Trade Planning and Testing

[Caseynotes]

@dmedin, don't beat yourself up, you should try trading properly for a change and see how that goes 🙄. Let me explain, but first a couple of points. A short while back I was looking at a chart you posted and the structure and all 5 indicators you had on were screaming 'bullish' so you happily jumped in short. I think you're missing a trick, if you're going to completely ignore all your indicators don't have just 5, have 10! That will make it look like you know what you are doing and earn you lots of  kudos points, but don't ever have no indicators because then people will just suppose you don't know anything 😉

2nd point is that trading reversals needs a special set of skills that you don't currently have, so just don't.

So that leaves just pullbacks and breakouts in trends, there is nothing else, buy the dip or the breakout.

So how to?

1/

a/ 2 time frames correlating, your trading chart and a higher time frame chart both trending in the same direction.

2/

a/ On your trading chart find a pullback of roughly 40 - 60% of an impulse move.

b/ Wait for the pullback to die and the bars to change back to the trend colour and so signal trend continuation.

c/ Aim to buy at that point or wait for a breakout passed the previous high.

Now the indicators. There must be a reason for them and they must give a go or no signal, a red or green light, nothing else, no perhaps or maybes.

3/

a/ An indicator to confirm what your eyes are telling you about the trend. This could be a simple moving average with settings tuned to your chart time frame. Sloping up = long entries only.

b/ An indicator to confirm what your eyes are telling you that the pullback is dying. I like to use Stochastic with settings tuned to the chart time frame to be starting on an upward curve for a long entry. Some use volume colour reversal or an RSI direction reversal.

c/ 1 or 2 overall confirmation indicators, these tend to be mid-range oscillators on default settings that signal whether bulls or bears are in control, I use to use Vortex but am trialing Aroon with Chaikin Money Flow. Aroon must have the green line on top for a long entry and CMF must be above zero.

The important point of these last 2 indicators are that they are there to filter out a lot of the maybes so you are left with fewer entry signals but they are of a higher probability.

So you see the setup on the chart. You look to the indicators and if you have all 4 showing green lights (MA, Stoch, Aroon and CMF) you automatically enter .

You know your system works because you have validated it. You collected the stats when you backtested it on 20 trades, then forward tested it on demo for 20 trades and then forward tested it live with smallest position size for 20 trades.

Of course you need to tack on some trade exit and money management rules but that's easy, the entries are the hard part, get them right and you are more than halfway there.

 

 

 

 

 

[Caseynotes]

"It's not so much that consistently profitable traders have an uncanny ability to predict price movement, rather it's the fact that they deal with uncertainty in a methodical and consistent way. Therein lies their strength."

@TradingComposur

[Caseynotes]

Another free excel trade journal download  link here (see the 2012 update, includes column chart insert); 

https://www.earnforex.com/blog/advanced-forex-trade-journal/

download zip, open the excel file, click 'File' > save as > right click on file > Attributes > uncheck 'Read Only' > rename and save.

 

see the original journal's description here;

https://www.earnforex.com/blog/organize-your-forex-trading-with-trade-journal/

[Caseynotes]

Good little vid from Rayner Teo looking at the differences, pros and cons of Day Trading, Swing Trading, Position Trading and Transition Trading.

 

[Adam71]

On 31/12/2019 at 12:07, Caseynotes said:

Good little vid from Rayner Teo looking at the differences, pros and cons of Day Trading, Swing Trading, Position Trading and Transition Trading.

 

Hi Caseynotes. Rayner is cool, I´ve been following it for last 9 months. It helped a lot...I also recommend Karen Foo who deal with topics quite behind the scenes. It may take some vids to get used with her accent...

 

[Caseynotes]

Interesting video on reviewing your journal and so therefore shows the benefits of journaling in the first place. Demonstrates identifying problems early and taking steps to correct them before they damage your account.

It uses the Edgewonk journal which is a paid for journal, I'm not pushing edgewonk but rather pushing the advantages of using journals and what a time saver they really are.

There are 2 basic free journals linked in this thread if you have a look through, anything is better than nothing.

 

[Caseynotes]

"Came across a discussion on 'edge' or 'expectancy' that was moderated by a 'guru'. Chatter was all entries, patterns, stop losses, targets etc. That's not 'edge' or 'expectancy'. Edge is mathematical. How often you win and how much you win when you win. Below is mine for 2020"

The Chartist.

[dmedin]

The most important bits are blacked out?  Who cares if someone makes a good ratio if they've been demo trading or made pennies ... bearing in mind there's an S&P 500 ETF over there that will build you solid returns if you hold it for 5+ years and do absolutely nothing

[Caseynotes]

9 minutes ago, dmedin said:

The most important bits are blacked out?  Who cares if someone makes a good ratio if they've been demo trading or made pennies ... bearing in mind there's an S&P 500 ETF over there that will build you solid returns if you hold it for 5+ years and do absolutely nothing

they are not the important bits at all and to think so shows a clear misunderstanding of what's important and what's not. a win rate with a risk/reward ratio that  plots on the profitable side of the graph is ALL you are searching for, once you have that you have it all.

 

Edited January 8, 2020 by Caseynotes

[Caseynotes]

So given the above here is a very good video (20 min, published just a few days ago) on what are the important things you need to know/do to avoid losing, and no it has nothing to do with trendlines, Fib, MACD or whatever.

1/ See the big picture, know what's ahead.

2/ Timing and execution are important, the big picture warns a possible trade is materialising. Getting in too early or too late will kill you.

3/ Manage the trade with care.

4/ Have a process.

5/ Stick to the process. 

[Caseynotes]

Anthony Crudele @AnthonyCrudele

15h

 

I was in the S&P pit surrounded by successful traders & lost nothing but $$ trying to be like other traders. When I stepped back, took what I learned & created my own strategy...I became profitable. Don’t copy someone else’s strategy & make it yours, make your strategy your own.

[Caseynotes]

A lot has been poured into this thread so about time to boil it up, render it down and pull out the bare bones to see just how simple the process actually is.

On the first page we saw how to define ourselves, what we want, what we have the time to do, our personality and what we are most interested in. We then match that with types of trading and time frames.

So for example you decide you don't have the time to day trade but like the idea of swing trading, you are interested in commodities but note that the average stop loss below the swing low on the daily chart  equals £x which is a bit too rich for you but on the H4 chart is only £x which is ok for your account size.

So you decide to swing trade commodities on the H4 chart. Simple.

Next the strategy. You want to swing trade which means buying dips in an uptrend (or selling rallies in a downtrend). So you will need an indicator to show trend plus a confirmation and you will need a entry trigger and confirmation.

An indicator on it's own is worthless. What you need is a combination of indicators that will signal an entry and filter out more losing trades than winning trades. This is crucial, let it sink in. 

You don't need a 99% win rate or the 'best' trades or the longest running trades. You just need an entry trigger and filter out more losers than winners.

So what might that look like (made up example); 

A/ Trend indicator: an upward sloping MA and MACD above zero to confirm.
B/ Buy dip entry indicator: Heikin Ashi candles change from pullback red to trend colour white and a RSI bounce up off around 50 to confirm.

Well that was simple but now we need to phase 1 test it and that's a simple eyeball backtest of 20 trades so scroll your H4 chart right back then start looking for entries going forward. For testing purposes bolt on a standard risk management of a target of 2x the stop, this can be modified later if the system works.

How long did that all take, a couple of hours? But deciding on what type of trader you want to be only needs to be done once, the system build and phase 1 test took probably less than an hour.

For a Reward of 2 for a risk of 1 (the stop loss) the chart in the post above tells us we need a win rate of at least 35% to be profitable. If the system didn't achieve this on backtest was it close enough to try to modify or do we need to start anew?

Once we have found a simple system that is profitable on backtesting now there is a problem, if you are only getting a couple of trades a week phase 2 testing on demo will take time because you want a reasonable sample size of 20 odd trades, grin and bear it or consider trying a simulator. 
Once completing phase 2 if your system survives this far you are ready for phase 3 testing which is on a live account with minimum size.

Additional considerations; 
Higher Time Frame - look for trade entries in context with the HTF charts, don't look to trend trade if the HTF is consolidating or about to hit key resistance. Or if the HTF shows any resistance has been beaten and this is the first pullback then think go full throttle. 

In the example above a swing trader is looking to buy the swing low and sell the swing high rather than just take 1:2 risk reward, the point is that for testing the set 1:2 is good enough.

Finally, so all in all not as difficult as it all sounded at the beginning, but can this really be enough? If the system is validated then yes, it is enough.

Built it, Validate it, Do it.
 

[dmedin]

Oh right.  All it takes is to build a validated system.  Simple enough then

 

[Caseynotes]

17 minutes ago, dmedin said:

Oh right.  All it takes is to build a validated system.  Simple enough then

 

keep shooting from the hip til you run out of bullets is the only alternative. will you ever get 'lucky' doing that? no.

[dmedin]

I've been working on how to find a system that 'works'.  To that end I've been studying TA as time allows.  I've tested a few systems out extensively and not a single one of them works reliably, although charts always make sense AFTER the fact.

So, I feel like telling someone to build a system that works is pretty much about as good as telling them to buy a lottery ticket - maybe the odds of winning the jackpot are even higher.

You know the real reason there are so many 'indicators' and 'patterns' in TA?  Because they are all EQUALLY USELESS

[Caseynotes]

 

1 hour ago, dmedin said:

You know the real reason there are so many 'indicators' and 'patterns' in TA?  Because they are all EQUALLY USELESS

oh look, that example system in the post just above that I completely made up on the spot would have given 3/3 winning trades on the current gold chart.

I keep saying forget TA, it's only a guide and there's not much you need to know, only price action on appropriate chart structure can trigger a trade. You've been posting for a year and I've no idea how you trade, I think the reason for that is neither do you.

Try reading and following the thread instead of wandering around doing your own thing. Decide on one time frame and on one market which to apply one entry type. Then look at building your own simple system specifically for that. 

[Caseynotes]

5 trading strategies from Tradeciety, It's new, published just a few days ago, I've not seen this yet but these guys are pretty good so likely worth a watch.

 

[dmedin]

7 hours ago, Caseynotes said:

5 trading strategies from Tradeciety, It's new, published just a few days ago, I've not seen this yet but these guys are pretty good so likely worth a watch.

 

 

 

That's a nice whirlwind tour of some of the more effective TA techniques.

 

[Caseynotes]

This is pretty much 'on point'.

"When someone states that moving averages or TA "don't work" they show their limitations, because the signal alone is not the system. Position sizing, trade management & money management are what determine the success of the system, not the signal. Random entry test confirms."

Larry Tentarelli @LMT978

[dmedin]

Position sizing is actually the easy bit.  If TA doesn't really work then you have no hope, and it will be death by a thousand cuts.  It might even be better to blow it all in one go as this saves you from a slow miserable death.

Edited January 28, 2020 by dmedin

[Caseynotes]

19 minutes ago, dmedin said:

Position sizing is actually the easy bit.  If TA doesn't really work then you have no hope, and it will be death by a thousand cuts.  It might even be better to blow it all in one go as this saves you from a slow miserable death.

once again you deliberately miss the point and that is that the plan must make a whole and complete system, each component is worthless on it's own, refusal to make a plan is something you've steadfastly held onto all this time instead preferring to complain that nothing works. you must be getting bored by now.

[dmedin]

🤔

[Caseynotes]

Very interesting 1 hour video lecture produced by the Institute of Trading and Portfolio Management.

"Why People Suck at Trading and at Life" - Ross Williams. Released 12th March this year, already 47,000 views.

Deliberately provocative title the lecture gets you to think about the process of becoming a trader, what's needed and what's not. What to do and what to avoid.

 

[dmedin]

43 minutes ago, Caseynotes said:

"Why People Suck at Trading and at Life"

😿

[Caseynotes]

51 minutes ago, dmedin said:

😿

did you watch it? nice segment on the difference between cynicism and skepticism 🧐

[dmedin]

I'm watching 📺

Edited March 28, 2020 by dmedin

[dmedin]

He seems like a bit of an arrogant ****, possibly because he works with 'Anton' - if it's THAT Anton then I can understand why.

[dmedin]

Be sceptical of the bullsh!t artists who parade their 'swag' on Facebook - I totally concur

Here's Wayne Kerr!

[Caseynotes]

3 Glaring Mistakes Made by New Traders.

All mistakes are borne out of naivety and inexperience that time spent in the markets will resolve but the sooner you identify these 3 very basic mistakes the better off you will be. These 3 mistakes can't be resolved by reading more books or spending longer on the demo platform, only time spent in the market will do it but I thought I'd give a heads up to help identify these 3 as I see them routinely showing up on forums and on twitter over the years.

1/ Lack of healthy scepticism.

Don't believe everything you read. Leaving aside the blatantly ridiculous claims of making millions in a few days made by scammers there is an army of thousands out there, and you will find them on twitter and on forums, who have spent years reading trading books and can really talk the talk but who, unfortunately, never learnt how to walk the walk. But they will never let an opportunity pass by to exercise their ego and tell everyone what they should be doing. Listen to these guys at your peril, they will lead you down the same blind alleys they went down and from which they never returned.

But how can you tell who's who? An absolute giveaway is the very thing that drives their need to pretend and lecture in the first place, it's their ego. They like to generalise and avoid specifics, most of the content of their lectures can be found in any trading book and they always exhibit just a bit too much self importance. If you read enough of their stuff you will discover it's all contradictory and filled out with repetitious platitudes that will not help you on your journey to becoming a trader. They have wasted years and don't mind at all if you do the same. It's their ego that drives them, probably trying to salvage some self respect following years of failure.

 
2/ The Gambler.  

Everyone likes a gamble, it's good fun but unfortunately it's not a career, sure there are successful professional 'gamblers' but those guys don't actually gamble, they have a game plan and they have worked out the stats that predicts the success of that game plan over x number of plays, they play a numbers game, they don't rely on blind luck.

But unfortunately all that means work which many don't find much fun at all so gambling it is then. The crucial thing about gambling is that the casino (market) always wins in the end, it's just a matter of time. No one gets lucky all of the time so in that case if you are looking for a career in trading you had better start planning and testing, once you have a plan that survives testing then you can start trading instead of gambling, ya. Most gamblers won't see this til after they have blown their account which is a shame but doesn't really matter because most gamblers don't want to do the work required in the first place.

3/ The trading platform is not a computer game.

'Oh, so what is it then?' Well, is an electronic attempt to capture the constant movement of a real time 2 way auction. 'Oh, sorry I asked.'
Isn't it a nuisance when playing a computer game and you pull the trigger and nothing happens, you bash the controller while shouting insults at microsoft. These are the usual responses you see on forums when the same thing happens on a trading platform and why not?

Well true enough there may be technical issues but it could equally be the market auction has just stopped. Picture this, back in the olden days guys were shoulder to shoulder on the trading room floor, everything is working fine, price is gliding sedately back and forth through levels as buys and sells are exchanged. But wait, some big guy has just walked in and picked up all the buys for the next 3 handles, he must know something, everyone pulls their remaining orders while trying to figure out what it is, the price board is stuck at the last traded price. Is there any point then in you standing up and shouting 'buy' at a price that no longer exists, you'd look a complete idiot. Of course on the computer trading platform you may not know this has happened so you go on smashing the buy button and shouting insults at your broker to absolutely no avail.

So learn about slippage and requotes, stopped auctions, unborrowable and unlongable, volatility and liquidity and the rest of it and recognise that the platform is just a representation of a live market and is not the actual market itself. Some platforms are designed with a bias towards dealing, some with a bias towards charting, none are perfect, practice on as many as you can before choosing one. This is not as onerous as it sounds as they all function in a similar way.
 

 

As I said at the beginning, some things just can't be learnt from books or on the demo platform, some things can only be learnt by doing it for real which is why when starting out don't think to risk x percentage of your account on a trade but rather start with the smallest position size the broker will allow and work up as experience and confidence increase. The learning curve can be very expensive and your first priority is always survival.

[dmedin]

4) It's much easier to make money from training, writing and giving speeches, as this provides a regular income.  So most rich people you see are actually making most of their money from things other than trading.