How Has Your Thinking about Trading Changed?

Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.
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Forum Mgmnt
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How Has Your Thinking about Trading Changed?

Post by Forum Mgmnt » Sun Oct 01, 2006 4:38 pm

I've been thinking about trading quite a bit lately as I put my thoughts down on paper and it occured to me that my thinking about trading has evolved quite a bit over the years, even over the last several years.

The forum has helped me distill my my thoughts because sometimes in order to attempt to answer questions one must synthesize and clarify thoughts that may have been fuzzy intuitions into logical arguments or concrete theorems. I can think of a few specific ideas about system about markets where my thinking has clarified quite a bit.

How about you? In what ways has your thinking about trading and systems changed as you have tested ideas, implemented them in the markets, and learned since beginning the process?

- Forum Mgmnt

P.S. I'll answer my own question in a bit but I don't want to derail other lines of reasoning at first.

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Post by BARLI » Mon Oct 02, 2006 3:15 am

I've learned that :
1.I cant follow the crowd (what futuresource say on the news, or what some "experts" said) in order to trade profitably;

2.I have to keep my routine going daily before the markets open(homework: checking for set ups, scanning markets for buy/sell signals, looking at the big picture. reading fundamental reports from USDA) so that I'm prepared and dont have to guess where the market is going to do at the 5 minutes left before the opening;

3. Its bad to trade during important reports (GDP, WSDE, Fed meetings etc) markets simply become way too volatile and its better to wait and see how others will react at these reports and where prices will go;

4. Going against extreme moves usually makes money ( if Bonds went up 1 point or Soybeans went down 20 cents). Having profits on a position from the very moment you got into it usually indicates its going to be a good winning trade but the one has to stay realistic and put a limit order so that when the market jumps up/down very fast you can take what you were planning on.

5. markets rarely have good long trends, such as we've recently had in Sugar, Copper, most of the time markets "hang out" in channels cos there's no reason for them going way higher or way lower fundamentally

6. when market is going higher or lower and no one knows why, its good to be in that move (once everyone knows why it went that way the move usually ends)

7. taking small profits never pays off, cutting losses at a certain dollar ammount is a good way not to get wiped out and psychologically exhausted; putting stop loss isn't good since I'd rather get out from a trade on a limit at a better price, so I put mental stops;

8. I can't trade if something stressful/eventful going on in my life (family issues, someone came to visit from another country so I cant get glued to my screen and not be with them)

9. Never think if you trade a small account that you'll never make it cos the "big guys with big $$$" rule the game, thats not true and we know some good examples who proved that

10. Dont trade for the heck of it, there's time to trade and there's time to be on the sidelines. Never overtrade and dont let "good "money going after "bad" money

11. Dont trade if you dont know what you're doing without a clear trading plan ( entry/exit points, what maximum you can risk on a certain trade, was it statistically significant in the past?)

12. When trading stay relaxed and dont let some counter moves (to your position) get you outta position.

I'm short term trader, usually hold 1-7 days, so some of the things doesn't fit longer term style

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Post by Nussgipfel » Mon Oct 02, 2006 9:10 am

After having spent years studying the works of W.D. Gann and trying to find ways to pick tops or bottoms I finally realized that many of the things I thought were so important were not nearly as crucial than I thought in order to be successful in this profession. I read Van Tharp's book TYWTFF twice, once when it was released and then again about 1 1/2 years ago when I finally realized and ACCEPTED that I must change the way I go about this business. Also being conservative and having a plan versus being a "shoot from the hip" kind of guy had to be learned and embraced. Finally leave predictions and building economic and market scenarios to others.

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Post by Tim Vorst » Mon Oct 02, 2006 11:00 am

I am a neophyte trader and just started trading with real money in April 06. However, I spent the previous two years learning how the markets work and mastering the tools necessary to test and develop a system. When I began this journey I had several misconceptions about trading.

1. Trading would be easy. Just follow the system and don’t worry.

2. I would see the fruits of my labor quickly.

3. Trading could provide enough money to live off from the beginning.

4. I could develop a system without investing thousands of dollars in trading software.

5. I could develop the holy grail.

Listening to the usual suspects in commodity trading marketing hype fueled these pipe dreams. It wasn’t until I purchased trading software (Trading Recipes then Trading Blox), and began reading the posts by experienced altruistic traders on forums such as Trading Blox, Trading Recipes, Traderclub and AAFT, that I developed a more realistic idea of how trading works and what to expect. Here are a few insights into what I have learned in the past two years.

1. Emotions do come into play when trading real money. There is a big difference between seeing a draw down on an equity curve generated from a back test and actually trading through one. Doubts do creep into your thoughts…have the markets changed…is my system still working?

2. Have the necessary tools to test your systems so that you have confidence trading it through the hard times.

3. A simple system is usually better than a complex one. And a combination of simple systems that operate on different time frames is usually the best.

4. Trading takes A LOT of patients. If there is a moment of instant gratification, it is usually ephemeral and followed by a protracted period of pain.

5. There is no holy grail.

Tim Vorst

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Post by gunter » Tue Oct 03, 2006 8:17 pm

I've found trading to be boring. :shock:

I've also found that it's better to tone down the risk, let the system run its course, don't overtrade and just try to concentrate on other things.

This is a complete turnaround from my original impression, which was that day-trading would lead to much higher profits.

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Post by daveineagan » Tue Oct 03, 2006 9:59 pm

Major lessons learned over the past 2 years.
1. Simple systems can be very robust.

2. Robust systems will make money over the long haul.

3. Test, test, test; only then will you have the requisite confidence level to ride out the storms.

4. Be patient; very patient; excruciatingly patient.

5. Be willing to lose all of your trading money to make a go at it.

6. Welcome your losses with open arms; losses are necessary to get to the gains.

7. Risk a larger % of your account when you are small.

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Post by BARLI » Wed Oct 04, 2006 3:12 pm

Forum Mgmnt, you haven't shared your thoughts, but I already got a question :P

Since you operate on a big scale, do you care what other big players do and has it changed from lets say 10 years ago? I remember in interview with Paul Jones, Schwager asked him that question and he said that he never wants to go counter good players (those who trade energies all their life and so on ) and that these guys are usually indicators. Has it become more difficult to know who's taking 1000 Oil contracts or S&P since it all became electronic ?

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Post by rabidric » Thu Oct 05, 2006 5:02 am

i used to have a conviction that markets must be/were fractal and scale free...

the truth is much more interesting.

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Post by edward kim » Sun Oct 08, 2006 5:24 am

rabidric wrote:i used to have a conviction that markets must be/were fractal and scale free...

the truth is much more interesting.
i understand what you mean by scale free.

i am interested in hearing your thoughts on fractals and the markets.

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Post by Rob Hef » Sun Oct 15, 2006 5:12 am

Some of my current trading beliefs are:

Trading is mainly a head game - discipline, planning, execution, emotions & focusing.

My responses to large gains and large losses make it more difficult or easier to follow my trading plan. This trade and every trade is just another step in completing the marathon.

I can reduce my draw downs while still maintaining a good return – effectively increasing my MAR, CAGR etc.

I believe an extremely disciplined short/intermediate term trader - one using intraday data, faithfully executing a well tested system and plan, will have a higher CAGR and smoother equity line than LTTFs. This is related to having lower risk entry points, which results in 1) smaller draw downs and 2) increases the number of large R trades in a year they will experience compared to a LTTF. Short term traders will have larger number of opportunities for large payoffs with small risks.

Pyramiding when done right is beneficial as can systematically taking partial profits.

Things/Observations I still wrestle with:

Staying organized, focused, and results orientated.

Regularly reviewing, evaluating, improving and following my trading plan.

Accepting that to have significantly large returns over time I will periodically have to trade through significantly large draw downs.

The fewer commodities I trade the more likely I am to miss this year’s LT large R trade.
However the more commodities/stocks I trade, the more positions that will, almost all at the same time, negatively impact my accounts. (Insert here your favorite shock event.)

Shock events regularly occur.

Over & above helping create a marketplace for businesses to lay off risk, what good work am I doing by trading - other than providing income for myself & my family?

Forum Mgmnt, I’d be interested in how your thoughts about managing risk as it relates to returns and draw downs may have changed over the years. What areas you found most useful to investigate to reduce draw downs and increase returns. How did your trading change in response to October 87 losses you recently mentioned in another post?

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