Developing Rules for a Discretionary System

[laundrysoap 10]

Hi,

 

I've been sim trading the ES for a few months now. I've tried to do everything I can to make it realistic, such as including commission costs and using market orders at my target price for realistic fills.

 

I use time and sales to trade with timeframes of up to half an hour. I've had more and more recent success with a vague form of bracketing (wait until the end of a range, watch for positive price action) and a sort of momentum scalping for up to a couple points per trade. On a good day, I can carve out five or six points.

 

Problem is, it seems like I have a few good days in a row, then it's like death by 1000 cuts. I go in for what seems to be a great scalp, it goes .75 against me, I reverse it literally 35 seconds in, it goes back up, I close the trade, go long again, get caught in a 20 point selloff, reverse it, and so on and so forth. Not even a virtual sticky-note on my desktop with "don't be shaken out - be stayin' in" does it.

 

Does anyone have tips for developing more concrete rules for a discretionary system like I am trying to develop?

[ckait 10]

Just be glad you still in sim mode. You need a better strategy. There are a thousand of places every day price will pause, reverse, stall, accelerate, balance and breakout. The trick is to get enough screentime and a method of organizing your charts so you can recognize these areas. You only need a few good set ups and patiance. From your post is seems like you have no set ups just going long when price is going up and short when it is going down. You will crash and burn with this approach in my opinion. Start with one good set up master that than find another and so on. There are many tools available to display the chart, I like MP and Delta footprint charts but they're not the answer alone screen time is the key.

[laundrysoap 10]

Just be glad you still in sim mode. You need a better strategy. There are a thousand of places every day price will pause, reverse, stall, accelerate, balance and breakout. The trick is to get enough screentime and a method of organizing your charts so you can recognize these areas. You only need a few good set ups and patiance. From your post is seems like you have no set ups just going long when price is going up and short when it is going down. You will crash and burn with this approach in my opinion. Start with one good set up master that than find another and so on. There are many tools available to display the chart, I like MP and Delta footprint charts but they're not the answer alone screen time is the key.

 

Hi,

I appreciate the response - I am realizing that whatever it is I'm doing isn't ultimately profitable and that's what keeps me signing up for mirus demos, ha. I feel like I really do well "in the zone" when I first sit down, and lose it later in the day especially on the shorter term trades when I tend to panic and lose points quickly. Tomorrow, in efforts to figure this out, I'll post a full trade blotter, along with some brief notes.

[Bear Mtn. 10]

Thanks for posting LS. Well firstly I have to agree with ckait - it is really important to just get one system hashed out and working well for you and then try to develop other tools for you to use when strategy 1 is inactive. Now, the more structured and prescriptive that first system is the better IMO.

 

When you're trying to get started the 'death by 1000 cuts' can be very damaging in a number of ways so something you can have confidence in is vital. If you can develop a very non-discretionary system that is rolling along nicely then you'll have plenty of time to try and take things to the next level and develop more advanced and secondary setups with good success rates

 

Your own comment about concentration levels etc is also relevant... the constant pressure of trying to identify setups, wondering if they're good, bad or other, finding an entry, looking for an exit, reversing, re-reversing...very draining! This is where a strict plan and very definite setup (even better if it only happens once or twice a day) can help you to perform better by giving you the power to 'relax' in between. Hope that helps...

[Tams 20]

extracted elsewhere...

 

 

 

[snip]

 

The essential elements of the scientific method are traditionally described as follows:

 

- Observe: Observe or read about a phenomenon.

 

- Hypothesize: Wonder about your observations, and invent a hypothesis, (sometimes one's hypothesis is initially nothing more than a "guess"), which could explain the phenomenon or set of facts that you have observed.

 

- Test a hypothesis

 

- Predict: Use the logical consequences of your hypothesis to predict results (e.g., measurable experimental values) that must be found if the hypothesis is to be judged correct -- whether it is 'complete' or not.

 

- Experiment: Perform experiments to test those predictions. (Note that great precision regarding a negative result might not be required to falsify a hypothesis.)

 

- Conclude: Failure to see the predicted results from a well designed and implemented experiment is clear indication that the hypothesis is defective. Try again. Seeing the predicted results is an indication that the hypothesis is acceptable though not 'confirmation' or 'proof' of its correctness.

 

- Evaluate: Search for other possible explanations of the result until you can propose no better account of your data. Formulate a new hypothesis which may better explain the experimental data and the original observation.

 

- Repeat

 

If one has trouble applying this to the markets, perhaps the following will be of help:

 

1. Study price movement.

 

2. Develop a set of preliminary hypotheses which take advantage of these movements and test them according to standard methodology.

 

3. Decide what strategy (breakout, retracement, reversal) will best take advantage of what you think you've found.

 

4. Decide what tactics you're going to employ to implement it.

 

5. Carefully define the setups which put these tactics in play.

 

6. Develop a trading plan around this strategy, these tactics, and these setups.

 

7. Evaluate the results.

 

8. Rinse and repeat.

 

Note that there is nothing abstract, theoretical, philosophical, cosmic, or ethereal about any of this. It's just work. Lots of it. And no one can do it for you.

 

 

 

.

[Eiger 10]

... I feel like I really do well "in the zone" when I first sit down, and lose it later in the day especially on the shorter term trades when I tend to panic and lose points quickly...

 

A lot of traders do well in the AM session only to give it all back in the afternoon. It is stressful and very tiring to sit in front of the screen all day long. When tired, our thinking ability begins to erode pretty quickly. Add in a little stress and it goes right down the toilet.

 

Here are a couple of ideas you can experiment with:

 

1) trade only in the AM and forget the afternoon.

 

2) take several breaks during the day, especially during the usual downtimes for your market (e.g., emini S&Ps are typically quiet 12:00 to 1:30/2:00 EDT). Take more breaks than just this one. You might, for example, take a 15-minute break after each trade. Also, get out of the trading room and get your mind off the market when on a break.

 

See if either of these make a difference. This, of course, means you have an edge. If you don't have a reliable edge, then breaks won't help you. Developing a sound trading edge would then be the first place to go. In this regard, make sure your "shorter term trades" really do have an edge.

 

Hope this is helpful,

 

Eiger