Training for Profitability

[RobinHood 10]

I've just wired money to IB so I'm optimistic that within another few months they will enable my account and let me paper trade (maybe they will even reply to my email from a month ago!). In the meantime, while IB do their thing, I've written up a plan for having a crack at scalping. I'm posting this in order to receive further suggestions which could enhance my learning curve.

 

My goal is to achieve profitability before my 21st birthday (another year), which is when I'll be able to use IB margin. However, the focus remains on the process, not end result.

Markets I will be watching and playing with:

OSE: mini Nikkei

HKFE: mini Hang-Seng

SFE: SPI200

EUREX: bund bobl schatz DAX

 

Requirements:

Data and Ninja Trader

 

Cost:

During simulation phase $42AUD per month (Eurex data) and an additional $12.01AUD should I chose to play with Nikkei. ($648 annually).

 

Plan:

Markets will be watched intraday. The plan is just to play with them, enter and exit when you ‘feel’ like it. Whatever is missed can be recorded with NT recording feature and replayed at a later date. Once I’m confident of my understanding of market mechanics* I’ll begin testing out numerous technical strategies and ideas as well as following various indicators.

 

After a few months, give or take, I will concentrate on one instrument. When I’m confident enough it will be time to go live. Before doing so a risk management plan will be drawn up.

 

 

 

 

Fundamentals for development:

• Familiarity with Ninja-Trader and its features, including back-testing ideas on historical data – “Where has the market gone 15 bars after an opening gap?”

• Reading the tape: "most relevant to short-term traders but is also valuable to the position trader who needs to get good prices to maximize profits. There is no sense losing execution ticks when you can, with a bit of patience, buy the bid or sell the offer. Traditional charting programs, which display prices in bars along with volume, are of minimal help in tape reading. Instead, you will need applications that allow you to see how much volume is being transacted at particular prices, so that you can track whether price is being accepted or rejected at each level.”… “Scalpers will employ DOM information... these depict shifts among quantities being bid and offered, so that traders can track the flow of potential buyers and sellers in and out of the market place. Initial exercises should be devoted to simply reading supply and demand at a given price and time by calling out whether buyers or sellers are in control (or whether control is evenly divided between them) and whether you think the next ticks will be up or down.” (Enhancing trader performance) + keep an eye on T&S

 

 

 

 

 

* Trading Mechanics:

• Assessment of market conditions: Trending, rangebound, volatile or slow.

• Ensuring strategies/ideas appropriate to current conditions

• Order placement: using orders appropriate for market conditions to get efficient fills

• Order location: selecting prices for orders that correspond to turning points in supply and demand, thereby minimizing drawdowns and maximizing opportunity.

• Order division: scaling into positions to reduce initial risk exposure and obtain superior average entry prices; scaling out of positions to secure profits and benefit from favorable movement. (Irrelevant to me in initial stages when I’m trading 1 contract).

• Position sizing. Risking enough on a trade to make a meaningful contribution to profitability while avoiding risk of ruin under adverse circumstances.

• Exit determination: defining clear criteria for when your trade ideas are wrong; implementing proper stops to manage risk exposure for each trade.

• Exit flexibility: moving stop-loss points to protect profits while retaining profit potential.

• Speed of execution: making and implementing decisions rapidly. Accuracy of executing. Minimizing errors in order placement. Efficiency of information processing. Monitoring relevant variable in real time to properly manage trades.

 

 

 

 

Training games:

 

Try reversing your signals and see if you can consistently lose paper money

 

 

 

(Most of the above is taken from Steenbarger's book "Enhancing trader performance". It is highly recommended)

Edited August 23, 2008 by RobinHood

[jasont 10]

First of all RH I'd like to say great work on the plan so far. It is important to outline the details of ones plan right from the beginning just as you have. I'm guessing you haven't put specific entries and exits because currently you are finding your feet in the market which is great.

 

I do have a couple of suggestions that may help your cause but of course it is up to you whether or not you choose to use them. In the past for my own development I actually found it invaluable to watch the market without any intention of trading, be it simulation or live. I still do this for a couple of days after I have spent some time away from the market as it helps get me back in the rhythm. The reason it helps is because when we choose to trade we do tend to put a bias on the markets sometimes. When we are not looking for trades I find that is when I learn the most about the market because I am just watching the action rather than looking for signs of a trade.

 

In regards to your "Fundamentals for development", do you mind me asking what tools you are using for your trading? From the sound of it you are looking to tape read according to Time and Sales. Do you plan on using charts or are you just watching the T&S to trade? I will say that reading the T&S is much harder than it previously was due to the increased volume and speed in transactions due to the Internet these days. I know there are a few guys here who use it though so it obviously can be done. I'm not here to tell you how to trade because what suits me won't necessarily suit you. I personally use the charts and volume to tape read and know others here whom also do so. It is a bit easier than trying to keep up with the T&S, especially with the Indexes which are so fast with their orders.

 

You are taking a great approach here and it will be of great benefit to your trading development. Brett Steenbarger is a great resource for development and highly recommend his books and blog. I look forward to reading his up and coming book. Keep up the great work RH, you might also benefit from starting a journal in the journal section of the forum as well to gain some extra advice.

 

Regards,

Jay

[Guest forsearch]

(Most of the above is taken from Steenbarger's book "Enhancing trader performance". It is highly recommended)

 

I concur. Here's a link to a preview copy for those following along...

 

http://tinyurl.com/5z4gt6

 

-fs

[RobinHood 10]

In regards to your "Fundamentals for development", do you mind me asking what tools you are using for your trading? From the sound of it you are looking to tape read according to Time and Sales. Do you plan on using charts or are you just watching the T&S to trade?

 

Mainly DOM, T&S. Chart to pin point S/R. Will continue experimenting with different time-frame to see what suits.

 

No indicators, except for following other correlated markets and anything which could affect the products I trade. Once I have a more solid game plan I will possibly begin experimenting with bollinger but nothing complicated.

 

 

A quick update:

I've been watching schatz bobl bund quite solidly the past week. Have managed to do the 4pm-1am shift most nights, with some gaps.

 

I can see strong buying or selling entering and usually get in to catch a few ticks but that is the only thing which makes me money on the sim. I'm not even sure if its realistic because it totally depends on how quickly my orders are executed real-time. Everything else I do / try loses me money. Overall I lose money everyday. So giving it a few more months of this before I start seeing some more patterns, and framing some good R:R setups for a proper game plan. Could take longer who knows but I sure hope not. I'm keeping a daily journal, just jotting down pivots (close, high, low) and important announcements for the day.

[brownsfan019 17]

Everything else I do / try loses me money. Overall I lose money everyday. So giving it a few more months of this before I start seeing some more patterns, and framing some good R:R setups for a proper game plan. Could take longer who knows but I sure hope not.

 

You are hoping to conquer trading w/in a few months?

 

My suggestion - save yourself some aggravation, time and money - quit now.

 

This business takes YEARS and YEARS to even get somewhat good at it RH. If you expect to come in and dominate a business that is swimming with finely tuned sharks, good luck. You are better off learning how to play poker and find tables w/ loose players than trying to beat the markets in months.

 

But, that is the beauty of this game - the entry requirements are so few, yet so few will actually stand a chance.

[Guest forsearch]

You are hoping to conquer trading w/in a few months?

 

My suggestion - save yourself some aggravation, time and money - quit now.

 

This business takes YEARS and YEARS to even get somewhat good at it RH. If you expect to come in and dominate a business that is swimming with finely tuned sharks, good luck. You are better off learning how to play poker and find tables w/ loose players than trying to beat the markets in months.

 

But, that is the beauty of this game - the entry requirements are so few, yet so few will actually stand a chance.

 

Drinking water from Lake Erie and being a Browns fan notwithstanding, what do you really think are the keys to success in trading?

 

Not everyone has a Series 7 as a former stockbroker, nor the ways and means to drop it all and give it a go in the world of futures.

 

What's your tough love story from the school of hard knocks?

[jasont 10]

RH try not to feel too disheartened about losing money every day. I will be honest and say the majority of traders go through this with their own money for a long period before becoming profitable. Many lose at least one bank account sometimes 2 or 3. They spend countless hours in front of the screen everyday putting in the time and effort to learn something that isn't paying them off in the short term. I know because I am one of them.

 

I personally have spent 2.5 years in the market and have only just gone from losing to break even to slightly ahead. It has taken a lot of blood sweat and tears and if you are finding the same thing, rest assured you are not the only one.

 

I think the point Brownsfan is getting at is that anyone who has gone through what most traders have, know it is the toughest thing they have ever had to face. In fact I too say "don't trade" to anyone considering a career in trading simply because I know the path they have to take to make it and it is anything but easy. However if you love the markets and enjoy trading then it is worth pursuing. Unfortunately that decision is made for most when they blow their first account. That is the point at which they decide whether they love what they are doing in spite of being out a lot of cash or whether they will move on and try something else to make a buck.

 

My point of this post being that months will not have you a pro but you will be improving over that time. It usually occurs so slow you hardly recognize it and then after an extended period of time you look back in astonishment at what you know and understand. Keep at it if you love it, it will take time but will be worth it.

[brownsfan019 17]

Drinking water from Lake Erie and being a Browns fan notwithstanding, what do you really think are the keys to success in trading?

 

Not everyone has a Series 7 as a former stockbroker, nor the ways and means to drop it all and give it a go in the world of futures.

 

What's your tough love story from the school of hard knocks?

 

This thread fs pretty much says it all.

[brownsfan019 17]

RH try not to feel too disheartened about losing money every day. I will be honest and say the majority of traders go through this with their own money for a long period before becoming profitable. Many lose at least one bank account sometimes 2 or 3. They spend countless hours in front of the screen everyday putting in the time and effort to learn something that isn't paying them off in the short term. I know because I am one of them.

 

I personally have spent 2.5 years in the market and have only just gone from losing to break even to slightly ahead. It has taken a lot of blood sweat and tears and if you are finding the same thing, rest assured you are not the only one.

 

I think the point Brownsfan is getting at is that anyone who has gone through what most traders have, know it is the toughest thing they have ever had to face. In fact I too say "don't trade" to anyone considering a career in trading simply because I know the path they have to take to make it and it is anything but easy. However if you love the markets and enjoy trading then it is worth pursuing. Unfortunately that decision is made for most when they blow their first account. That is the point at which they decide whether they love what they are doing in spite of being out a lot of cash or whether they will move on and try something else to make a buck.

 

My point of this post being that months will not have you a pro but you will be improving over that time. It usually occurs so slow you hardly recognize it and then after an extended period of time you look back in astonishment at what you know and understand. Keep at it if you love it, it will take time but will be worth it.

 

Excellent post.

 

2.5 YEARS and starting to make money now.

 

There's nothing special about that other than it's real life. The guy is being honest and sharing his story for everyone.

 

You cannot count your success in MONTHS in this business. It's counted in YEARS.

[RobinHood 10]

today was my best day ever trading the schatz.

 

I know its not that much for today, but I took 54 ticks trading 1 lots. This is after deciding to concentrate on only capturing trends (my strength) and getting back to basics - breakouts/breakdowns. One DOM and T&S up as opposed to 3 charts, 3 DOMs and T&S. I figured I can always expand later. Even thought it was not my focus I actually caught a pattern in the DOM today. A very interesting one which I hope to see recur.

 

 

Here is a screeny with some explanations of what I think I was thinking (I wanted to write it down at the time but I was just glued to the tape).

 

 

 

1. Was bearish before this but price wasn't going my way and it was still confused so I bailed. Here I remember seeing some stuff come in on tape again so I hit it.

 

2. Volume was really light but what actually caught my attention was the speed at which price was moving and what it was reacting to. Even one lots were moving it up and I decided it could be a great time to get some short covering going, upon seeing a few 40lots & others come in on the ask I decided to join them for the short-covering rally.

 

3. steam running out. indecision. so closed my long.

 

 

4. short here but hesitant, think it was the vol and also I just didn't feel the time was right for the turn quite yet - a little more sideways I was thinking.

 

5. again no volume but I thought it could come in later or maybe the short-covering was exhausted and now it was just no bid so even light volume can move it down. Even so was weary and quickly covered when the tape showed indecision.

 

 

7. what really got me was the amount of volume on the ask in that massive volume bar. big indecision, someone was obviously stepping in ready to take this. I just kinda hung in to see how it would work out and bailed out when more strength came in expecting consolidation.

 

From here I was just out as I recognize it as chop and know I'm incompetent to trade that still.

 

(before everything in that picture I had another 2 trades. one which was a loss, the other breakeven).

 

One thing that really came to my mind today continuously was "path of least resistance". I've heard it Livermore say it so many times but today I really "felt" it.

Edited September 30, 2008 by RobinHood

[brownsfan019 17]

Nice job RH!

[brownsfan019 17]

If you do a lot of screenshotting and annotating for your personal records (which I would strongly recommend) consider getting SnagIt to make your life so much easier. One the best programs I have ever found and could not live w/o.

[method 10]

Hi robin hood, can I ask why you are not looking at the euro stoxx contract as well?

 

I'm a beginner too and I find it a relief from the choppy dax. It has a lower tick value as well, and much more liquidity.

[RobinHood 10]

none in particular, just wanted to try out bonds..

[Guest graeme]

Nice work RobinHood, good to see you making progress:)

 

 

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

 

 

Here is a screeny with some explanations of what I think I was thinking (I wanted to write it down at the time but I was just glued to the tape).

 

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

 

just a thought on this comment above. I keep a tape recorder with me whilst I'm trading. If there is something I notice on the depth or the tape, or if I'm having some thoughts about anything else whilst I'm trading, I record it and come back to it after the market closes and make notes then. Makes for a better after market review when you know exactly what you were thinking leading up to pulling the trigger. HTH

[MidKnight 12]

Regarding graeme's comments about voice recording. I use a free opensource program called audacity to record my market comments and then save to mp3 in my trade log. Maybe you will find it useful.

 

With kind regards,

MK

[RobinHood 10]

I'm still unsure on what instrument I want to concentrate. I love the Hang Seng, I like the SPI. Both are relatively crazy. But I also like the german bonds & DAX. How the hell do I decide which one to go with? everyone talks about just going with what suits you - but I like them all.

 

Starting from next week my exposure to euro trading will stop as I'm working nightshifts (casino). So only Asian for now...

 

I've been keeping charts of my markets every day (sorted according to downtrend, uptrend and chop) and looking for setups which I can then test out live.

 

My other concern is whether I should be concentrating all my energies on one setup in one environment and then pushing myself to go live? or should I look for multiple setups in multiple environments? right now its just a mess. I'm taking random entries on feels and looking for setups everywhere.

 

 

My goal for the end of this year is finding an instrument to concentrate on and then working on going live, and then by the end of next year to have another go at a prop firm interstate.

 

 

P.S. I've learnt heaps by just watching the DOM and tape & reading market microstructure (thanks for recommending it).

[RobinHood 10]

Another thing I was thinking about that recent action is not exactly representative of the average day on DAX, SPI or Hang Seng so may need more time to figure out which one is for me.