Do NOT Try to Make Money Trading!!

[Tradewinds 12]

The worst thing you can do is to try to make money trading. You will loose. Try to follow your trading plan. If your trading plan is profitable, and you follow it, you will make money. Here are 4 possibilities:

 

• Trading Plan Profitable, You Don't Follow It
  
• Trading Plan Profitable, You Do Follow It
  
• Trading Plan Not Profitable, You Don't Follow It
  
• Trading Plan Not Profitable, You Do Follow It
  

 

 

If your trading plan is profitable, and you don't follow it, you will probably loose money. If your trading plan is not profitable, and you don't follow it, you won't know whether it's your trading plan, or it was your fault. If your trading plan is not profitable, and you do follow it, then you will know for certain, that your trading plan is at fault.

 

The only usable results come from the two options when you do follow your trading plan. The best result is that your plan is profitable, you follow it, and you make money. The second best result is when your trading plan is not profitable, and you follow it. Then you know for sure, that it's the plan, and not you. If you don't follow the plan, then you know nothing except that you can't follow a plan.

[Cory2679 11]

haha...when I first read the title, I thought this was going to be one of those ET-style threads where the OP proclaimed that making money trading was in fact impossible (because he or she couldn't do it, of course). Glad to see that's not the case!

[Tradewinds 12]

haha...when I first read the title, I thought this was going to be one of those ET-style threads where the OP proclaimed that making money trading was in fact impossible (because he or she couldn't do it, of course). Glad to see that's not the case!

 

Just trying to generate some controversy and traffic for Traders Laboratory. :rofl:

[$5DAW 10]

Great topic TW

Even though the whole idea is to increase the equity in our trading accounts, I find myself walking a fine line between, trading to make money and trading my plan/system well.

 

If I stay focused on trading my system and adhering to my rules, profits always accumulate and my account equity is higher on Friday than it was on Monday. Your statements (bullets) IMO, are dead on. When I first started using a trading platform with a simulation option I was in heaven, but soon I learned the lesson you're describing. All my trades were being recorded under the same pre-programed strategy, and I was unable to decipher any meaningful data as to the profitability of my system. I had to separate my system strategy from my "seat of the pants" trades, only then could I tell if the (two) systems really worked. This may sound like common sense, but give a child a new toy and they'll run the batteries dead in one day, that's me. :doh:

 

If I'm trading my system and I hook in to my anticipated string of losing trades, I'm tempted to step over to "the dark side" and do a little revenge trading. At this point, I'm "Trying to Make Money" and find myself doing undisciplined and reckless things. This almost always has a negative effect on my equity curve. I say, "almost always" because sometimes "I get lucky" and pull my account back up. This, "getting lucky" creates a positive outcome to a negative, reckless behavior and (IMO) does much more harm than good.

 

Now, not all of my trades are system trades. If I ready myself for a day's trading and my "system's" signals just don't come, I often sharpen my knife and take a few scalps. But nowadays these scalp trades are recorded as another strategy and the data can be reviewed and utilized to assess my methods profitability, separate from my main trading system(s).

[Tradewinds 12]

This, "getting lucky" creates a positive outcome to a negative, reckless behavior and (IMO) does much more harm than good.

 

It's possible to make money, then after we made money, really have no conscious understanding of why it worked. The market may have been choppy, and we were in a contrary mood to do the opposite of whatever the market was doing. You can make money that way. But that would have been a combination of the traders mood matching market conditions.

 

So, as you state, there would have been a positive outcome for uncontrolled, moody and contrarian trading that day. The negative behavior gets rewarded. You feel good, the brain gets wired to do it some more.

[bobcollett 10]

Tradewind

I find your posts well thought out and knowledgeable

"Your trading plan is not profitable, you do follow it"

WHAT NOW??

bobc

[TheNegotiator 13]

Tradewind

I find your posts well thought out and knowledgeable

"Your trading plan is not profitable, you do follow it"

WHAT NOW??

bobc

 

Refine it or ditch it perhaps? Or did I miss your point? I think for me there is an added level here if you are self execution your system and not just running an algorithm. If you understand the system implicitly and why it makes money, there is fair reason to veto the entries and stand back. Of course there will be times that when you judge that risk has significantly elevated and in spite of an entry signal you don't trade, the market then proceeds to show you a big fat theoretical winner. But hey, who cares. Because honestly, the next time that situation comes around you'll take the trade and you'll have your arse handed to you.

[fxallday 10]

This is one of the threads that I have printed out! I really liked it a lot. Forex has many sides but trades have only 2: green or red. Most of the times I try to explain what has gone wrong and my position or my Zulutrade's Signal Provider turned against me. Green trades are kept intuitive on my memory in order to repeat them when the market "calls". This is the easy part of forex :missy::missy:

[Tradewinds 12]

"Your trading plan is not profitable, you do follow it"

WHAT NOW??

bobc

 

What is going to give any of us the Edge?

 

• Cause and Effect
  
• Statistical Analysis
  

 

Cause and Affect - Can you determine a cause for what the price did?

Statistical Analysis - Under certain situations, does price behave a certain way more often than not?

 

Then there needs to be a test. You can run the test by practice trading. There are endless theories about why the market does what it does. Some of it is tested, much of it isn't.

 

If 95% percent of traders loose money in the market, then you need a grade on the test of A or A+ in order to make money. Or you could think of it as a 3.8 to 4.0 GPA score. Unless any of us are performing at that level, you will loose money, guaranteed.

[steve46 12]

What is going to give any of us the Edge?

 

• Cause and Effect
  
• Statistical Analysis
  

 

Cause and Affect - Can you determine a cause for what the price did?

Statistical Analysis - Under certain situations, does price behave a certain way more often than not?

 

Then there needs to be a test. You can run the test by practice trading. There are endless theories about why the market does what it does. Some of it is tested, much of it isn't.

 

If 95% percent of traders loose money in the market, then you need a grade on the test of A or A+ in order to make money. Or you could think of it as a 3.8 to 4.0 GPA score. Unless any of us are performing at that level, you will loose money, guaranteed.

 

Alright then, I'm interested...what is the "test"....what are the test parameters....how many samples do you need in your test protocol...I am always glad to learn new things....

[Tradewinds 12]

what are the test parameters?

 

 

• Total Net Profit
  
• Gross Profit
  
• Gross Loss
  
• Commissions
  
• Profit Factor
  
• Cumulative Profit
  
• Max Drawdown
  
• Sharpe Ratio
  
• Total Number of Trades
  
• Percent Profitable
  
• No. of Winning Trades
  
• No. of Losing Trades
  
• Average Trade
  
• Average Winning Trade Loss Percent
  
• Average Losing Trade Loss Percent
  
• Ratio avg. Win/avg Loss
  
• Max. consecutive Winners
  
• Max. Consecutive Losers
  
• Largest Winning Trade
  
• Largest Losing Trade
  
• # of Trades per Day
  
• Avg. Time in Market
  
• Avg. Bars in Trade
  
• Profit per Month
  
• Max. Time to Recover
  
• Average MAE
  
• Average MFE
  
• Average ETD
  

 

There, hopefully you learned something Steve. Come on Steve, you already know all this stuff, and probably a lot more than I may ever know. You are far superior to 99.9% of all the people in Traders Laboratory, . . . and humble to. :rofl: I'm just stumbling along here. Hopefully I'll get some scraps thrown to me for effort.

[Tradewinds 12]

how many samples do you need in your test protocol...I am always glad to learn new things....

 

I don't know what the sample size needs to be. It needs to be large enough to insure the results are reliable. The sample size depends upon how confident you want to be in the data, and what is an acceptable margin of error. Trader's speak of being better than 50% right and letting those right trades attain more profit. A good trader might have an 80% win rate. Then there is the amount of trades that your system produces. The more trades your system produces, the faster you can reach a conclusion about how good the rules are.

 

A sample size calculation would need to be made with those inputs.

[steve46 12]

Well, I do have some acquaintance with those data points....but, I think they are of limited use primarily because most folks do not know how to evaluate the data.

 

I think for retail traders, simple is best, provided you have just a little bit of guidance..

 

For example..what you need is a concept...and that means you need an organizing principle that has a common sense advantage...I like to use a simple principle like "time based pivots" and then you zero in a little bit more....and from those pivots I like to see if there is a tendency for the market to "respect" the weekly open...For me this means, between Monday and Friday...what happens when price comes near to, or "tests" the weekly open...Simple idea right...?

 

In a trending market like we have now, one assumes that when price tests the weekly open, that other participants will come in to defend that price point...and try to lift the market higher...

 

One way to find out if that concept is viable for trading is to go back through your charts and see what happened each time that time-based pivot (the weekly open) was tested...

 

In the popular literature, you hear that 30 data points is all you need to trade...I guess you could start there...although I prefer to have about 100 data points as a minimum sample size for evaluation. Once you have that data, you have some idea of what your odds of success are if you decide to take the trade...

 

By the way, there's another nice benefit for people willing to put in the time to do the testing manually, and that is that you learn about how price acts when it tests a particular price point....like the weekly open...for instance, one might learn that when price tests the weekly open, it is likely to retrace and then "re-test" before continuing upward...If in the course of your research you found this to happen a lot, then you have discovered a nice setup, that increases your confidence in that trade....just a thought.

 

Rinse and repeat for the next concept...

Edited April 7, 2011 by steve46

[steve46 12]

Related to the previous post, today in the ES market we happened to see an example where

the daily time based pivot was hit....(previous daily low)

 

Rather than post the chart here (again) I will simply direct folks to the thread "Trading Adverse Events"...and you can see towards the end of the RTH session that price tested 1325.25

and then bounced (as it often does)...the first time at 10:25am PST, where a long entry would have made a couple points, and then later in the day at about 11:30am PST, where long entry would have resulted in a nice 4+ pts profit..

 

To put this in perspective, for me at least....I have already done my homework so I know what my odds are when this "test" comes along...also I know that I can read the tape...and so I the advantage of being able to tell if the setup is going to work or not, early in the process ( I don't have to risk much to take the trade)....one thing I can tell you folks is that a big reason this stuff works, is that there are a lot of other professionals watching the same thing, and moving size when they see it setup....THAT is why the move happens..because others (with capital to move) are getting on board...

 

Good luck.

[peterjerome 10]

The worst thing you can do is to try to make money trading.

 

profit vs. strategy?....not a case of chicken or egg.

 

profit is the objective. strategy is your plan to secure objective.

execute the strategy with precision & commitment, but keep your eye on the objective.

or so it seems to me.

 

peter.

[zdo 20]

re "execute the strategy with precision & commitment, but keep your eye on the objective" ??

 

The underlying thread of this thread seems to be more like

let the objective take care of itself, keep your eye on and execute the strategy with precision & commitment,

... one of the better ways to play most 'games'

[peterjerome 10]

re "execute the strategy with precision & commitment, but keep your eye on the objective" ??

 

The underlying thread of this thread seems to be more like

let the objective take care of itself, keep your eye on and execute the strategy with precision & commitment,

... one of the better ways to play most 'games'

 

i NEVER take my eye off the prize. i'l leave that to the autotraders.

peter.

[Avalon7 10]

Agreed. I find that when I try to make money for money's sake, or try to make "X" pips per day, I inevitably lose because I force trades. As if I "have to" make "X".

 

If I just watch and wait for a setup, and if I see it, take it - and don't think about the pips or a certain amount - I consistently do better. Not just a little bit better. Far better.

 

It's totally psychological about forcing trades or not for me.

 

Thanks for this topic - an incredibly well timed reminder!

[Waterfield 10]

I'm not taking any advice from someone who can't differentiate between lose and loose.

[Tradewinds 12]

profit vs. strategy?....not a case of chicken or egg.

 

profit is the objective. strategy is your plan to secure objective.

execute the strategy with precision & commitment, but keep your eye on the objective.

or so it seems to me.

 

peter.

 

We all learn and get ideas as we are trading. So strategy development and trading can happen almost simultaneously. I would not see them as mutually exclusive. It's quite easy to intuitively know how well we are doing as we are trading, without actually looking at the P/L report.

 

I think part of the issue here is the level of alertness that a trader has while trading. If keeping your eye on the P/L column motivates you to stay alert, and make the right decisions, that's a good thing. I would rather just know that I dealt well with my loosers, and made good decisions with the winners, and trade my system, having confidence in it.

 

I'm more concerned with profit as I'm developing my strategy than when I'm implementing my strategy. I don't see much sense in live trading a strategy that I'm really not sure about.

[peterjerome 10]

I'm more concerned with profit as I'm developing my strategy than when I'm implementing my strategy. I don't see much sense in live trading a strategy that I'm really not sure about.

 

interesting that many speak of their strategy as if it was the holy grail that needs no supervision. we have auto-pilot systems that are in contol of the takeoff, the flight itself, and the landing...all without aid of a pilot. what real purpose does the pilot serve? would anyone actually board a plane that was pilot-less?

 

i don't monitor the P&L column, but i do keep an eye on the price action...just in case unforseen turbulance develops. after many years of unsuccessful trading strategies, i am finally consistently in the black. that works for me...

good trading,

peter.

[Tradewinds 12]

interesting that many speak of their strategy as if it was the holy grail that needs no supervision. we have auto-pilot systems that are in contol of the takeoff, the flight itself, and the landing...all without aid of a pilot. what real purpose does the pilot serve? would anyone actually board a plane that was pilot-less?

 

i don't monitor the P&L column, but i do keep an eye on the price action...just in case unforseen turbulance develops. after many years of unsuccessful trading strategies, i am finally consistently in the black. that works for me...

good trading,

peter.

 

I think the analogy of a pilot is good. Turbulence is often predicted ahead of time. The pilot can divert. But that is part of their strategy. The pilot is often told what to do by the tower. The pilots have a flight plan. They are operating the controls, but for the most part they are following the plan very, very closely. Being prepared to deal with the turbulence is part of your strategy. Your strategy may be mostly, "in your head", rather than programmed. But you still have a strategy, and you execute it. That's the way it sounds to me. What I'm saying is, you may be executing your strategy a lot more mechanically than your realize. Your strategy just may be more complex and have subtleties that would be difficult to document and program.