The brutal truth of day trading

Hi Redeflect

Can I tell you what I see when I study level 2 data.
If there are more Long limit orders, prices goes bearish.
If there are more Short limit orders, prices goes bullish.

The only times more Buy limit orders creates a bullish move is at a BREAKOUT that contains high volume.

By trading off patterns, you are often on the wrong side of the order books. How many times have traders felt like me "next time I choose to go Short, I will Buy instead"
The big players I believe create patterns as TRAPS - they wait until enough orders are mounting up on the charts then take them out.
Therefore they entice traders to enter by building patterns - then destroy them when the limit orders are larger enough.

Its a trap


Cheers

Hi Bilal, just to clarify I don't trade channels, tmas or bands...
In short, I don't trade based on indicators.

I sell overvaluation in a falling market and buy undervaluation in a rising market that show up. That's the only way I trade, mostly once or max twice a day of 15-20pips each. If there's none I don't trade.

The pics I posted are spatial quantified definition on the chart to show how the master algo move price the same way every trading day that's not based on economics or physics.

Edit - Master algo move price to demarcation zone with no directional bias and the show begins.

100% agree! There is no such a thing at the present time like pattern. It exist only in the past.

For some reason nobody speaks (except you, you have mentioned it several times) that most time the liquidity is thin. This is fake and lie that we are trading great liquidity. That's why 0.1 lot size can easily change direction. And another pattern will be drawn soon.

It is easy to explain everything what happened in the past. And it attracts newbies from all over the world because they feel some magic around and feel the hope. Easy. Just find some patterns, draw few lines and that's it - you will constantly win. Part-time trader, armed with fibonacci, agains professionals, fastest algos, smartest minds and big money.

Moreover nobody speaks and never say a word about money management and position management. But this is 100 times more important than tryin to find "great" entries.

The brutal truth of trading is that most traders are not traders. Trading looks like professional sport. Very similar. Newbie and amateur sportsman will never win the battle with professional in long run. And that is great. That is fair. More time you spend for research and practice more chances to win. More bullshit drawings trying to be clever, more impossible claims - more chances to lose.

BRAVO!!!

Hi ryuryu

Don't get me started on Risk & Reward Ratios - a sure way to add to your brokers profits.

I have three primary money management Rules -

1.. Don't entry a trade unless your likely of success is over 80%
2.. If its wrong, get the hell out.
3.. Never let your draw down grow to more than your 50% of your daily profit target.

In my case I aim for 0.50% increase in equity every day, I will never let any one trade grow to more than 0.25% in draw down.
A success trading day for me is not if I get 0.25%, 0.50% or even 1% increase in equity per day - I must never let a days draw down equal half of my final total profits.

I am even happy with 0.20% a day if the markets don't allow me to profit more, but its only a good day if I never hit any drawn down that day of more than 0.10%.

We are aggressively day trading with a daily profit target in sight and no acceptance of staying in ANY trades that goes stale.
Seriously we are in this game to win profits, the trade has to work within a few bars of entry or GET OUT.

Cheers

Good. You just discovered a stable and profitable strategy "Go opposite of pattern signal".

I was thinking about this. Actually after joined this thread and read so many frustrations. Then made some EA...

The idea is simple - do the opposite as all internet teach. See here my analysis and experiments on this idea.

1. No cheapskate tp trades.
2. No cost averaging.
3. I(We) have seen single signal losses that break the account. Then long grandmother story to explain what happened. Why don't use preset fix stop loss that's executed at point of entry? Either the trade hit tp or SL first.

I don't know if old channels can be traded off in a thousand of different ways or not. I think for myself that finished patterns are only reference points and that one should not trade them.

But others, the rest of the 7 billion human beings I am pretty sure they can elaborate alternative working methods oppossed to my approaches, as I do not own the ultimate truth of the Universe. For me, patterns are reference points, I do know that market participants spent a considerable amount of time negotiating these prices, therefore the volume present at these levels (and the liquidity) was important. After price leaves a range, that means that participans do not have more interest on that price area. That there will be more open interest outside it and, if the net position is contrarian to the initial movement, the channel should not hold, since that area was already traded recently and, therefore, low in terms lof liquidity.

Well, did I say I do not trade ranges? Not exactly. In order to define a trading problem, you have to set an interval of values that will depend on:

1. An interval or range of prices.
2. An set of intervals or ranges of prices and time.
3. An interval or range of expected volatility.
4. An interval or range of absolute or relative order book imbalances vs an interval of prices (these are two ranges).
5. Probability can be represented as the integral of a defined interval (or range) of your density function.

Regarding patterns and probability. The pattern is the sequence you define. Data visualization can be numerical and/or visual; therefore you can find patterns on charts and expect them to repeat in the future.

For instance, if your approach is merely probabilistic, you could make an histogram and see the frequency of certain events (that is why I mean when I talk about patterns -events-) to occur. Then you can estimate the compound probability for a pattern to occur n consecutive times and then, maybe, going against that pattern when the compound probability is lower than 5%. This could be useful if you consider that your market is purely random and that the events are not connected. An ascending breakout with high volume may represent a strong selloff program and your pricing software reseting the template in progress to fill the sell orders by moving prices down.

No matter if your events are or not dependent, you can easily build your histogram to define a probability function. You can write an EA that uses that approach. On the other side, if you find two dependent events, and the conditional probability is, let's say 75%, you may look up a RRR to trade that event in a profitable way.

I think you trade GU during European sessions. You will agree that between 7:30-8:30 UK time a lot of volume will be injected and that will have a foreseeable effect on the volatility of the POUND-DOLLAR that you can represent as a pattern in terms of standard deviations of your last-hours average range or visually, as a rupture of your current channel and the creation of new bars moving away from that range. You could use a spectrum analyzer to verify the more powerful frequencies during that interval of time and try to find harmonics. Whatever. Maybe you found a way to trade accounting imbalances in the order book or perhaps you can identify the liquidity areas analyzing the topology of your charts. It is unimportant the way one looks at the markets.

All these situations are patterns repeated day after day. You can extrapolate this behaviour to other time references such as the days of the week or the months of the year. Notice, for instance, the effect that this week's Tuesday and Friday news might have on the main Forex pairs. Last Tuesday was atypical and not only in terms of volatility, but in terms of autocorrelation. You can represent correlation as a coefficient or visually with a plot chart or indirectly with your average profits over a long period.

Another topic. I also think that classic chart pattern trading is a lie (including channels), but I do not have a sound evidence, then I prefer to just avoid them and recommend others not to trade chart patterns without extensive backtesting. That is also worthless because no one backtests except a few no matter what one says. I spent many years only backtesting using demo and simulation before I put a cent in the markets. And after doing it I lost a lot of money, because the mindset and envrionment required when trading live is very different to demo trading.

Ok, I hope all this post is connected, I have been writting this over the last hour+ in chunks.

If events are not dependent and they are unbias then that's a random market.

Tradable event has to be dependent with bias isn't it?

Pic shows example of dependent and bias event.

Channels are areas that, once left, will probably empty for a while. One can agree to this assessment or not. But in either case that will imply something in particular:

1. No, I think that what scherzi says is not true: This implies that channels will reject prices for you.
2. Yes, I think that what scherzi says is true: This implies that channels will be targets when prices come back and that these channels won't hold prices and, therefore, they will be broken.
3. It is not black or white!! It is random what a channel does!!: This implies that you can use probability to determine what the channel will do after n repetitions with a certain degree of likelyhood.
4. Channels do not exist!!, well, then you cannot trade what does not exist.

All these statements are valid from a particular perspective each one.

In fact, everything is relative. The NFP and the channel. Setting up a custom strangle (I say "custom", so do not assume I am describing a standard strangle) over a channel during NFP may not be that bad.

I mean, it all depends on your approach. When you add your own analysis and creativity to the old ideas, you may transform these ideas.

Divergence is key. An individual that knows what is a person by looking at the dictionary will never get to know anyone else, because nor you, nor me are defined on a dictionary. Standard definitions are vague terms.

I sometimes use compound and conditional in the same sense because I am not native English speaker and I commit that mistake. I think I have edited my prior post correcting it.

P(B) = P(B|A) when they are independent.
P(B) ≠ P(B|A) when they are dependent.

But let's consider the coin problem.

When you toss a coin, each time you toss it, your probability of getting heads is 50% (there is an experimental probability of 1 over 6000 that you won't get either head or tail, we ignore it).

But now consider a series of events. The probability of getting 10 consecutive heads is not the same of getting 1 head.

If your probability of getting a head is 0.5 in a single toss, the probability of getting it two consecutive times is (0.5)², the probability of getting heads three consecutive times is 0.5³ and so on. So you can generalize that Pₙ(heads) = 0.5ⁿ. And this implies that Pᵢ(heads) = 1 - Pᵢ(tails).

This helps you to optimize problems when you cannot find correlations.

Now think that your price movement is random and that it is random when a breakout continues in the same direction.

You have two independent variables: the direction of price and the breakout of a channel.

Since it is random, the conditional probability of them together P(Breakout continuation|positive price) = 0.5.

But what about compounding?

Being a breakout continuation expressed as P(Breakout continuation|positive price).

P(Breakout continuation|positive price) happening 10 times consecutively is 0.5¹⁰ = 0.0009, which is a "little" smaller than 0.5...

Notice I am not saying that is random, I am just using it as an example to explain randomness.

Another problem is what @RickM mentions about the traps our mind does like:

1. Seeing patterns where they are not.
2. General bias.
3. Intuitive reasoning replacing analysis which is more efficient than rational thinking.
4. Ignoring the main situation and focusing on known or recent details that are not representative actually.
5. Most people cannot understand (effectively) probability problems and will never want to learn how to.
6. ....

An event is not atomic because I have a word on my language to describe it. When I was working for a company in Belgum years ago, during my travels in Belgium I learnt that they have a word, Swaffelen, that means swinging the penis to make it hit an object. For me P(Swaffelen) may be a single event problem. Maybe for anyone else would be a complex experiment. Maybe I define it as P(A) and another person as P(C) ∩ P(B|A).

For a dutch person, that compound event: you are swinging the penis and you are making it bump on something is a single idea. For another person, it can represent a complex concept requiring several verbs and sustantives.

Most people see candlesticks as pure price action. I see candlesticks as an indicator because I have crafted candlesticks myself when designing software applications and I know that, for instance, they are not completely deterministic.

You may know the open and close, but you don't know the order in which the prices within that range were traded in a deterministic way. Then, it is relative to your data provider and the subsystem that generated it. Maybe your quotes could be different from the quotes delivered to another client terminal because the MapReduce conditions allow certain rounding or averaging variance.

What I mean is that even if the trading plan should be very simple, the possibilities when you have to analyze a problem are unlimited.

Besides, (sorry for the edits), you may opt to optimize instead of apply probability, which is another beast.

Kathy Lien wrote a book, "millionaire traders" or something like that which is interesting, it is just stories about common people who became traders in many different ways and using very different tools and ways.

I also like Brett N. Steenbarger books. I have bought most of his books actually. He also talks about the different types of trading problems and how to overcome them and try to find your edge and develop your career.

Whatever the strategy, the trader still have devise a objectively quantified method to point out a mathematically dependent and biased event to give him the trading edge. The only way I know is to follow the math of the master algo. Look at the pic on your chart to see what happen in the future.

You people are SO funny.

Money flows. EVER heard that saying? Orders go in and then they go out. Either they stay for a coffee or they are deleted or expire. MMMM. Sounds like a case of money management to me. Hehehe.

Tell me, when you trade, do you put ALL your money on the table all at once? I don't. And I bet you don't either. Sooooo .... why would anyone else? Yeah I suggest people investigate something called the global money supply. Surely ol' Scrooge McDuck isn't hoarding ALL of it in his vault right?

Order Book. Mmmmm.

Liquidity debates. Mmmm.

The internet is full of funny ideas isn't it.

How about 100 million intentions that culminate into a single space called "the market".





* Ever walked into a corner shop with the assumption that they'll have your favorite drink, only to get there and find they're all out?!! Yeah, and when you ask them when they'll have more in, they just look at you and say .... "Maybe tomorrow? Maybe."

Price. Time. Day. Week. Preferences start behind door number 1,2,3, or 4.

People arrrrrre funny.

Day trading or not. Facts and assumptions are not the essence of any activity, be it large or small.

Either your brain works well BEFORE you walk in the door orrrrrr ...... you're gonna have to make up the gap loss in your operations somewhere now aren't you. Mmmmm. Hehehe. Aaahhh jeez louise.

Just another member blocked. Three in less than one week and one thread. Amazing.

I also add time to the equation.

If at a certain time price has not reached my tp, I close it.

I rarely will leave my trades open after 10AM UK time when I trade the European markets, for instance. And it is important to understand that I said "when trading the European markets", which is quite different that saying "while trading during the European markets hours".

I supposse that trading inside the specific range of price and time I use as a reference is important to me.

Therefore, if the time interval of interest is finished, I am out.

Your probability of making money trading a large U.S. index (or ETF that tracks it) has been shown to increase the longer you buy and hold it. So that, over ten years for instance, you will likely make an annual return of 10 - 15% on the S&P 500.

Day trading does not even give you a 50% chance of making money, for reasons stated above. You're not just factoring in the probability of price going up or down. You also must account for fees, commission, risk:reward ratio (i.e. the price is going to go up and down over any given period, so your stop loss matters).

Now on the other hand, there is money to be made on selling technical analysis to retail traders. Just like there is money to be made on commissions and fees.

A new sucker is born every minute.

spot on!

rest all the are excuses to calm oneself that i know everything. and not ready to accept their is beyond what we already know.

these are not by luck.

Seems you've found the wrong forum. Maybe you need to visit an investing forum. This is a trading forum for all of us trading suckers.

Buy and hold, and do not forget prepare your testament ... you know, in any case when hold is getting long, a bit to longer then expected