The Good, The Bad and The Ugly - A Real Trading Record

[quote=Oldtraderman;12719059]Hi all, As mentioned yesterday no live trading for me today, just some demo practice
I always appreciate your input you write with consideration and respect. I can't relate to demo practice however. For me, I find no correlation between demo and reality. .. it's probably that emotional detachment I fail to achieve.. food for thought.. for me not you
Cheers h

Hi hellsbells,
You make an excellent point, demo is definitely not the same as real trading with real money on the line, simply because you know in your head it is 'pretend' trading and if you break your rules or really screw up it doesn't actually matter in the end. With live trading, that's some/all of your hard earned cash gone forever. Very different!

But that's not to say it isn't useful. Demo is a great way to try out a new idea/rule/whatever in a completely flexible, costless way. You can't just intellectually rationalise a trading method, you do have to live it as well and a demo tryout is the first step in doing this. I always start everything off in demo and I play around with it quite freely because this is the experimentation phase, if you like. How do you find out the weaknesses of a method unless you watch it crash and burn a few times? And if I can do this for free on demo, great!

But demo can't last forever. Once you have honed something a bit you need to try it out in live action with real money. Hard cash on the line greatly changes your emotional state and you have to test this emotional factor as well to see if the method really does suit you. So move from demo to the smallest position size your platform will allow you and trade with that for a bit, critically observe and adjust appropriately. If it is not working for you, go back to demo and start again.

Once you get to the point where tiny size real money trading is working, stick with that size until you have generated material (for that size) profits with it. Then you have decent evidence this method is working for you. Then start building up the size gradually, keep at each step until you know you are trading comfortably and well. Sooner or later you will get to either your full desired position size or reach a point where the size is enough for your comfort level. That's the time to stop raising the stakes!

Hope something there may help

Hi all,
Trust you all had a good weekend. A very straightforward day today with a fairly routine winner first up for this method:



The DAX opens at 8am and posts an early sharp fall to the 40 level before an equally sharp bounce back up above the 10ma and signalling a long at 82. This works very neatly and cleanly for a quick +10 1R profit at 92. I could have waited for the quite reasonable expectation of a run towards the big figure 13400 level but, being a Monday morning I decided just to take the initial profit to get the week started in the black.

Back tomorrow

Hi all,
Mixed fortunes for my trading today, a loser and a winner but managing to eke out at net profit overall:



DAX opens at 8am with gyrations in both directions, eventually giving us a first signal long at 71 but one I didn't like the look of as it very much had the feel of a 'last hurrah' bounce of a market rolling over. But following a mechanical entry means I took the trade though with more caution than usual. As suspected, the bounce lasted all of one bar before turning down and I decided to cut at the bottom of the entry bounce bar at 65 for -6pts rather than wait for the hard stop at 61, especially as price is once again there below the 10ma. If the signal was good it really should not have looked back from the entry point.

As soon as you see a trade is wrong, get out, don't sit and hope. If it does happen eventually to go your original way, well, it's frustrating for sure but hardly terminal as it's only a modest loss and a missed opportunity that you have booked. You are still comfortably in the game to try again and that's the most important thing.

The caution here proved wise as the market settled into a steady downtrend down to below the 20 level. On the way down it signals a much more comfortable looking short at 57. This works very nicely and the good price action gives me the courage here to hold tight past the 1R initial soft target of 47 try for a test of the prior low at 44, expecting at least a run to the round number 40 level. This does duly occur but my nerve deserts me as price approaches 40 and I take a welcome +16 at 41, avoiding the round number test but still enough for a net +10pts, +1R on the day. The market continued down for another 20+ points available to more aggressive traders but I am very happy with my more modest outcome.

So, just a 50% win rate here but a 1R net profit extracted all the same. This is a good example of how trading really works most of the time - the trades you take are mostly 50-50 in nature and it's up to the trader to squeeze a net profit out of the apparent randomness. Most views I see around FF and elsewhere view random with disappointment as it suggests you can't win overall, but for me it's fine because it also suggests I probably can't lose overall either (assuming good risk control, of course)! So, I have a flat playing field from which to try to extract a net profit and this is what I focus on rather than searching for a holy grail entry.

Back tomorrow

Hi Oldtraderman,
May I ask you a couple more questions?
- What is the biggest risk(s) a trader might have to face and how do you prepare for it?
- It depends on each trader but in your opinion when should a trader make decision to give up his dream of trading for a living?
- Are there any other mental tricks like demo Friday after a profitable week, or taking a break after a profitable morning and count the afternoon as a new day? For example, do you withdraw your profits at weekend or on Monday, or when your account reaches a certain number?
Thank you and I am looking forward reading your post of today's trading session.

Hi all,
A second nice and quick day this week with another pretty standard winner first up for this method:



After a brief fake dip at the 8am open the DAX moves up sharply and quickly signals a long at 32. It works immediately and I am happy to take the basic 1R +10pt profit at 42 rather than test out the prior high at 44. As usual, I am proved to be overcautious and a further 20pts was available for a braver trader than me as the market swiftly broke through and ran as far as the 60 level.

Back tomorrow

Hi diamond1011,
No worries, very happy to field any and all questions. To deal with the ones you pose briefly in turn:

1) Biggest risk is taking a very big loss that threatens both your account and your emotional stability. The best way to prepare for this is to make it a 100% non-negotiable iron rule that you will never take such a loss. Focus on your risk control - hard initial stop in place on all trades + correct position size so as only to risk a very small % of your account at the stop. Do this and the worst that can happen to you is a small predetermined loss + any negative slippage on closing. If you avoid potentially wild moments in the market such as just around major economic announcements then the slippage is unlikely to ever amount to anything significant.

2) As for trading for a living, really can't answer this as it is such a personal decision, all I can do is speak from my experience. I did make the decision to trade full time for a living but only after my life was debt-free and I had saved up a substantial fund to trade with. I was very fortunate to be in a position to do this and I wouldn't really advise anyone in a more modest personal financial situation to try it because the pressure you place on yourself to have to earn is just too great. Trading is hard enough as it is, better for most to do it as a non-critical second income part time occupation/serious hobby.

3) Again, tricks or routines to make things more emotionally comfortable are very personal and depend on each person's unique individual psyche. You have to get to understand yourself properly and work out what works for you. It doesn't really matter what it is - I have seen some quite bizarre (to me at least) ideas floated on FF and elsewhere, but if they work for you, great, use them. Not for me to judge.

4) These days I withdraw the bulk of my profits generally only at the end of the year. I put a sum aside to cover my living expenses for the year and profits stay in the account to compound up the trading size without altering the % at risk per trade as the year progresses. However, I do have an absolute maximum position size I am not comfortable to go beyond and should I get there in a good year then I'll take any subsequent profits out each month end.

Hi all,
It turns out I shall not be trading tomorrow as my wife has uncovered a bargain last minute long weekend break, so it means today is the last day of my trading week and indeed month. Given I am a healthy +3R up so far this week I shall embrace current leading edge social thinking by declaring Thursday the New Friday and thus call a halt to live trading here. Instead, some observations about what recent activity might tell us about trade entry.

Since December I have presented and live tested three variants of simple price action based methods using different mechanical entries, covering conceptually opposing continuation and reversal approaches. Prior to this I have used a variety of discretionary entries. All have been traded profitably on the same market and time frame without any lucky (or indeed unlucky) big bets in the results, just disciplined, consistent, risk controlled trading.

That consistent profits have been generated from inconsistent, i.e. different, entry techniques strongly suggests that the precise entry method is actually not that important a factor in trading profitably. Other aspects of trading that I have held constant throughout such as careful risk control, conservative money management, discipline, consistency, sound exit management, emotional balance, and a dispassionate acceptance of how markets behave all count for a lot more in the overall trading scheme of things.

To be clear, some sort of sensible entry that tries to get you involved in the market only at the most appropriate market conditions and/or price level for your trading concept is useful and some effort should properly be put into it, but not to the detriment of these other elements of a solid trading system method. I believe most traders who perhaps over-focus on entry do so because they, quite naturally, fear loss and failure and think a great entry will ensure success. But losses are inevtiable in trading and trying too hard to avoid them is paradoxically almost a certain way to ensure failure. It’s an inherent conflict between the natural human trait for loss aversion and the rather different demands that the probabilistic and uncertain world of trading requires. It is indeed mostly a mental game at the end of the day.


Having now provided a good sample of representative trade examples for my adapted trading method using a mechanical entry I shall take a break from further regular posting for a while until I have something useful to share, as endless repetition is of little real value. Until then, good luck in your trading to you all!

Thanks to all you have written and shown us, have learnt a lot and food for thought ,much appreciated.
Nathan

Hi Oldtraderman,
Thank you for your great journal. Following your posts helps me to learn invaluable lessons which I think I can't find any where else.

Hello all again,

I am quite astounded to see my last post on this thread was exactly a year ago now. Not quite sure where 2020 went though I doubt anyone is going to much miss it! Anyhow, I hope you are all keeping well despite lockdown and Covid.

I have been motivated to return to posting for a couple of reasons: first, a number of people have asked me if I would journal again a period of my trading with notes, explanations and associated general trading comments driven from my experiences over the years; and second, I do think I have something new of value to share with you all. So here goes...

To start, I should make an update as to my status. Over the course of 2020 I have gently slipped into semi-retirement, trading now mostly for pleasure and personal interest rather than seriously for a living any more. That does not mean I am playing casually now - you can't do that, the markets are way too unforgiving for that kind of attitude. You must ALWAYS be committed and disciplined, especially with respect to risk control, it only takes one bad slip to destroy your account.

However, I am trading a smaller account now though I have increased my maximum per-trade risk exposure to 2% of the account (I was at 1% previously) to keep trade size meaningful on a smaller account. I certainly wouldn't recommend you go bigger than a 2% per-trade risk as the drawdown profile can quickly get vey nasty at higher risk levels.

I am still focused solely on short term intra-day trading, mornings only now, with trades typically lasting 1-60mins and never any trades carried into the afternoon. I am always flat at the end of my morning trading session each day. Despite this very short term focus I do believe that almost everything I do and will relate to you about trading does have wider applicability to longer time frames and different trading strategies. The core principles of good trading I believe are universal and I tend not to stray very far from them.

I am also still focusing on just the one market - the German stockmarket DAX index - though, again, I believe pretty much all of my trading principles translate equally well to any active, freely traded, liquid, and reasonable round trip cost market. If your chosen market(s) do not have these characteristics you will have to adjust what you read here to take account of that.

I think that will do for an introductory return post. Next post to follow will address what I said above about having something new and useful to share with you.

Hi all,

Following on from the above post, I want now to talk a little about mechanical vs subjective entry methods. I finished my last series of posts (up to #328) a year ago having tried out various mechanical entry methods over the subjective methods I have used for many years, the idea being to simplify and de-stress the whole trading process.

I have worked with all sorts of mechanical methods for much of 2020 and what I have found is that they don't really cut it for me at the end of the day. What I have found is that pretty much all mechanical entry methods eventually test out at abot 50% success, assuming a consistent exit process applied each time. When market conditions favour your mechanical entry you do great, when the market is against your method you run up extended losing periods and sharp drawdown.

There is an important message here: I really don't think a simple mechanical strategy will make money over the long haul. What you gain on the swings you lose on the roundabouts. It's a pity because it means trading can only be simplified and de-stressed so far. The trader's subjective input is vital, whatever the underlying method being followed. You cannot just take a black box off-the-shelf mechanical system and hope to make consistent money with it. The "secret" of profitable trading - if that is the right word - lies with the trader, not directly with the method.

It means I have returned to my subjective entry methods after what has been an interesting if ultimately unsuccessful experiment. Such is life! Being a short term trader utilising quite tight stops, my entry methods necessarily focus on being with the immediate current flow of the market, though without looking to chase the market and then very often being caught out by spikes and fake moves.

How I go about achieving this lofty aim will start to be explained on Monday next when I'll start posting examples and results of my trading each morning, hopefully explaining what I am doing and why, allowing you to see how it all pans out in real trading.

Have a nice weekend until then.

Agreed. It's more mastering one's emotions, than mastering a method. Looking forward to your insights again.

Andy.

Quoting SirViver

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{quote} Agreed. It's more mastering one's emotions, than mastering a method. Looking forward to your insights again. Andy.

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Hi Andy,
Many thanks for your kind comment, hope you will find something helpful here as we go forward.

You've squarely hit on something I want to talk a lot more about this time around. Rather than focusing primarily on how to create a robust methodology based on solid underlying trading principles - that would just be repeating the previous set of journal commentaries - I'd like this time as I comment on my trades posted here to try to explain both my thought processes and feelings to a greater extent than before. In this way I hope to bring together the side-by-side importance of both the trader's emotional/subjective input as well as a sound trading methodolgy in achieving consistent results in an acceptable manner.

Back tomorrow morning to start a new trading week and, indeed, month.

Could you maybe elaborate, why the mechanical entry method failed in your opinion? From the other posts from last year it seemed like the mechanical system was working ok for you.

First, I am impressed you've gone back and read my previous posts on my mechanical entry experiment and, second, an excellent question!

The short answer is that longer term experience and testing throughout much of 2020 demonstrated the mechanical entry was random over the long haul and my net profitable trading in the posts from a year back was more a function of temporary favourable market conditions (within which the strategy was developed to prosper) rather than evidence of a clear sustainable edge when market conditions moved on. Disappointing in that it did look and feel good at the time, but equally not so surprising to me as I have in the past developed strategies that worked well for periods as much as three years before longer term data demonstrated no long term sustainable edge was present.

More specifically, referring back to the base mechanical system as outlined in post #306, this method ultimately ceased to show a sustainable edge mostly because price being above or below the 10 period moving average proved to be basically a random determinator of the true current flow that eventually panned out from that point. Moreover, I have not been able to find another mechanical indicator that does the job better; and comparison with my subjective assessments of likely flow has consistently shown my assessments to be better overall.

Thus I am back to subjective assessment and I have turned my attention more to fully understanding why this might be so, as well as developing ways of reducing any given stress levels I feel in doing that. This takes us into the realms of emotions, experience and mental expectations in trading and it is around these matters that I intend to discuss in more depth via the real trading examples to be posted as this journal progresses from here.

Hi all,
We start here conveniently enough on Monday 1 February. January was a good month for me, the account up 11%, this arising from 5 net winners at 2% account risk per trade using a 1:1 risk:reward as the basic profit taking exit. Hopefully, relating this good result to you won't be the kiss of death for this month but it at least serves to recap some important aspects of my basic method for you.

Note January generated only a modest positive edge in 54 trades taken - 26 wins, 21 losses, 7 scratches - this is a trade success rate of just 48%. But look at the results if you keep the losses under control and take a decent number of trades: 11% per month annualised would compound up to be a pretty good year!

Key point is that I'm not looking to shoot the lights out with huge R:R trades, nor am I trying to be anything remotely like perfect with my entries. I want only a few net winners whilst gracefully accepting the many losers that inevitably come my way. Just keep them small!

Introductions done, next post is the first chart and trade of the week

Welcome back. Looking forward to reading your posts.

Hi all,
I mentioned in post #332 that my approach is short duration trades utilising quite tight stops, so by necessity I have to look to be with the immediate current flow of the market though trying not to chase the market whilst doing so. The trade below - my only one of today - happily highlights all of this quite nicely:

The chart is a simple 1 minute HLOC bar chart with blue/red to highlight up/down bars for you. I am not especially interested in classic chart patterns as I believe them to be essentially random indicators, my focus is to use the chart simply as a convenient display from which to judge current market flow and behaviour.

I am using 12 points as the 1R stop & basic target as this represents 10x the 1.2pt round trip spread cost I bear on my trading platform for the DAX. The closer the target the better for me but a target less than this means the cost hurdle gets too high, and a stop wider than this gives too much to the market for me. It’s a balance and I find I don’t have many winning trades that first drop more than 10x the spread so I’m comfortable here. You must find your own position of comfort bearing these considerations and your trading style in mind.



This trade I think is easy enough to follow: the market makes a low at 13520 before sharply reversing and making a run back towards prior highs at the big figure 13600. This is a clear directional move up for me, backed by the failed move down. I wait for a modest retracement to happen and then the flow to continue, entering long at 76 being happy now with all of: 1) the genuineness of the directional move; 2) that the pullback is over; and 3) the stop (at 64) and target (at 88) look at OK points on the chart for me. It works out nicely this time and I quickly book a 15pt / 1.25R /+2.5% profit at 91. Braver/greedier traders than me could have got more as the market moved on to break the 13600 prior high before rolling over.

Given all I’ve already said in this post this is all the analysis I’ll do for this first trade but do note how it depended as much on my subjective/emotional analysis of the move & pullback as it did on the trading mechanics. I’ll develop this symbiotic relationship a lot more in future posts.

Back tomorrow for more, will end each trading post with a summary running record:

W1 L0 S0 +2.5%

Hi Oldtraderman,
I'm glad you are keeping well despite lockdown and Covid.
I've been wondering how your mechanical entry experiment was going because the result was so great in a few starting weeks. Now we have the conclusion that it is not a successful experiment but for sure it is a valuable lesson.
Regarding your discretionary exit strategy, may I ask when you let the price run past the initial target +1R then do you have minimum points you expect to take, say like you will not take profit less than +1.3R or +1.5R or something like that? Because if you take it at +1.2R for example, you do that successfully in 5 trades but then in 1 trade the price runs pass +1R but not reach +1.2R and turn back to be a scratch, it will cancel out the extra points of the other 5 +1.2R winning trades. Then the question is that does it worth the stress to take profit at +1.2R instead of just take it at the initial target +1R? And in case you let the price run pass initial target, have you ever moved your stoploss from scratch point to the +1R point to protect the profits?
Another more general question please: in a short sentence can you tell us what do you think profitable trading is? Thank you.