Reading Charts in Real Time

[Dinerotrader 10]

I am constantly perplexed when I see folks try to short fierce rallies or buy precipitous declines (though at the same time I am quite thankful for such folks, as there actions feed the rally or decline in my favor).

 

I guess that was me on my last short I posted here. At least I was able to put food on the table for your family on those trades.

 

I am struggling trying to decide if I should focus on breakouts or reversals. I see both occur and produce great trade potencial. I was reading Paul Tudor Jones in the market wizard book series last night and he said,

"....the very best money is to be made at market turns. Everyone says you get killed tyring to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops."

 

After I read these types of things I think I should be looking at reversals more. But of course, there is a large group of amazing breakout traders also. I guess you either have to figure out how to play both of them which might be hard to manage or you have to just pick one and refine your ability to pick them from price movement.

 

Thanks for your thoughts Thales.

[thalestrader 14]

The problem with trading is that we as humans have a special relationship with money. That is why we are reluctant to pay to study how to make it in trading and that is there are so many people who have no clue who try to teach others how to trade. I doubt thta this will change but fortunately there are successful people around who are willing to share their wisdom and experience.

 

I am responding to Gabe's post here, rather than in the pnl thread where he had posted it so as to not throw Brownie's thread off for a second consecutive weekend.

 

I have spent thousands of dollars buying software, indicators and systems, and thousands more on books, courses, classes, "mentors," etc. Nearly all of it was money I would rather have donated to the local food bank.

 

The problem is two-fold: First, I suspect that most of those "successful traders" who profess to teach others to trade are not at successful at trading themselves. I have tried many of these self-professed gurus over the years, and almost to a man each and everyone was a fraud. Either he refused to make any before the fact analysis or real time calls, or, if he did, it became very plain very quickly that the method he was teaching was flawed and prone to endless draw down.

 

As recently as two or three weeks ago I posted a screen shot form an email I received soliciting would-be forex traders to join a mentoring and coaching service. The video was of a "live trade example" showing a "profitable live trade." The problem, for the would-be Forex Coach, was that he traded using an FXCM demo account, and the demo server ID number was clearly visible in the video. Yes, he had a "demo profit." And some might say, "well who cares if it was a demo platform or real, he took the trade and it would have been profitable had you followed his advice." Well, the problem is this: He probably has two demo accounts, and he easily could have taken a simultaneous long and short on the GBPUSD in two separate demo accounts. He simply shows his prospective students his "live" profitable trade rather than the losing trade. As I said above, frauds, almost to the man.

 

The second problem with paid services, schools, systems, softwares, etc. is that all of those who profess to teach others to trade leave out the emotional training required to be successful. Anyone with normal intelligence can be taught to apply a technically sound trading method in as little as an afternoon. Very few who learn to apply it will do so profitably. The problem is not the system, but the trader's own soul.

 

Take, for example, some of TRO's simple "systems" that he posts here at TL. I have no idea if he trades them himself or not, but many of his simple approaches, coupled with the emotional discipline necessary to implement them with both sound money management and proper position sizing, will lead to an overall profitable result.

 

In fact, bakrob99 posted his method earlier this week - very simple and straightforward - and very similar to an approach I myself deploy (the main difference being that bakrob99 enters on pullbacks while I wait to enter on new highs/lows). I know for a fact that if one were to learn bakrob99's approach and use his suggested money management strategy, the method will be overall profitable. Anyone here could learn the technical implementation rather easily. But very few who try it will have the emotional discipline necessary to attain bakrob99's success with it.

 

Trading can be taught. The principles of emotional discipline that are required to succeed at trading likewise can be taught. I know that I have helped some folks who were struggling set themselves on a more sure footing. I know that many here at TL have learned from and become better traders by studying the contributions of DbPhoneix among others.

 

In spite of my largely disappointing experiences with would be educators, I have managed to learn in important ways from others. I have learned from Linda Raschke. I have learned from MIke Reed. I have learned from contributions from Ed Seykota and several members of his trading tribe. Trading can be taught. The all important principles of emotional discipline can be communicated to others.

 

However, the individual trader must him or herself undergo the practice to inculcate and habituate his or her soul to act as those principles dictate. I can tell you that you must let your profits run while cutting your losses short. I can tell you that you must stop trading after a couple of losses and take a break so as to keep your discipline intact. I can tell you that the only way back to equity growth if you know your approach is sound is that you must have the courage to trade through the inevitable draw downs rather than abandon what you have learned in search for a new method.

 

I can tell you, but I cannot make you yourself act accordingly. Most of those who peddle trading education do not even tell you about the discipline necessary (likely they themselves are unaware of it and it is that very lack of awareness that has led to their own trading failure). And if they mention it, none will be willing to demonstrate it in real time by calling trades and managing trades according to their method and demonstrating the necessary discipline.

 

It is funny that people think (and I did too) that trading is easy and it is going to make us rich with hardly any effort. It is far from it but then what proffession is there that you can master in a short time and make a fortune with it? - There is no such profession. Read about the 10,000 hour idea to master anything.

According to other people I was good at what i did (after college) and calculating how much time it took me to master what I did - low and behold - 10,000 hours and I went through 2 such cycles so far. Trading will be the 3rd one and it does not seem to be any different than the previous two. It was just ignorance and arrogance that led me to believe that I can do it better and faster than most people.

 

It is a humbling and frustrating experience.

I am not where I want to be (prefectionist, you know ) but I am very close.

I like to call trading THE NEXT NUT THAT I HAVE TO CRACK.

 

Take care

 

Gabe

 

Gabe, your post was excellent. You are likely closer than you know to really breaking out. Keep developing your focus and your discipline. Your new found respect for the importance of position sizing is positive evidence of the level you have reached. I'm pulling for you.

 

Best Wishes,

 

Thales

[thalestrader 14]

I am struggling trying to decide if I should focus on breakouts or reversals.

 

If you focus your attention upon properly identifying support and resistance, then you will ultimately find that your current struggle is over a false choice, and here is why:

 

While not every breakout is a reversal, every reversal can be traded as a breakout.

 

Best Wishes,

 

Thales

[Gabe2004 10]

I am struggling trying to decide if I should focus on breakouts or reversals. I see both occur and produce great trade potencial................................

After I read these types of things I think I should be looking at reversals more. But of course, there is a large group of amazing breakout traders also. I guess you either have to figure out how to play both of them which might be hard to manage or you have to just pick one and refine your ability to pick them from price movement.

 

Thanks for your thoughts Thales.

 

I have the same problem.

It seems to me that there are more reversals than breakouts and I have been hurt (financially by many BOs that did not pan out.

My solution is to mainly look for reversals but keep part (1/3) of my entry position around potential BO areas just in case the BO occurs.

 

Gabe

[Gabe2004 10]

 

While not every breakout is a reversal, every reversal can be traded as a breakout.

 

Hello Thales.

 

I don't understand the above. Could you elaborate a little?

I thought that BOs are continuation pattern if looked upon in the smallest timeframe one trades in......

 

Thanks

 

Gabe

[Gabe2004 10]

Gabe, ............ You are likely closer than you know to really breaking out. Keep developing your focus and your discipline. Your new found respect for the importance of position sizing is positive evidence of the level you have reached. I'm pulling for you.

 

Best Wishes,

 

Thales

 

Thanks for the kind words Thales.

This is just further proof for me that the nut is about to be cracked.

The other day a friend of mine said that he is impressed with my conviction that I will master trading.

 

FALURE IS NOT AN OPTION.

 

Thanks again

 

Gabe

[thalestrader 14]

I don't understand the above. Could you elaborate a little?

 

I could, but where would the fun be in that? See if you or someone else can post a chart demonstrating what I mean first.

 

Best Wishes,

 

Thales

[Dinerotrader 10]

If you focus your attention upon properly identifying support and resistance, then you will ultimately find that your current struggle is over a false choice, and here is why:

 

While not every breakout is a reversal, every reversal can be traded as a breakout.

 

I was thinking about my post about deciding between breakouts and reversals and I realized that you, Thales, trade reversals quite frequently when S/R holds and price reverses. Here is an example from this thread a while back. Once I realized this I came back and you had posted what I quoted above. It just hadn't clicked yet. Thanks for your patience.

 

Edited October 17, 2009 by Dinerotrader

[forrestang 10]

While not every breakout is a reversal, every reversal can be traded as a breakout.

 

I don't understand the above. Could you elaborate a little?

 

I could, but where would the fun be in that? See if you or someone else can post a chart demonstrating what I mean first.

 

.........................................?

 

I took this trade a while back, and actually figured this was a big picture reversal, because I shorted the breakdown, I held this for a nice clip down towards the bottom of that range.

[Dinerotrader 10]

Thanks for the kind words Thales.

This is just further proof for me that the nut is about to be cracked.

The other day a friend of mine said that he is impressed with my conviction that I will master trading.

FALURE IS NOT AN OPTION.

Gabe

I am of the same mindset. Failure isn't an option. Luckily I am naturally a patient person. That, combined with the fact that I spend all my free time studying, practicing and thinking about trading leads me to believe I will suceed at some point. I am really enjoying the Market Wizard books. They always leave me with very positive thoughts of success before going to bed. The contributions of Thales, Brownsfan, DBphoenix, Bathrobe and many others have really helped me progress in the short time I have been fully engaged in this business.

 

Good to hear things are really progressing for you Gabe.

[thalestrader 14]

Now wasn't this a fun little run?

 

While not every breakout is a reversal, every reversal can be traded as a breakout.

 

I don't understand the above. Could you elaborate a little?

 

I could, but where would the fun be in that? See if you or someone else can post a chart demonstrating what I mean first.

 

I was thinking about my post about deciding between breakouts and reversals and I realized that you, Thales, trade reversals quite frequently when S/R holds and price reverses. Here is an example from this thread a while back. Once I realized this I came back and you had posted what I quoted above. It just hadn't clicked yet. Thanks for your patience.

 

 

.........................................?

 

I took this trade a while back, and actually figured this was a big picture reversal, because I shorted the breakdown, I held this for a nice clip down towards the bottom of that range.

 

Now that is how a forum should work.

 

 

Best Wishes,

 

Thales

[Kiwi 16]

TheRealThing, aka Leonardo, wrote a paper:

 

THE HOLY GRAIL!- Learning to Handle Variance in Returns

 

 

It should probably be mandatory reading once traders have a certain amount of blood on their hands. Emotions are inevitable when money, rightness, or risk are involved. There are games we play (don't trade for 30min after a loss to let unperceived emotions drop, stop trading after two losers, etc etc) to move past the impact of variance in our returns.

 

The biggy though is that we don't really accept losers as being "ok". And we haven't truly internalized the old system traders adage: you will experience a drawdown bigger than anything in historical testing.

 

The "ok" bit is interesting. I am mainly system trading now and I find it is easy to watch the system lose. By contrast, if I am in a discretionary trade and I lose, then I feel pain for being wrong or being stupid or doing x when I could have done y. So as well as losing money I was "wrong," "stupid," or in some other way emotionally much more impacted.

 

I trade with a friend while my system trades and see in him those same things that used to be so strong in me. And those things had the same effect on me that thales described above.

 

Somehow a trader needs to divorce his or her trading actions from their emotions and perceptions. They need to accept a loss as really truly ok. They need to believe in their system, accept that a 1.5x drawdown is coming and not be driven to incorrect action when it happens.

 

 

 

 

 

.

FWIW I have been thinking that the way to train newbies is to get a pretty poor strategy (pf=1.4, win ratio a little under 50%) and train them to trade it and really accept it. The first version should trade at most once an hour (to reduce emotional entrainment) and they should have a trading platform that doesn't form the next bar (or permit a new trade or adjustment) until the period from 5mins before the hour until 5 mins after the hour. The aim is to introduce a slowish, not overly great, system that will get them through the pain and acceptance phases without building to many bad habits. It would also help them get past holy grail searches (like paranoid micro-interpretations of volume and activity to find out what the "smart money" is doing). What do you think (oops, if this actually stimulates debate it will need a new thread)?

[Gabe2004 10]

TheRealThing, aka Leonardo, wrote a paper:

 

THE HOLY GRAIL!- Learning to Handle Variance in Returns

 

Could not find any posts by the above 2 names.

Were they here in TL?

 

Thanks

 

Gabe

[Kiwi 16]

No.

 

His blog is Infiniteyield Forex but if you can't find the article there then Google the second part of the title

[forrestang 10]

No.

 

His blog is Infiniteyield Forex but if you can't find the article there then Google the second part of the title

 

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

THE HOLY GRAIL- Learning to Handle Variance in Returns.pdf

[thalestrader 14]

FWIW I have been thinking that the way to train newbies is to get a pretty poor strategy (pf=1.4, win ratio a little under 50%) and train them to trade it and really accept it.

 

If I were to train a new trader, I would do it very much as I taught my daughter. While it wasn't formalized before we started, this is more or less the path we took:

 

I. Psychology & Emotions

 

No Trading.

 

No Charts.

 

We read and discussed Nicolas Darvas's How I made 2,000,000 in the Stock Market & Edwin LeFevre's Reminiscences of a Stock Operator (I had her read excerpts, but I would recommend the entire book).

 

II. Reading Price - Theory

 

No Trading

 

We read and discussed Stikky Stock Charts, and How Charts Can Help You in the Stock Market by WIlliam Jiler.

 

We read, studied, and discussed the price action/chart reading section(s) of William J O'Neil's How to Make Money in Stocks

 

Identifying Support & Resistance: I printed out select charts of various markets and time frames where I had drawn S/R for her to study. I also printed out charts with no markings, trend lines, annotations, and she learned to draw in S/R using a pencil and a ruler.

 

III Reading Price Live

 

No Trading

 

She sat with me and watched my charts live and observed as I took trades, and explained why and how I placed my entry, initial stop, and profit targets

 

IV Live Trading

 

She traded along side me, but now it was she who would explain her entry, initial stop loss, and profit targets.

 

V Psychology and Emotions (on-going throughout Steps II-IV)

 

I had her read various articles, writings, blog entries, etc. that I have found useful over the years (including a lengthy post from Leonardo from another forum years ago).

 

I'd rather teach someone an approach that I know is sound, while emphasizing the need for emotional discipline the whole time, rather than having some learn to trade a flawed system simply to force them to accept losses.

 

She managed to run her first live account from $25 to just under $1K in about three months. She and I are trading a second live account together. We started it with less that $200 about a month ago, and as of today we are sitting on $1210 closed trade equity.

 

It took me a long time to learn to do this right and a long time to unlearn bad habits. I thought it better that she skipped all the Holy Grail chasing and emotional melt downs and just learn to do it right from the beginning. I started her trading education in May, and she took her first trade in June. She has accomplished in six months what it took me the better part of a decade to accomplish.

 

While I will likely formalize the training a bit more for her sister and brother when they are ready, it will basically follow the course I outlined above. After all, I cannot argue with the result.

 

Best Wishes,

 

Thales

Edited October 18, 2009 by thalestrader
grammar

[Kiwi 16]

I wouldn't argue with the result either.

 

My suggestion related more to board based trading where the care is not there. I don't necessarily see the above system as rubbish either ... as long as it is robust with solid expectancy. The main thing is to start with something that has a good number of losses and stop grail chasing.

 

I watch umblue and the people who follow him and I see this chase for better understanding, better edges, and the mysterious "they" and it makes my blood boil a little - hence I think I was wondering out loud about how to find a more robust way of putting people on a workable path.

 

Don't wait until your kids are teenagers though - they might just chase grails to irritate you

[jonbig04 10]

Now wasn't this a fun little run?

 

Great chart by Forrest. I love that BO setup, but they don't happen very often. I would call it a double top failure BO, but what's in a name anyway. In my experience those setups can be so explosive, they sometimes merit entering at market.

[Gabe2004 10]

Not a good day today.

Must have had a relaps .

 

Gabe

[Gabe2004 10]

Lost some more ground

Did not trust my signal and went against it then reversed only to be stopped out and eventually got on the right wave in the original direction.

 

Gabe

[Dinerotrader 10]

Lost some more ground

Did not trust my signal and went against it then reversed only to be stopped out and eventually got on the right wave in the original direction.

 

Gabe

 

Gabe,

Why is the background on your charts so busy looking instead of being just one solid color? It's like there are tiny grid lines everywhere.

[Gabe2004 10]

Gabe,

Why is the background on your charts so busy looking instead of being just one solid color? It's like there are tiny grid lines everywhere.

 

 

Done

From now on the grid is gone (it is also a rhyme)

 

Thanks for pointing that out.

 

Gabe

[forrestang 10]

Deleted........................

Edited October 20, 2009 by forrestang
Useless post

[forrestang 10]

Let's try this again.

 

Here is a Daily look at the E/U. Along with the corresponding 15min(which I can't get tight enough to show).

 

On the Daily, there seems to be good room to move up above with quick targets on the Daily, but pretty sizeable when looking at a smaller bar interval.

 

The Stop is really tight considering the Tgts, might take more than one attempt at hitting the B.O.?

 

Any opinions on the possible Breakout?

 

----Edit----

1st target better at 1.5070

 

--Edit-----

Bleh, don't think I would take this trade due to the weirdness, but if I were trading off the dailies this might be a decent one.

Edited October 20, 2009 by forrestang

[Gabe2004 10]

The only possible trade that I see right now is UJ.

If I would have to bet I would say that the most likely direction is up.

I have decided to take the trade.

 

Gabe