The Acid Tests

[edabreu 10]

This is designed so that most all your mistakes can be made on sim. Of course, if you cheat, then you only cheat youself. This is not an easy test... but then neither is your first foray into cash trading.

 

Begin Cash Trading only after successfully completing the Acid Test. This

test must be done on your own, not in a trade room using anyone else's calls.

You can use live market in sim. If you cheat, you loose.

Designed for the Emini S&P. This needs a high personal

performance rate of at least 75%.

 

Things you will want to learn:

Your risk tolerance.

Money management - target, stop and exit criteria; risk and reward criteria; timing and pacing; endurance; patience; dicipline, and crucial personal concepts.

You will begin to define the type of trader you are.

You will begin to learn how to deal with loss.

You will have to clearly define your trades.

 

KEEP A DETAILED LOG as you will need to define the trade setups and rules that work for you and which do not.

 

Option 1:

You must have a starting SIM balance of $5,000 and trade 2 contracts.

The first target is 4 tics for 2 contracts with 8 tick stop. It is all in and out

at first target. Get in, get out, get paid. This needs a high personal

performance rate of at least 75%.

 

Option 2:

You must have a starting SIM balance of $5,000 and trade 2 contracts.

The stops are the same as option 1.

 

The first target is 4 tics for 1 contract and set your second contract

target at no closer than 8 tics.

 

Once your first target is hit, move your stop to 4 tics behind your entry

price. When price moves 7 tics towards your target, move your stop to

entry and leave it there. If price moves to 8 tics, move your

stop up 4 tics above your entry price and leave it there. Your target is 9 tics.

 

This can all be set up in your Ninja dom strategy. Refer to the Ninja

videos or your manual on how to do this.

 

Option 3:

You must have a starting balance of $10,000 and trade 1 contract. Your

stop is 10 tics, your 1st target is 6 tics. Once price moves 6 tics to

target, move stop to entry +1. At 7 tics lock in 3tics. Manage your trade.

The goal is 24 tics - The MOAT. Increase this to 40 tics for the 10

bagger!

 

As you can tell, there are many ways to slice the pie. The most

important is to decide how much risk you can tolerate (which comes to

no more than 2% on any single trade), what your personal performance

level is in being able to see a valid trade setup, your ability to decide in

time and pull the trigger, and how to manage a trade for maximum

gains. All this you can learn on sim and your performance record is

going to reflect it.

 

Crucial differences will be fills on entries and exits, and realities of loss.

 

What you will not learn on sim is the real emotional upheaval as you take

stop after stop. So, if you get stopped out more than 3x in a row, stop

trading that day. Trade the sim as you would real because you have

a time frame of 3 months to pass the test. If you find yourself in the

second year of trying to pass the acid test, then maybe you should quit

trading and do something else or get some help.

 

Passing grade is 75% on every 25 trades and you must double your account.

 

ONCE YOU HAVE PASSED YOUR TEST DO EXACTLY THE SAME THING IN YOUR CASH TRADING THAT YOU DID TO PASS THE TEST. DO NOT CHANGE ANYTHING UNTIL YOU HAVE DOUBLED YOUR ACCOUNT. As you progress... don't try to fix what is not broken.

 

Before you start the test, study and practice Options:

 

1 - Advance your chart one tick (bar) at a time. On each bar decide

trade, no trade.

2 - Same as above but strip down the chart to the price bars, and 1

oscillator and/or volume indicator.

3 - Run market replay no recent than 3 months.

4 - Run simulated data, but have someone else change the trend

settings for you every 14, and 27 minutes. Tell them to mix it up to fool you.

5 - Use a 610 or less volume chart, a 3 range chart, a 45 seconds chart,

or a 144 tic chart.

6 - Use a 3 min, 5min, 10min or higher chart.

 

If you find that you must reset your sim, then do so only after clearly defining your mistakes. That trade journal is going to be crucial so make it as detailed as possible. It will become your trading bible.

[BlowFish 10]

Great advice here however there is a but coming. The money management options you are proposing are steering people towards low RR high percentage trading. Has to be said that is good for a smooth equity curve and probably easier on the emotions too.

 

What if the trader is, lets say, a 'traditional' break out and trend follower (for example) they may have significantly less, but larger winners. Sure, it will be a lumpier equity curve but still can be an effective way to trade. It's still a great exercise (reminds me of the one Mark Douglas proposes) and perhaps worth trying a couple of the MM options. I quite like the idea of going for 50% winners with 1.5 to 1 which clearly demonstrates that it is not necessary to be 'right' to be an effective trader.

Edited April 3, 2009 by BlowFish

[brownsfan019 17]

$5000 and trading 2 contracts?

 

Wow.... That's using leverage to it's finest.

 

Seems a bit aggressive for new traders, but to each his own.