Four Things That Will Change Your Trading Career: Part One of Four

[PristineTrading 10]

Good Morning All;

 

For these next four letters, I am going to give you a series of exact steps that will help you tremendously if you have the technical knowledge, but cannot seem to turn the corner on making good profits. There are going to be four things that you can do that I feel will 'dramatically change your trading career'. The results will be immediate, every week.

 

It should be stated again, that if you do not have the technical expertise, you are not at the level that these comments will help. If you don't know how to look at a chart, no amount of refining will help you. Where do you get this expertise? There is no better place that Pristine's Trading the Pristine Method Seminars.

 

After a long time of working with many traders, one discovers that there are certain truths that cannot be denied. There are four things that are done so consistently wrong by new, and even fairly experienced traders, that each of these mistakes results in bad trades 90% of the time for most traders. If traders would simply follow these four rules, they would eliminate most of their losing trades. The fourth rule does not really fall into this "90%" category, but is perhaps the most important.

 

Four Things That Will Change Your Trading Career: Part One of Four

 

Here is the first rule, and the subject of this lesson. New traders are often so bad at managing trades, that their results would be incredibly improved by not managing at all. If you do not manage, it means you let your trade play out until it hits the target(s), or stops out. Nothing else. This is called 'all or nothing' trading.

 

There are various ways to manage trades. Management should be a detailed part of your trading plan. Many do not even consider 'all or nothing', an option. Many management systems can work beautifully. So what is the problem that makes it the case that traders are better off doing 'nothing'? The problem is that traders do not FOLLOW them. Due to the emotions of trading, traders find excuses to override them. Most new trader's goals are to lock in small profits to avoid losses at all costs, and they change their management in the middle of the trade. Do you do this? There is a 90% chance you do.

 

Here is how to find out. Go BACK in your records (do not do this going forward, it will not work) and take your last 20 trades and write down your entry, stop, target, and actual exit. Now go back to the chart, and see what would have happened if you did not manage the trade. Simply see if you hit the stop or the target first. Make a new column on your sheet and write this down. Then figure the profit for the 'new' column called 'all or nothing'. If the trade stopped, you lose your risk amount, whatever it is. If you hit a target, you may have a gain that is multiple times your loss (if you didn't have a target, figure what would have happened just holding to the end of the day). Compare which way you would have made more money, and be sitting down when you do this. Feel free to email your results to paul@pristine.com. By the way, if you feel like you really are 'getting' the concepts of trading, and you find you have good chart reading abilities and you have more winners that losers, but your account is not growing, you are going to be in this category.

 

This works, because many good plays get to very nice targets. However, if the trader is not in the trade, they never make the big money. Many traders get in the habit of taking normal losses (they have learned to follow stops) but they take small gains. It is hard to make money like this. Below is the five minute chart of ZQK, with an inset of the daily chart.

 

 

On this day, ZQK gapped up on the daily chart, out of a daily Pristine Buy Setup that had pulled back to the daily rising 20 period moving average. The gap almost cleared the 'half-red' prior bar. This is a bullish gap, so buying an early morning pullback would make an excellent entry. On the chart above, a five minute Pristine Buy Setup triggered at '1', and was an excellent entry for this play. Many traders have learned how to do plays like this. What separates the pros from the novices if who really takes home serious money from this play.

 

Since this play was a bullish gap on a bullish daily chart, we know there is potential to move up a significant amount, even on an intraday basis. So we pull out the hourly chart and look for a 'target area'. This hourly chart is inset in the chart below, and the 'star' marks the target. This is the first base we encounter in the general area of a solid day's move. It is at 2.80 - 2.85. So we are in the play, and have a target area selected. The only variable is management.

 

 

Please notice something. If you used the 20 period moving average as your management trail stop, you would have been in this trade to the target of 2.85. Notice if you used pivots, (if you don't know what these are, the purple arrows have marked off five or two minute pivots of some kind) you would have achieved the target of 2.85. However, 90% of the traders using these methods don't hit their targets. All of those purple areas (which coincidentally were a form of a pivot) are areas that traders use as an excuse to exit the trade. Most traders would have exited at the first arrow, for a loss.

 

If you were to play this all or nothing, you would just set one order as a stop loss around 2.51, and then set another order to sell at 2.85 then walk away for the day, or at least take this off your screen and leave it alone. The bottom line is very simple. Use an all or nothing method of management UNTIL you prove that you can beat all or nothing with your own management ability. Do not underestimate the power of this lesson, for many traders it is the most important of the four.

 

Closing Comments

 

Understand, that I am NOT saying that all or nothing is the best method of managing trades, but I am saying it is better than what 90% of those reading this article do. Also, you will NOT benefit if you are trading so bad that you stop out of all of your trades. Again, this is not a replacement for knowing technical analysis. Do NOT assume you got the point of this exercise just buy reading it. Do the exercise. You will not believe your results. Email me you comments if you actually do this.

 

Next week we will look at the second thing that will change your trading.

Paul Lange

Vice President of Services

Pristine Capital Holdings, Inc.

[ValueTrader 10]

Sound advice, The best simile I've heard to describe what you are conveying is...

 

"Don't eat like a bird & sh*t like an elephant"

 

I.e. Dont take lots of small profits & then one huge loss.

 

All the analysis should be done BEFORE you put the trade on, once you've entered, set your stop and ACCEPTED the possible loss, Identified an ACHIEVABLE profit target - let it play out.

[SunTrader 10]

Come on - a 200 sma on a 5min chart (even though not specifically referred to) equates to 16.67 hours or not much at all.

 

If you are going to teach trading .... in whatever capacity.... use appropriate measures or leave them out entirely.

 

So many point to 200 ma's because "so many use them" because so many point to them because ........ ad nauseum.

[DbPhoenix 42]

It is illogical to pooh-pooh trendlines -- as Capra has done -- while advancing moving averages as a useful trading tool.

 

Much of what comes from Pristine makes sense. This moving average business doesn't. Teach people how to manage a trade based on what price is doing, not according to how it interacts with some artificially-obtained indicator.

 

Db

[todds 10]

Interesting study...and the answer is...I lose a lot more money when I don't manage.

[Tradewinds 12]

Here is the first rule, . . . . results would be incredibly improved by not managing at all. . . . . , it means you let your trade play out until it hits the target(s), or stops out. Nothing else. This is called 'all or nothing' trading.

 

. . . . . . . . . Due to the emotions of trading, traders find excuses to override them.

 

 

So, don't move your target and stop as a way to keep your emotions from affecting you? Not a bad idea in some circumstances. Denial is my enemy. When everything looks bad, I can have a hard time accepting the loss. In that situation, leaving the stop loss in place is better. I prefer to move the profit target to a loss, take a smaller loss than the stop loss, and reverse the trade in the other direction if the indicators are telling me the trade is failing, and there is reversal potential.

 

If I enter a trade, and shortly after the entry, see that it was a bad entry, I'd rather take a smaller profit, and get out. If you get the perfect entry according to your rules, and everything looks fine after the entry, there's no need to do much. I rarely get the absolute perfect entry I'm looking for. If I did, I probably wouldn't make any changes.

 

Basically, I have a stop loss as catastrophic situation insurance. Like if the power goes out, the computer crashes, etc. Your target and stop will be affected by volatility, and price ranges. I enter a trade with the target and stop exactly the same every time, but adjust it immediately depending on things like the last swing hi and low levels, and volatility. I could see leaving those initial changes in place as a matter of discipline and consistency, unless I quickly see that I made a bad decision on the entry.

Edited December 12, 2012 by Tradewinds

[sweet n´sour 10]

Interesting study...and the answer is...I lose a lot more money when I don't manage.

 

You lucky one ! :applaud:

 

In fact to find a good way to mangage trades to increase the edge instead of decreasing it is for me by far the most difficult thing in trading.

 

Are there any threads that deal in a general and informative way with that topic. (So that I do not have to pay Pristine for that.. (sorry Paul )

 

I have for ex. a couple of setups that have a an edge, but I would like to increase that by managing the trades. However in the longer run I always decrease or even destroy that edge, while managing.

 

One of many reasons for this could be that the most profitable trades seem to happen, when TA sort of fails. The stops of trapped traders etc. push the markets in the opposite direction.

So when I decide to get out of the trade or not to take it, because it looks like it will not work, right at that moment it works great and I miss a big profit. Until now I could not find a solution. It seems that these setups are not manageable.

 

This reminds me of a story from another very well known vendor / trader who said that he financed his college time with gap trading. And that when he traded full time and managed the gap trades he started to loose money with them.

 

My question is: are there certain criteria to decide if a setup is manageable or not. For example if you have a very big target and / or a very big stop you could manage much more successful, because there is time and space for chart formations...etc. to guide the way. But if you have tight stops and or tight targets it´s very hard because you have much fewer clues.

 

Also how is the manageability influenced by the instrument. Single Stocks move different than forex and different than index futures and different than oil....etc. at least intraday.

 

Or for example the above mentioned gap trades. You find these trades because a high percentage of gaps in the index futures close the same day. But you never know when and on which path they close. So when you start to manage it gets very tricky...:crap:

 

As far as I have heard from paid for instructors (gurus) all information on this was crap.

If someone here finds it easy to manage trades, please give some general hints on how to other than pull up the stop und the latest low.

 

I also would like to know how much more profit is a realistic goal?

Is the management crucial for the profitability or is it just good for some little optimization?

 

If it is absolutely crucial than this would explain why so many traders fail despite of all the information that is out there (paid or free).

[SunTrader 10]

Some of the best trades are those which initially "look" bad.

[SIUYA 11]

I think its a good article (and even if the MA is BS - if it is better than the current management of a trader then it has value - so long as the trader understands it limitations)

 

Once again it is the old sayings that often get repeated because there is value in them.....

 

1...do your homework

2...stick to your plan (dont micro manage - even if you have to use a MA as a trick to do that)

3...let your profits run (in fact get rid of profit targets - see if that makes a difference)

4...do more of those things that work for you and less of those that dont

5...review what you do, what you want to do and what effect these actions are having on your trading

If you are not doing these things, then there is probably the problem.

 

You will never run a position if you cant help but meddle no matter the homework, but if your meddling actually would make money because you happen to be a good scalper and good at picking levels - well then become a scalper - dont force yourself to do something that does not suit you. How will you know this, by looking again at 4 and 5

 

If you are very good at getting on good turning points on the market and hopeless at running it because you meddle - think hard about giving the levels to someone else to manage.....a MA or trendline, or even watching the price action wont help you if you are a meddler. OR really work out that you need to change, accept that and so a self help course. Your trading is fine, its you that is not. )

 

For sweet and sour - for trade management.....

Accept the trade offs that come with each strategy - if you let things run, you will give up profits, your win loss ratio will probably decline, you will have to run positions over more than a day, your brokerage costs will probably go down, you will have many regrets when you think you might have made extra money doing something differently (who knows), you might have a few big wins but they dont satisfy your needs.....

Why make it hard on yourself if you dont accept the cons and the pros with varying styles of trade management - regret (and yes i have a few thanks Frank) is a wasted emotion.

 

I am reading a new book by Robert Greene - Mastery ..... nothing exciting or new in it, but its a good read none the less, but it is one of those things that reminds you you have to go through the apprenticeship of learning to get to mastery - if thats the only thing of value from the book.

 

---- all maybe getting off topic, but hey - we are talking about changing your trading career and plus i have plenty of spare time at the moment.

[Vince50 10]

It is illogical to pooh-pooh trendlines -- as Capra has done -- while advancing moving averages as a useful trading tool.

 

Much of what comes from Pristine makes sense. This moving average business doesn't. Teach people how to manage a trade based on what price is doing, not according to how it interacts with some artificially-obtained indicator.

 

Db

 

 

No offense DB, but a very well respected author who has interviewed more pro traders than Jack Schwager says that of all things people can use and do use, not one person has he ever see use trend lines and make a living at this game or even be profitable over the long run. I concur. Trend lines are static and moving average s are not. Moving averages can be interpreted many different ways to make trading an art, trend lines are much more limited. If things have changed since my 15 years of watching this stuff, I will find out soon enough. (smile)

 

I also paid a loooot of money to learn from Paul, I'd say he is about the best trader around. Period. Can I or you replicate his results. I so far have not. I believe while he is generous with his knowledge, he does not tell all.

[SunTrader 10]

Averages are for average (or below) traders.

 

The only length that is about universally used, by those who use averages, is 200 .......... on a daily basis.

 

Stick around and wait for that to come into play. :sleep:

 

Large funds maybe care. :hmpf:

[DbPhoenix 42]

No offense DB, but a very well respected author who has interviewed more pro traders than Jack Schwager says that of all things people can use and do use, not one person has he ever see use trend lines and make a living at this game or even be profitable over the long run. I concur. Trend lines are static and moving average s are not. Moving averages can be interpreted many different ways to make trading an art, trend lines are much more limited. If things have changed since my 15 years of watching this stuff, I will find out soon enough. (smile)

 

I also paid a loooot of money to learn from Paul, I'd say he is about the best trader around. Period. Can I or you replicate his results. I so far have not. I believe while he is generous with his knowledge, he does not tell all.

 

Note that the purpose of my post was not to argue for the use of trendlines but to point out the illogicality of preferring MAs over trendlines since they are essentially the same thing. If one does not understand what a trendline does nor what a moving average does, neither will be of much benefit.

 

What Paul does or what any "pro" trader does is generally irrelevant to what the retail trader should do since the circumstances are entirely different. What matters more is whether or not the trader can understand what he's looking at without applying anything at all to the display.

 

Db

[Vince50 10]

Good point DB. I think he leaves it there as either a safety belt or for the sake of his students in the trade room. Paul Im sure could win with nothing but price but he does believe in moving averages.

 

There are books written on both MA'S and books on just trendlines. Which i was referring to by the way are diagnal trend lines...not horizontal trend lines. To me the first helps you both understand the overall trend for that time period and the second shows you support/resisitance.

 

I bet if we went to 9 pros houses right now, 3 would have none or 1 indicator, 3 would have two or three moving avgs and a couple indicators. and the last third would have more indicators that a carnival has ballloons. Whatever works,right.

 

 

You gotta rent the movie "Gotti" and see "DB" get wacked by sammy the bull. Youll laugh.

 

I wish all of us a great new year and a better year of trading with a lot more, i mean a lot more volume and action. Isnt it amazing if you look at the runs all these pairs made especially anything with jpy or chf in it, the run was like 10 or 11 straight days! Yet the amount of pips which would usually constitute a collapse if that many days were piled up, didnt bring any gains worth writing home about, we didnt even have one 3 or 400 pip swing day the whole year I think. What a boring year its been,regardless what the charts show.

 

BRING ON THE NEW MONEY AND BRING BACK THE OLD! HAPPY NEW YEAR ALL!

[Vince50 10]

Averages are for average (or below) traders.

 

The only length that is about universally used, by those who use averages, is 200 .......... on a daily basis.

 

Stick around and wait for that to come into play. :sleep:

 

Large funds maybe care. :hmpf:

 

SUN, isnt it amazing how of all the averages if price is going to stop and respect any average its the 200. Yet 50% of the time it blows thru it. 25% it stops and then continues or reverses. and then another 25% IT GETS BIPOLAR AND JUST CUTS UP AND BACK OVER AND UNDER THE TREND LINE FOR WEEKS!(on a daily chart)

 

I admit in my own career if i ignore it,I regret it, and when i dont take a trade because the 200 is 2 bars away, I bite my hand. (not like Sonny Corleone lol)