trade MORE markets. Here I would of course favor the SISTER trade idea, where you actually trade one market but are taking the clue from another correlated market. Or alternatively trade more timeframes. Even better: do both and using A only.

 

This is a considerations that has occurred to me lately.

 

Sometimes, usually later in the day, if I am up, I will start taking half positions on my trades so as to not blow away my existing profits on stop outs. Seems prudent at first glance. But wait! I've noticed that it tends to be an excuse to get into a half-assed setups because nothing else is going on, or is just a reflection of chickenheartedness, and neither is a good habit to foster. If the latter and if the trade works out I kick myself for not taking a full position.

 

A trade is either worth a full position or it's probably not worth the trouble. In or out, black or white.

 

Another way to look at it is to ask: Would I take this trade with double my usual position (assuming your account could tolerate such a trade)? That tends to clarify things.

[wrbtrader 10]

This is a considerations that has occurred to me lately.

 

Sometimes, usually later in the day, if I am up, I will start taking half positions on my trades so as to not blow away my existing profits on stop outs. Seems prudent at first glance. But wait! I've noticed that it tends to be an excuse to get into a half-assed setups because nothing else is going on, or is just a reflection of chickenheartedness, and neither is a good habit to foster. If the latter and if the trade works out I kick myself for not taking a full position.

 

A trade is either worth a full position or it's probably not worth the trouble. In or out, black or white.

 

Another way to look at it is to ask: Would I take this trade with double my usual position (assuming your account could tolerate such a trade)? That tends to clarify things.

 

I think this is a different situation and not uncommon with many traders.

 

If your profitable early in the trading day and fear losing those profits later in the trading day...

 

It's a discipline problem if your decreasing a position size is also encouraging you to take trades you normally don't take just because the market is boring as in nothing else is going on.

 

Not taking these types of trades is the proper thing to do.

 

In contrast, taking these trades with a partial size and seeing the position become profitable...

 

That's a bad trading habit to get into because your enforcing the concept that taking trades outside your trading plan is OK TO DO and when doing such you should go with a FULL POSITION SIZE.

 

Here's an analogy, lets say you have a very reliable signal when your signal appears at a s/r level.

 

You also know your signal is not reliable when you trade it in price action that's no where near a s/r level.

 

However, on some occasions a few of those trades are profitable even though overall its a losing situation.

 

Your suggesting that its worth the risk to put on a full size position on taking trades not near a s/r level in hopes of catching those few times when the trade will be profitable.

 

In my opinion, this will instill poor trading habits.

 

Simply, if the price action is not part of your signal...

 

Don't take the trade along with squashing any thoughts via hindsight analysis that had you taken that particular trade when it would have work...

 

You would have made money even though its not part of the price action you should be trading.

 

Another way to look at it...if its not a valid pattern signal...it does not merit a lower position size nor a full position size.

 

Instead, it merits no position and you should be on the sidelines.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

 

"Volatility Analysis opens the door to consistent profits."

[brownsfan019 17]

This is a considerations that has occurred to me lately.

 

Sometimes, usually later in the day, if I am up, I will start taking half positions on my trades so as to not blow away my existing profits on stop outs. Seems prudent at first glance. But wait! I've noticed that it tends to be an excuse to get into a half-assed setups because nothing else is going on, or is just a reflection of chickenheartedness, and neither is a good habit to foster. If the latter and if the trade works out I kick myself for not taking a full position.

 

A trade is either worth a full position or it's probably not worth the trouble. In or out, black or white.

 

Another way to look at it is to ask: Would I take this trade with double my usual position (assuming your account could tolerate such a trade)? That tends to clarify things.

 

A possible solution - stop trading after the AM session. That's what I do and it's worked nicely b/c of the above mentioned issues. It's very easy to want to find something when nothing is going on.

 

Once again, another psyche issue at work here. Amazing how the mind will react to different situations.

[Anonymous 11]

Sensei

 

You are wise in much and I for one thank you for your participation, both in forums in general and here in particular.

 

I must humbly disagree here.

 

If signal type A has such an advantage over signal type B, why trade signal type B?

 

If signal type A decreases in reliability when volatility decreases, why trade signal type A in a decreasing volatility environment?

 

I think the more prudent approach is to trade A all the time, with the ability to ADD to the position in those times when volatility is both high, and the position is in profit.

 

Simply, the original position is constant, but the actual size can be increased as the MARKET allows via movement in one's "desired" direction.

 

Now, suppose signal type B is better than signal type A when Volatility decreases. Here one could trade B rather than A, but the initial position size of B should be the same as the initial position size of A under A's optimal condition-increased volatility.

 

As I see it, if one is not willing to put the same amount of contracts on B, he is saying that he believes less in B than A. But if one believes less in B, why take the signal in the first place? Again, if the desire is to make more trades, trading more markets, via sister trades or not, or trading more timeframes seems the better course of action.

 

When test out a new signal type C, yes one could start out with fewer contracts. But once the test period ends, either the value of C merits a full position or no position at all.

 

I believe in UNDER trading is size and frequency. Too many traders need action and thus look for multiple ways to get in. Yet, if there is a wide disparity among signal types the edge is lessened due to overtrading.

 

Again if one starts out with x amount of contracts and then adds on as the market proves the trader to be in tune with it, then the best signal type under the best conditions ends up being the one with the most contracts in total. But this is at the end, not the beginning. And the beginning is of course when nothing is truly known about the eventual outcome........

 

It is not the mutiple signal types I question, rather the variation of size associated with each. Either they are all 5 contract worthy, or some are not while some are. And if some are not, why trade them?

[wrbtrader 10]

Sensei

 

You are wise in much and I for one thank you for your participation, both in forums in general and here in particular.

 

I must humbly disagree here.

 

If signal type A has such an advantage over signal type B, why trade signal type B?

 

If signal type A decreases in reliability when volatility decreases, why trade signal type A in a decreasing volatility environment?

 

I think the more prudent approach is to trade A all the time, with the ability to ADD to the position in those times when volatility is both high, and the position is in profit.

 

Simply, the original position is constant, but the actual size can be increased as the MARKET allows via movement in one's "desired" direction.

 

Now, suppose signal type B is better than signal type A when Volatility decreases. Here one could trade B rather than A, but the initial position size of B should be the same as the initial position size of A under A's optimal condition-increased volatility.

 

As I see it, if one is not willing to put the same amount of contracts on B, he is saying that he believes less in B than A. But if one believes less in B, why take the signal in the first place? Again, if the desire is to make more trades, trading more markets, via sister trades or not, or trading more timeframes seems the better course of action.

 

When test out a new signal type C, yes one could start out with fewer contracts. But once the test period ends, either the value of C merits a full position or no position at all.

 

I believe in UNDER trading is size and frequency. Too many traders need action and thus look for multiple ways to get in. Yet, if there is a wide disparity among signal types the edge is lessened due to overtrading.

 

Again if one starts out with x amount of contracts and then adds on as the market proves the trader to be in tune with it, then the best signal type under the best conditions ends up being the one with the most contracts in total. But this is at the end, not the beginning. And the beginning is of course when nothing is truly known about the eventual outcome........

 

It is not the mutiple signal types I question, rather the variation of size associated with each. Either they are all 5 contract worthy, or some are not while some are. And if some are not, why trade them?

 

Hi PivotProfiler,

 

It's all about opportunities.

 

Lets say signal A gave pattern signals at the following times with results -

 

0940am = $60, 1042am = $125 and 1535pm = $95 for a total of $280 profits

 

On the same trading day, signal B gave pattern signals at the following times and results -

 

1002am = $48 and 1118am =$175 for a total of $223 profits

 

Now, lets say signal A has a reliablilty of 85% while signal B has a reliability of 72%.

 

If I only trade signal A because its more reliable while ignoring a profitable signal B that's less reliable in comparison to signal A...

 

I just lost the opportunity to make an additional $223 dollars.

 

A few days of lost opportunities adds up quickly by the end of each trading month.

 

Thus, instead of having 5 trade opportunities...I only had 3 trade opportunities on that particular trading day.

 

Lets change the story to changing volatility conditions for one pattern signal.

 

Signal A is reliable 78% of the time in normal to high volatility conditions and gave 2 trade signals during these conditions on a particular trading day.

 

Signal A is reliable 69% of the time in low volatility conditions and gave 5 trade signals during these conditions on the same trading day.

 

If I ignore Signal A during the low volatility condition when the risk is greater...

 

I only have 2 trades for the day instead of 7 trade opportunities.

 

Further, because where trading a profitable strategy when the risk is higher...to reduce that risk to equal the same/similar risk level when volatility is high...

 

We need to reduce our position size when the risk is higher but the strategy still has a positive expectancy.

 

The above story will change if we stop comparing a Profitable situation versus Profitable situation into a Profitable situation versus Losing situation.

 

Thus, if comparing a profitable strategy versus a strategy that's not profitable...

 

Then I would strongly agree with you why bother with the other strategy that's not profitable.

 

By the way, I have multiple strategies for different types of price action.

 

For example, if have a pattern signal that only appears a few times per year in a particular type of price action involving market seasonal cycle.

 

I have another strategy that appears every trading day at least twice involving market breadth indexes.

 

I have another strategy that appears twice each day involving Japanese Candlestick patterns.

 

I have another strategy that appears twice per day involving intermarket analysis.

 

I have another strategy that is only used during the U.S. presidential elections via a market seasonal cycle.

 

All have different reliabilities and all are profitable.

 

Your suggesting someone shouldn't use multiple strateiges and only trade the strategy that's the most reliable...

 

I'm going to lose a lot of money because of the lost trade opportunities due to the fact I don't have one strategy that appears all the time.

 

Therefore, when you suggest to trade the most reliable method all the time...

 

In my particular situation and I'm assuming its the same for any other trader that uses more than one strategy...

 

The pattern signals just don't appear all the time.

 

By the way, my most reliable profitable method only appears during U.S. presidential elections and if I tweak it so that it appears every day, every week or whatever...anytime or all the time...

 

It's a losing method.

 

The key here is that the market is not the same all the time and we should be thankful this is true every trading day.

 

I also think one of the reasons why some traders (not all traders) overtrade is because they want to be active in the markets but they are using a strategy that doesn't produce many trade opportunities.

 

Thus, they easily get impatient and fear missing something that results in them taking additional trades that's not part of the trading plan (overtrading).

 

Therefore, it can be debated that having only one strategy, it can encourage overtrading if that one strategy isn't active enough for you in producing opportunties to make money.

 

-----------------

 

Look at it this way, lets pretend your only using one strategy and its very reliable with a reliability factor of 89% when the markets is trending.

 

Then the market changes from trending to a tight trading range and you stay on the sidelines because you know your strategy is not reliable in tight trading ranges (it's not profitable).

 

Now lets say you have the opportunity to develop a new method via something you've read on the internet at some discussion forum about tight trading ranges.

 

Your able to develop a method that's 75% reliable during tight trading ranges and not reliable in trend like market conditions.

 

My questions to you are the following?

 

* What are you going to do if the market is range bound for the next two trading days?

 

Yep, this is a trick question. :rolleyes:

 

* Are you going to trade the same position size if you decide to trade in the trend price action and the range bound price action?

 

* What if you tweaked (made an adjustment) to your trend strategy so that you get trades when the market is range bound but the tweaking (strategy variation) is not as profitable but still profitable...

 

What are you going to do as in your position size managment...less contracts or no trade (0 contract)?

 

-----------------

 

With all that said above, its possible your talking about strategies that appear all the time as in giving multiple signals each and every trading day.

 

Only type of trader I know that uses one strategy that gives him multiple pattern signals as in all the time are scalpers.

 

I'm not a scalper even though I will exit a position fast if profit levels are reach soon than expected, price conditions change dramatically after my entry or my stop is hit (stopped out).

 

I day trade (a few signals per day), swing trade (a few signals per month) and I position trade (a few signals per year).

 

However, I do take more than a few trades per day as a day trader but only because I'm the type that's constantly testing something new in an effort to improve my performance.

 

Also, you can overtrade as a position trader too if you only get 5 trade signals per year and one year you overtrade and do 12 trades in which 7 were not part of the trading plan.

 

Thus, overtrading to me is taking trades that are not part of the trading plan and has nothing to do with frequency.

 

A pattern signal is a pattern signal. Therefore, if on Monday your pattern signal appears 3x...than you should take at least 3 trades.

 

If on Tuesday your pattern signal appeared 15x...than you should take 15 trades and its not overtrading unless you add in one trade that's not part of the trading plan to make it 16 trades on Tuesday.

 

To conclude my discussion on this...

 

Had I stopped learning new things many years ago when I had my first profitable strategy and only stayed with that one strategy (ignoring the stuff that's less reliable even though they are profitable)...

 

I don't think I would be where I'm at today and I hope I learn more things that either improves what I'm using or gives me additional profitable opportunities.

 

In fact, many of the world's top athletes or top business owners are doing multiple things to help them stay at the top sort'uv speak.

 

Yet, if you can reach your goals with one strategy that appears all the time...

 

More power to you and keep using that approach.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

 

"Volatility Analysis opens the doorway to consistent profits."

[Anonymous 11]

Sensei;

 

* I did not say the use of multiple strategies is wrong, only the use of various contract sizes with the various signals is something I do not understand.

 

* I have been talking about multiple strategies as they pertain to the same trade length. In other words, a daytrade signal vs. another daytrade signal. If one trades 10 lots on a daytrade, it is reasonable to trade fewer contracts on a different signal type if that signal type is a swing trade. Obviously the issue of margin comes into play here. Another issue is psychology. Which brings me to my main point.

 

* If signal type A is more reliable than signal type B and you trade fewer contracts on signal type B, you are telling yourself on some level to trust signal type B less than signal type A.

 

This is if fine WHEN THINGS ARE GOING WELL.

 

Now suppose we have two different situations:

 

1. Signal B has been incorrect 3-5 times out of 3-5. Can you pull the trigger on the next Signal B ? The very fact that it is traded with fewer lots implies that you trust it less. If that was not the case, than either you would trade it with the same amount as signal A or more. So from a trading mind set point of view, it is more added baggage to deal with from my point of view. The lesser quality trade has been a loser, but it is known to be a lesser trade by the very fact that fewer contracts are traded. Now one is asked to pull the trigger like all things are equal.

 

2. With two weeks left in the month a trader is experiencing his worst draw-down in 6 months. A signal B type trade appears. Now he must trust in that signal and take it. But since he has placed a lower lot level on the trade, based on his confidence in it, how can he now trust it? This can possibly create more demons to fight in a field replete with them.

 

Now suppose the trader has lowered all signal types to 1 lot due to the draw-down. Still here, the trader knows that all signal are NOT created equal. If they were, then he would already by using similar lot sizes for all. So the very fact that he is now using equal lot sizes reinforces the lack of recent profitability. Yet he still has to deal with taking a less quality trade, at the time when what he needs most is a profitable trade. While the outcome can not be known in advance, why take a lesser quality trade if you do not have too. What makes is less quality? Don't know. But if it were of equal quality then the lot size trade when things are going well should be the same as all other trade signal types.

 

* On some level, different position sizes put the signal types on a "trust scale". This may work out good when everything clicks. But at the first sign of trouble (long period of drawdowns, or continuous losses on the lower sized signal) it effects HOW a trader trades. How can it not?

 

* Again, I am not saying I know more than anyone on this subject. I am simply saying that I believe there is a sub-conscious value weighted system put in place when size varies with signal quality. Trading is simple, but not easy. Having to overcome that weighted value system when things are not going well only adds to the difficulty inherent in trading.

 

* Playing the "money I could of made" game is surely a road to ruin. Not every profitable move will be captured. It is erroneous to say that profit is missed because only the high quality trades are used. Yet, there is a way to improve your profitability by trading more markets and more timeframes. If one doesn't mind high quality and less quality trade set-ups, that is fine. The contracts used, however, should not reflect the variance in quality. A trader needs to trust every signal equally and that should be born out in equal lot sizes used.

 

* As this is my last post on the subject:

 

1. Multiple signals are fine, but one should keep the size traded equal for the psychological advantage incurred.

 

2. If various types of trades are made, daytrade, swing, scalp, clearly size will vary. This variance, however, is based on trade type, not signal type.

 

3. Profitable traders trade the same when things are going bad as when they are going well. Note I am not talking about not reducing size during drawdowns. I am talking about willingness to take a trade. If your position sizes reflect how confident you are in a trade, can you continue to trade it when things are bad? A 5 lot quality trade when things are good, may be turned into a 1 lot trade during such a period. A 3 lot also turns into a 1 lot. However, the quality of the 5 lotter is still higher than the 3 lot signal type. And on some level the trader knows this.

 

4. If you want more money, trade more contracts (on the best signal only). Or trade more markets. Or more timeframes. This makes more sense in terms of the trader's mind (to me at least) than trading various quality of trades AND trading them at varying sizes.

 

5. You will always leave money on the table. There will be other opportunities to make money.

 

* Thank you Mark for your posts.