Consistently Losing

[BlueHorseshoe 10]

BlueHorseshoe, I'm sorry, if you were offended by my post as this was not my intention. It was a hint for daytrade999 to think about the logic for a trading approach before applying it as you just gave an outline of an idea. Maybe I should have directly gave my ideas on this and not just ask a question… my bad. The question was meant to stimulate to think about the logic...

 

If stocks A and B are part of SPX and SPX trended up, didn't A and B participate in the trend if we see a long signal in those stocks? If so, that would mean that we would buy stocks that are not considered very attractive as the market clearly favored other stocks (those that made SPX move up). Hence, the potential for A and B are probably limited (low beta).

 

If A and B participated in the trend of SPX, do we wait for a retracement of A and B (and SPX)? If we see a retracement, how are we "sure" it's a retracement and not a reversal of SPX? etc. etc. etc.

 

Although, I'm a big fan of simple approaches, the logic of any approach has to be understood before applying it. That's what you, daytrade999, have to think about when putting together a trading approach.

 

Hi Karoshiman,

 

I wasn't offended, and the first sentence of my post was sincere, not sarcastic. By "getting smart" I actually meant it - to set all this up within a trading platform takes more than a little effort.

 

I very much agree - I think that daytrade999 needs to work out some concrete answers before taking up any idea that has been introduced in this thread.

 

Cheers,

 

BlueHorseshoe

[BlueHorseshoe 10]

BlueHorseshoe, you have misunderstood the "2% rule". It relates to the losses that can be incurred by one trade and NOT the capital or margin "invested". It's the same for futures as it is for stocks or the GLD example you give.

 

I haven't misunderstood the 2% rule.

 

You have introduced another (non-linear) element - the notion of a stop-loss.

 

Removing that (complicating) addition to what we are discussing, then the maximum loss you can occur is entryprice*bigpointvalue.

 

If I have 10k in my account today and GLD trades at 100, then I can buy 100 shares of GLD. My 'risk' on the trade is 100% (crazy) . . . or is it? Say that my holding time is restricted to one day, and I know that the average one day decline in GLD is far less than 1%, and with low deviation from this mean. Is the risk to my account really 10k?

 

In actual, literal terms it is. But in reality, a 100% single day price decline would be required to realise this 10k loss.

 

As soon as you introduce leverage, the situation obviously changes.

 

If you introduce a hard stop to limit losses, then the situation becomes as you describe, but this is because (a) you have restricted the loss that can be incurred, rather than the market restricting it, (b) the level of leverage is incorporated into the calculation you make.

 

On a slightly different but related note, if you take two strategies with identical single contract dollar outcomes over a period, but with different %win rate profiles, then the application of the 2% rule can significantly alter dollar outcomes when applied alongside a fixed fractional type position sizing formula.

 

Consider the following with fixed-fractional:

 

- 2%

+ 2%

- 2%

+ 2%

- 2%

+ 15%

 

Versus:

 

+ 2%

+ 2%

- 2%

- 2%

- 2%

+ 15%

 

Happy to talk about this further, but maybe it should all be moved across to a MM thread as it's diverging from the topic of this thread?

 

BlueHorseshoe

[SIUYA 11]

 

I want to know and understand how fund managers do their job and how they use other people's money to invest .

.

 

DayTrade999.

This is a very open ended question, and there is no one size fits all answer.

Sticking to the aspect of leverage and fund managers (and not just how they invest).....

First ...

you have to understand that fund managers have an investment strategy or mandate that they follow. Its ideally their expertise, and is simply a product offered to investors. They are limited in what they can do by this mandate.

Second.....

Most fund managers dont use leverage. The vast volume/amount/size/number of fund and fund managers dont use leverage.

Those that do sometimes disguise it - because either they or their clients dont really understand it. Plus its often easier to sell something that seems less risky than it is.

(While examples such as gold will not go down to zero are valid and hence people justify that its less risky etc. Think about leverage in these simple terms - anytime you can loose more than you have available.....you are leveraged)

Third....

When it is used it can be used by borrowing from others and servicing a loan, investing in instruments that require an exchange margin, investing via other derivative products (OTC), (these do not necessarily mean the manager is leveraged), or simply investing in products that themselves are leveraged. eg; some, REITS, ETFs or other funds.

 

For really in depth info, there is only one answer as every fund is different. Research their investment styles and mandates.

For generic answers.....research the internet.

eg; http://en.wikipedia.org/wiki/Leverage_(finance)

Hedge funds wary of high leverage - FT.com

http://aima-canada.org/doc_bin/AIMA_Canada_StrategyPaper_06_Leverage.pdf

[fxarcher 10]

Please anyone can you give me some help ?

 

News Archive @ Forex Factory

Go to this link...Read it 10 times and believe it.

[karoshiman 10]

I haven't misunderstood the 2% rule.

 

...

 

 

I'm not sure whether I've understood you correctly. I have now understood that the 2% you mention are supposed to be the margin of a futures contract in % of your trading equity.

 

This seems to be VERY conservative. That would mean that you would need $192k per 1 ES contract traded as the initial margin is currently $3,850. This would be a "leverage" (if this is the right word in this case) of clearly below 1 (ca. 0.4). The notional value of ES is currently ca. $83k per contract (I'm using the e-mini S&P as an example as many futures traders trade this contract).

 

I've often read that people suggest having $10k equity per ES contract traded as a minimum (or ca. 39% margin/equity). However, as far as I understand, this assumes no overnight positions. For instance, my strategy includes holding positions overnight. Hence, I try to keep a minimum of $15k per ES contract in my trading account (or ca. 26% margin/equity). Only in rare occasions do I trade 2 ES contracts with this amount of equity.

 

Anyway, beginning futures traders should keep in mind that the notional value of a futures contract is fluctuating.

 

The applied leverage can only depend on the risk appetite of the trader and his trading strategy, which has defined risk characteristics, in order to be able to work. That means that certain stop loss levels are required per trade in order for the strategy to work, i.e., at the end such "%-rule" of margin/equity can only be a function of the %-loss on trading equity one is willing or able to risk per trade.

[karoshiman 10]

 

...

 

I very much agree - I think that daytrade999 needs to work out some concrete answers before taking up any idea that has been introduced in this thread.

 

…

 

 

True… the advice so far in this thread covered many different aspects. daytrade999, I hope you can still "see the woods" albeit all the "trees" thrown at you at once

[BlueHorseshoe 10]

I'm not sure whether I've understood you correctly. I have now understood that the 2% you mention are supposed to be the margin of a futures contract in % of your trading equity.

 

This seems to be VERY conservative. That would mean that you would need $192k per 1 ES contract traded as the initial margin is currently $3,850. This would be a "leverage" (if this is the right word in this case) of clearly below 1 (ca. 0.4). The notional value of ES is currently ca. $83k per contract (I'm using the e-mini S&P as an example as many futures traders trade this contract).

 

I've often read that people suggest having $10k equity per ES contract traded as a minimum (or ca. 39% margin/equity). However, as far as I understand, this assumes no overnight positions. For instance, my strategy includes holding positions overnight. Hence, I try to keep a minimum of $15k per ES contract in my trading account (or ca. 26% margin/equity). Only in rare occasions do I trade 2 ES contracts with this amount of equity.

 

Anyway, beginning futures traders should keep in mind that the notional value of a futures contract is fluctuating.

 

The applied leverage can only depend on the risk appetite of the trader and his trading strategy, which has defined risk characteristics, in order to be able to work. That means that certain stop loss levels are required per trade in order for the strategy to work, i.e., at the end such "%-rule" of margin/equity can only be a function of the %-loss on trading equity one is willing or able to risk per trade.

 

My argument is probably pretty unclear from the start, as everything you say above is obviously correct.

 

My point is that, depending on the trading style the 2% rule is open to debate, and that it is more open to debate where no leverage is used, as a 100% price decline is necessary before a position is unavoidably closed out, whereas when leverage is used there is less ability to quantify risk one a trader's own terms and greater likelihood that this will be determined by exchange/broker and margin requirements.

 

If you're unleveraged, you can trade without a stop with little chance of losing all your equity. If you're leveraged you can't.

 

None of this is anything that won't already be obvious to yourself, but might help a newer trader in thinking about risk and how/who defines it.

 

BlueHorseshoe

[karoshiman 10]

My argument is probably pretty unclear from the start, as everything you say above is obviously correct.

 

My point is that, depending on the trading style the 2% rule is open to debate, and that it is more open to debate where no leverage is used, as a 100% price decline is necessary before a position is unavoidably closed out, whereas when leverage is used there is less ability to quantify risk one a trader's own terms and greater likelihood that this will be determined by exchange/broker and margin requirements.

 

If you're unleveraged, you can trade without a stop with little chance of losing all your equity. If you're leveraged you can't.

 

None of this is anything that won't already be obvious to yourself, but might help a newer trader in thinking about risk and how/who defines it.

 

BlueHorseshoe

 

 

Ah… I see! Now I understand… and agree!

[daytrade999 10]

True… the advice so far in this thread covered many different aspects. daytrade999, I hope you can still "see the woods" albeit all the "trees" thrown at you at once

 

 

Thank you for the caring thoughts . I'm keeping up with all these helpful tips and they are really indeed improving my knowledge on trading and I'm learning something new everyday. But I am kind or getting lost on the topic of leverage though haha. But it's ok I'm learning nonetheless .

 

Thank you!

[daytrade999 10]

DayTrade999.

This is a very open ended question, and there is no one size fits all answer.

Sticking to the aspect of leverage and fund managers (and not just how they invest).....

First ...

you have to understand that fund managers have an investment strategy or mandate that they follow. Its ideally their expertise, and is simply a product offered to investors. They are limited in what they can do by this mandate.

Second.....

Most fund managers dont use leverage. The vast volume/amount/size/number of fund and fund managers dont use leverage.

Those that do sometimes disguise it - because either they or their clients dont really understand it. Plus its often easier to sell something that seems less risky than it is.

(While examples such as gold will not go down to zero are valid and hence people justify that its less risky etc. Think about leverage in these simple terms - anytime you can loose more than you have available.....you are leveraged)

Third....

When it is used it can be used by borrowing from others and servicing a loan, investing in instruments that require an exchange margin, investing via other derivative products (OTC), (these do not necessarily mean the manager is leveraged), or simply investing in products that themselves are leveraged. eg; some, REITS, ETFs or other funds.

 

For really in depth info, there is only one answer as every fund is different. Research their investment styles and mandates.

For generic answers.....research the internet.

eg; http://en.wikipedia.org/wiki/Leverage_(finance)

Hedge funds wary of high leverage - FT.com

http://aima-canada.org/doc_bin/AIMA_Canada_StrategyPaper_06_Leverage.pdf

 

Whoa!! Thanks for all those links it really helps me cut down time to find them so now I will be reading up on them. All thanks to you though.

 

I do have one question about leverage if you or anyone can answer it. If I was to trade full time with 25k would a 4:1 leverage from the broker be able to make a living? Or do I need 100k plus of my own money to trade without using brokers money? How much does everyone here started with if you don't mind answering?

 

Thank you all!!

 

Cheers !

[karoshiman 10]

 

…

 

I do have one question about leverage if you or anyone can answer it. If I was to trade full time with 25k would a 4:1 leverage from the broker be able to make a living? Or do I need 100k plus of my own money to trade without using brokers money? How much does everyone here started with if you don't mind answering?

 

Thank you all!!

 

Cheers !

 

This depends also on your expenses and living standard. And if you are still young, you can expect your living standards to rise over time, probably considerably. So, you have to factor that in as well.

 

Plus, trading income is very irregular and fluctuates month by month depending on how many opportunities the market provides. You cannot force the market to provide you X$ each month. So, IF you have a certain track record in trading already it would be wise to be more conservative with your income estimates going forward.

 

However, your first goal should be to become profitable on a consistent basis (!), e.g. a year or so at least or with a minimum of a few 100 trades in order to have a large enough sample size before drawing any conclusions. That is your first challenge and believe me, it's a difficult one! If you can master this with a live account (and that only after you have traded sim profitably for a while) you can think about making a living with trading.

 

Don't get the wrong impression here, most traders on these forums don't make a living with trading (myself included). Most are even not profitable (I am).

 

In terms of leverage, be aware that it is a two-sided sword (increases volatility in your equity). And it depends also on your trading strategy. A good start is to not lose more then 1-2% of YOUR equity per trade, i.e. IF you have your strategy developed and sim traded it with an amount realistic for your situation (e.g. if you want to trade with $5k live don't sim trade with $1 million) you can move backwards from there.

 

As every beginning trader you focus on how much you can make… I've been there as well… but it's about how much you are ABLE and WILLING to lose in order to make a profit. There will inevitably be periods of drawdowns with every strategy. So, you must be able to withstand these with your equity, financially AND psychologically.

 

Anyway, be prepared to have a VERY long journey ahead of yourself.

[SIUYA 11]

 

I do have one question about leverage if you or anyone can answer it. If I was to trade full time with 25k would a 4:1 leverage from the broker be able to make a living? Or do I need 100k plus of my own money to trade without using brokers money? How much does everyone here started with if you don't mind answering?

 

Thank you all!!

 

Cheers !

 

It all depends on your expected returns.

Walk first then run......

 

If you can get a return on 25k that is reasonable and you have minimal drawdowns, understand how and why it works etc etc etc.....only then you should leverage it to reasonable levels - depending on the instrument.

eg; stocks - unless you are running a long short book or a hedged portfolio, at 4:1, any black swan event - those that occur about every 4 years not 1 in 100 will wipe you out.

 

alternatively you may as well go all in and try and make a killing or fail quickly then move on....

 

 

 

If you can live off X% return based on $X then asking 1000 people their opinions is a pointless exercise.

As Zdo rightly says - its system specific.

 

Just remember when you leverage - the broker will spend/loose/take your money first (your initial stake/equity) and is not in the business of providing you with risk capital. They are in the business to provide you with capital that they dont want to have at risk. For this there is a charge.... so you have to get a return over an above the interest charge first.

...and as your equity decreases so does the leverage capital....its often something people forget.

.................................

 

but there was an old saying that went something like this. 'There are lots of bold traders, there are lots of old traders. There are very few old bold traders' - they do exist but they are rare for a reason.

Walk then run and occasionally run hard when the opportunity allows it......

[daytrade999 10]

It all depends on your expected returns.

Walk first then run......

 

If you can get a return on 25k that is reasonable and you have minimal drawdowns, understand how and why it works etc etc etc.....only then you should leverage it to reasonable levels - depending on the instrument.

eg; stocks - unless you are running a long short book or a hedged portfolio, at 4:1, any black swan event - those that occur about every 4 years not 1 in 100 will wipe you out.

 

alternatively you may as well go all in and try and make a killing or fail quickly then move on....

 

 

 

If you can live off X% return based on $X then asking 1000 people their opinions is a pointless exercise.

As Zdo rightly says - its system specific.

 

Just remember when you leverage - the broker will spend/loose/take your money first (your initial stake/equity) and is not in the business of providing you with risk capital. They are in the business to provide you with capital that they dont want to have at risk. For this there is a charge.... so you have to get a return over an above the interest charge first.

...and as your equity decreases so does the leverage capital....its often something people forget.

.................................

 

but there was an old saying that went something like this. 'There are lots of bold traders, there are lots of old traders. There are very few old bold traders' - they do exist but they are rare for a reason.

Walk then run and occasionally run hard when the opportunity allows it......

 

 

Can you explain to me how brokers can make money from me if I use leverage money? Is it the interst incurred while I use their money.?

[Leecifer 10]

Can you explain to me how brokers can make money from me if I use leverage money? Is it the interst incurred while I use their money.?

 

Hi daytrade999 & everyone that has been helping,

 

I am a very infrequent visitor and noticed this thread only becuz it was at the top of the recent list. But that won't (and never does) stop me from blabbing.

 

1. The other folks have already given excellent advice. I will probably repeat many of their suggestions. Apologies dt999 if you've already begun their/my suggestions.

 

2. You MUST make the suggested ideas and methods your own. That is, if you think they have enough merit to pursue based on a respected source or your own common sense.

 

That means doing your own homework and research to prove or disprove. It is essential practice and discipline if nothing else.

 

Make it your habit to be objective, rational and eager to confirm/deny/teach yourself. If your favorite idea is a flop, dump it!

 

3. Stop trading real money if you are losing real money. Demo is fine to practice, learn, and gain confidence in a method you believe in.

 

4. Losses are a fact of life. Learn to lose or learn to fail. Learn "market mechanics" and you will understand why most trades will initially go against you.

 

Consider this: Everyone knows what the trend is relative to their time horizon. Your counter-party (broker, market maker, bank) also knows but they fill your order to do their job and make the spread or commish. HOWEVER, they also trade their own account because it is even better than spreads & commish. So they punish you for making them sell when the trend is up (and vice versa). They also trade much larger, a huge advantage.

 

5. Number 4 means "smart money beats dumb money" and "big fish eat little fish". Remember, every buyer needs a seller (and vice versa). Therefore, a big fish that wants to buy 1,000 lots first needs 1,000 folks to sell 1,000 lots. They know where dumb, little fish place their stop losses. They will sell 500 lots to dip a market so they can take 1,000+ positions away from guys like us before the market continues up. You are stopped out only to see the market go in the direction you traded.

 

 

6. Numbers 4 & 5 explain why retraces exist. There is nothing mystical about fib levels, gan levels, elliot waves and the rest of the mumbo jumbo. Maybe fibo spotted that the human eye evolved to favor certain ratios just as nature does. Regardless, retraces occur until the big fish have exhausted all of the "too close" stops that little fish set. Maybe .3, .5, .6, or .7. You won't know "the golden ratio" for sure until it's done.

 

7. That is why it is essential to TRADE SMALL & NOT ABUSE LEVERAGE!!!! If you can't ride out the inevitable, adverse moves, you are screwed, blued and tattooed! Big fish count on it and so must you!

 

8. You can use these "market mechanics" to your advantage. Buy dips in an up trend and sell rallies in a down trend just like the smart money does. It happens in every time horizon (holding period).

 

9. Trade small so you can hang in if the market goes to the next s or r level. If the market proves you right, then ramp up. If it continues against you, GET OUT. There is always another market and another trade. If you have the discipline and skill you can SAR (stop and reverse).

 

10. DO YOUR HOMEWORK!!!! Everything you need to know is on your charts. Train your mind and your eye to see what happens over and over. It is all about significant price levels, failures or breaks at those levels, and retraces, because the smart money makes it so.

 

11. I appreciate your passion but asking more questions is lazy. There is no such thing as a stupid question ONLY AFTER you have done your homework.

 

GOOD LUCK!

[SIUYA 11]

Can you explain to me how brokers can make money from me if I use leverage money? Is it the interst incurred while I use their money.?

 

This will depend on the instrument and the broker. There are various methods of doing it it different countries. From spreadbetting, CFDs and swaps (essentially similar)

To requiring margins for futures, and then also co mingling accounts within non segregated pools of money and offsetting client accounts.....even with segregated accounts this occurs (bastards!)

 

But in keeping it simple.....

 

yes. They collect interest and while it will be likely to be competitive and less than you actually physically borrowing the cash from a bank and paying the full amount yourself. It is still a charge, and it will deplete your account in the same way as any fees and charges.

 

There are often spreads between the long and the shorts, the cash balances especially in various currencies etc; - but it seems if you are asking these questions you have a lot of research to do

also these questions should be asked to your broker - if they dont answer them, cant answer them, or the evidence of your statements is different to what they tell you, then that should be a red flag for the broker.

[tradingwizzard 10]

Hi daytrade999 & everyone that has been helping,

 

I am a very infrequent visitor and noticed this thread only becuz it was at the top of the recent list. But that won't (and never does) stop me from blabbing.

 

1. The other folks have already given excellent advice. I will probably repeat many of their suggestions. Apologies dt999 if you've already begun their/my suggestions.

 

2. You MUST make the suggested ideas and methods your own. That is, if you think they have enough merit to pursue based on a respected source or your own common sense.

 

That means doing your own homework and research to prove or disprove. It is essential practice and discipline if nothing else.

 

Make it your habit to be objective, rational and eager to confirm/deny/teach yourself. If your favorite idea is a flop, dump it!

 

3. Stop trading real money if you are losing real money. Demo is fine to practice, learn, and gain confidence in a method you believe in.

 

4. Losses are a fact of life. Learn to lose or learn to fail. Learn "market mechanics" and you will understand why most trades will initially go against you.

 

Consider this: Everyone knows what the trend is relative to their time horizon. Your counter-party (broker, market maker, bank) also knows but they fill your order to do their job and make the spread or commish. HOWEVER, they also trade their own account because it is even better than spreads & commish. So they punish you for making them sell when the trend is up (and vice versa). They also trade much larger, a huge advantage.

 

5. Number 4 means "smart money beats dumb money" and "big fish eat little fish". Remember, every buyer needs a seller (and vice versa). Therefore, a big fish that wants to buy 1,000 lots first needs 1,000 folks to sell 1,000 lots. They know where dumb, little fish place their stop losses. They will sell 500 lots to dip a market so they can take 1,000+ positions away from guys like us before the market continues up. You are stopped out only to see the market go in the direction you traded.

 

 

6. Numbers 4 & 5 explain why retraces exist. There is nothing mystical about fib levels, gan levels, elliot waves and the rest of the mumbo jumbo. Maybe fibo spotted that the human eye evolved to favor certain ratios just as nature does. Regardless, retraces occur until the big fish have exhausted all of the "too close" stops that little fish set. Maybe .3, .5, .6, or .7. You won't know "the golden ratio" for sure until it's done.

 

7. That is why it is essential to TRADE SMALL & NOT ABUSE LEVERAGE!!!! If you can't ride out the inevitable, adverse moves, you are screwed, blued and tattooed! Big fish count on it and so must you!

 

8. You can use these "market mechanics" to your advantage. Buy dips in an up trend and sell rallies in a down trend just like the smart money does. It happens in every time horizon (holding period).

 

9. Trade small so you can hang in if the market goes to the next s or r level. If the market proves you right, then ramp up. If it continues against you, GET OUT. There is always another market and another trade. If you have the discipline and skill you can SAR (stop and reverse).

 

10. DO YOUR HOMEWORK!!!! Everything you need to know is on your charts. Train your mind and your eye to see what happens over and over. It is all about significant price levels, failures or breaks at those levels, and retraces, because the smart money makes it so.

 

11. I appreciate your passion but asking more questions is lazy. There is no such thing as a stupid question ONLY AFTER you have done your homework.

 

GOOD LUCK!

 

nice post, especially the 11 point you make there......you should give advices more often..... a big like from me

[BlueHorseshoe 10]

8. You can use these "market mechanics" to your advantage. Buy dips in an up trend and sell rallies in a down trend just like the smart money does. It happens in every time horizon (holding period).

 

I don't subscribe to the notion of "big fish" substantially manipulating liquid markets as Leecifer seems to suggest . . . but as far as trading approaches go point 8 seems to me to be just about the best advice that anyone could give you.

 

BlueHorseshoe

[karoshiman 10]

 

…Everyone knows what the trend is relative to their time horizon. Your counter-party (broker, market maker, bank) also knows but they fill your order to do their job and make the spread or commish. HOWEVER, they also trade their own account because it is even better than spreads & commish. So they punish you for making them sell when the trend is up (and vice versa). They also trade much larger, a huge advantage.

 

…

 

 

Excellent post!

 

The only thing is, it's usually not the broker or bank that hunts stops (with the exception of some CFD and spot forex brokers). In former times the locals did that, but nowadays it's specialized funds that do that.

[sergso 10]

Excellent post!

 

The only thing is, it's usually not the broker or bank that hunts stops (with the exception of some CFD and spot forex brokers). In former times the locals did that, but nowadays it's specialized funds that do that.

 

Good point but this is the name of the game. Can markets operate in more "user friendly terms"?

[BlueHorseshoe 10]

Has anyone done any investigative work around this as a specific entry concept - i.e. "this is where I predict a large number of sell stops must lie based on other participants having established a long position due to the preceding price action, therefore if price moves to this area I will try to scalp around it" . . . ?

 

I suppose the first thing to do would be to identify the entry methodologies most often used by losing traders, and then to look for a failure of these that would result in the stop being hit.

 

Volume at bid/ask would perhaps give an indication of uptake on any particular instance of a signal and how many contracts were "trapped".

 

All this being said, we're essentially talking about retail traders here, and they're such a minority of market volume you have to wonder whether where they place their stops is entirely diluted by commercial volume . . .

 

 

BlueHorseshoe

[karoshiman 10]

Good point but this is the name of the game. Can markets operate in more "user friendly terms"?

 

That's a good question and almost philosophical… I guess, the 'taking advantage' can only go so far as long as a market exists, i.e. people/institutions continue to participate in it, although they are being screwed from time to time.

 

Btw, it is not only the retail trader's stops that get hunted but also those of professional funds… there are many different participants in this big shark tank and everybody tries to "eat the other" … sometimes one party "wins", sometimes the other… that's what keeps participants in the game… the conviction that overall they come out as a winner… naturally this can only be true for some of them over a certain period of time… and for less and less participants the more this time period is extended...

[karoshiman 10]

 

Has anyone done any investigative work around this as a specific entry concept - i.e. "this is where I predict a large number of sell stops must lie based on other participants having established a long position due to the preceding price action, therefore if price moves to this area I will try to scalp around it" . . . ?

 

...

 

 

As a discretionary and technical trader you can view this quite often, as there are certain price levels where a stop "makes sense", i.e. makes your trade idea invalid. If too many are on the same trade, it's more probable for price to move in the opposite direction, as too many stops are at the same level.

 

But without access to order data at the exchange you can never know in advance with 100% certainty whether a move is only a stop hunt… only in hindsight, when price continues to move sharply in the original direction (opposite to the stop hunt).

 

 

 

All this being said, we're essentially talking about retail traders here, and they're such a minority of market volume you have to wonder whether where they place their stops is entirely diluted by commercial volume . . .

 

 

Exactly. You read often in these forums that professionals take advantage of retail traders… well, they are in a sense as most retail traders lose money trading. But this is mostly due to their own behavior and not the professionals purposely trying to trick the retail trader. The volumes of retail traders are just too small in order to be of interest for a professional participant. Professionals make mainly money from other professionals.

 

We are basically just a microorganism in this huge "shark tank"… we can just hope to stick on the right shark and move along with him (with the direction he is betting on)

[MightyMouse 12]

 

All this being said, we're essentially talking about retail traders here, and they're such a minority of market volume you have to wonder whether where they place their stops is entirely diluted by commercial volume . . .

 

 

BlueHorseshoe

 

don't think retail or commercial or institutional. Think long term or short term and highly capitalized or under-capitalized.

 

A grandma who does not have a computer and buys 10 shares of Coke every month has more staying power in coke than Warren Buffet. She doesn't even know what a stop is and you will therefore never trigger her stop.

 

An institutional trader who needs to liquidate by the end of the day or end of the hour, etc will mimic the behavior and characteristics of a common (bad) retail trader

[Patuca 13]

Hi everyone,

 

I'm having problem with my trading and I want some help . I consider myself a swing trader and my method is following the trend and watching price action as confirmation for entry. My problem is I'm always losing . There are times when ny positions are in profit but I'm just not so sure when to move ny stops and then I get stopped out even when the trade was right. I try to cut losses by closing out positions that are not working the next day and Minot even sure if this is what people say cutting your losses short means. I need help people . Thanks .

Jest wander on over to the beyond taylor thread and watch me lose. It will make you feel better....

[Leecifer 10]

Thank you all for your kind words. Having just left my rock for the sunshine I appreciate it.

 

More apologies to dt999. The last point (11) came out more harsh than I intended. I certainly don't want to thwart anyone's pursuit of profits.

 

Also, very all good comments from everyone. I was gonna quote & reply but realized that would be another War & Peace.

 

I think the short version is that everything we mentioned is probably correct in various degrees at various times.

 

I have done some research and the retrace is the most frequent and predictable pattern of all, and by far.

 

I really believe stop hunting is SOP for brokers and other entry counter parties. Maybe they can do it because most of them play the same game and most of us retail folks follow the herd? It takes balls, money, and discipline to do the other correct things, to catch a falling knife or step in front of a bus.

 

Squiggly, lagging lines and channel breakouts are what most noobs do. They are always late, buy tops and sell bottoms. One can be profitable with lines and channels if the other ducks are in a row.

 

My studies indicate that range breakouts win about 33% of the time but still can make a ton of money.

 

Not many can handle that ratio emotionally. The emotions, chop and over leverage are a perfect storm to break their hearts and their accounts. I hate to see it.

 

The "profit taking" rationale used to be the primary explanation for retraces. And that is still valid. Yup, I am that old.

 

Then those pesky brokers and banks have every advantage. Their back rooms have their books and they lay off risk in a nano second for a fraction of the spread. They also track the A list traders and B list traders. I've known a few of those "bucketeers" over the years.

 

I overlay cme volume on my fx charts to help mitigate the "no fx volume data" dilemma. The mass of volume, or lack thereof, at certain prices and often at the end of a retrace is one of my magic beans. It keeps me from jumping in mid stream and buying tops and selling bottoms.

 

The biggest sin I still struggle with is entering too early. Fading the dip/rally is such a strong method I can't help myself. I quit dying a thousand deaths when I came to expect the adverse move and initiated the trade with a tiny.

 

Well, you didn't get War & Peace. Instead you got The Satanic Verses.

I guess I'm just lonely.

 

The level of discourse in this thread is outstanding. One can learn a lot here.

 

Hereafter I resolve to ramble less.

 

Bye for now.