# Trading is HARD!



## sommi (2 September 2010)

Hard. Hard. Hard. Hard.

Who'd have thought that buying low and selling high could cause a heart attack?

I made two profitable trades and and two bad trades which has put my net profit back to 0. My capital is back to around $4,000 and I am trading some speculative and volatile mining shares. I would love to trade ASX200 top-dogs but I feel I need $50,000 capital to make some okay profits.. and I am using this money now to learn all the lessons that I cannot learn on paper!

I just want to ask a few experienced people about the importance of a few things. 
1. Firstly, how important is it to know the stock you're trading? By this I mean, watching it for a few weeks/months to see how the buy/sell pattern pan out and the unexpected events happen. I do more technical work than fundamental work and focus on volume and chart-work.

2. Secondly, my plan is to swing-trade in periods of 3-4 days (on average) but I got carried away (greedy) and tried intra-day trading and it wiped my profits.
How often should I expect my 'time barrier' to change? Should I focus on keeping it strict or should I focus more on locking away certain profits after Buying and not letting the intra-day activity give me stress attacks..

Thanks.


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## Pairs Trader (2 September 2010)

Anything worthwhile doing is hard, there is no easy route, but it is possible.

To answer your questions;

1) Yes its important to know the stocks you are trading, read the AFR or other financial news everyday and know what stocks are in play and how they might affect related stocks, check www.asx.com for any price sensitive announcements, dividends, etc....use http://www.investorsnetwork.com.au/research_channel/calendar_book/index.php to check for upcoming earnings announcement dates and avoid holding stock during the announcements. The better you know your stocks the more of a ''gut feel'' you will develop for them which can add to your profits.

2) You say your plan is to swing 3-4 days at a time, what is this based on? You need to have a clear and concise trading system that has been proven either through back tests or evidence of other traders achieving success with it, and no, just buying the latest ''hot'' stock in the newspaper and waiting a couple of days is not a viable trading strategy, you need a little more sophistication than that. You need a trading edge, if you don't know what this means, then you don't have one.

Also don't try to day trade ASX cfd's, the spread and commission will eat you alive.

Then you need sufficient capital and at least an hour per day to focus on trading, then like succeeding in anything else, you need to practice - practice - practice and you will get better. You will only get out what you put in.

You need to separate your emotions from swings in your account balance, otherwise your mood levels will start resembling the charts you trade, up and down.

Start with finding a profitable trading system that suits your personality and resources, then develop a trading plan that you will stick to day in and day out.

Best of luck!


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## Sir Osisofliver (2 September 2010)

Sommi here's my version



sommi said:


> Hard. Hard. Hard. Hard.




Trading is.....

Boring boring boring boring 







> Who'd have thought that buying low and selling high could cause a heart attack?




Who'd have thought that watching trades where lot's of money is changing hands and big events are happening all the time could be mind-numbingly boring? I mean you spend years Farking around and finetuning systems and processes so often and research how to do things and it sucks all the excitement out of things.  You end up on forums just for some human contact so you don't end up in the looney bin from boredom 







> I made two profitable trades and and two bad trades which has put my net profit back to 0. My capital is back to around $4,000 and I am trading some speculative and volatile mining shares. I would love to trade ASX200 top-dogs but I feel I need $50,000 capital to make some okay profits.. and I am using this money now to learn all the lessons that I cannot learn on paper!



  I mean my system told me to make 700 trades in the last two years, 400 of which were profitable, and 300 of which lost money but were stopped out before they could do me any damage. I didn't even get the excitement of loosing a big wad of cash and have to play poker with my mates in my spare time to get that thrill of losing money in a risky situation.







> I just want to ask a few experienced people about the importance of a few things.
> 1. Firstly, how important is it to know the stock you're trading? By this I mean, watching it for a few weeks/months to see how the buy/sell pattern pan out and the unexpected events happen. I do more technical work than fundamental work and focus on volume and chart-work.



 It is as important as you make it be. I know that sounds like a wishy washy answer Sommi, but the way that you will trade needs to be the result of experience using the tools that you understand and are comfortable when using. If you are comfortable in using nothing but TA - great!, comfortable only using complicated FA models - great!  If you are starting out examine a range of different techniques for the one's that will most suit you. (or build your own). 







> 2. Secondly, my plan is to swing-trade in periods of 3-4 days (on average) but I got carried away (greedy) and tried intra-day trading and it wiped my profits.
> How often should I expect my 'time barrier' to change? Should I focus on keeping it strict or should I focus more on locking away certain profits after Buying and not letting the intra-day activity give me stress attacks..
> 
> Thanks.




Sound like you need one of the greatest tools that a trader has...self discipline.  This is why trading is boring....lots of research into how to create a system with positive expectancy, lots of testing of that system and then....*sticking to your rules.* 

Cheers

Sir O


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## tech/a (2 September 2010)

Id only add.
Learn about 
Risk Management
Trade Management and
Position sizing.

Id also point this out 



> finding a *profitable* trading method



A plan without knowledge of profitability is nothing more than an idea.

Once you have a few of these your charts become reference points only.
You dont need to decipher what they are telling you.(Your system/method takes care of that).

Once it becomes boring as Sir O says
Youll know you've succeeded.

Oh and you'll probably need that $4 k to gain the tools required to test and design a good system.
Data
Software
Education.


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## sommi (2 September 2010)

Thanks for the replies guys.

I'm into my fourth year at university, current doing finance and economics...

And most of what I learn is that you can't actually trade profitably  I am pursuing this because I want to find a system that can make money off the irrationality of other traders in the same market. I have quickly learnt not to become one of those irrational traders myself so I am actually happy that I have learnt some tough lessons.

But for the past 12 months I have been doing extra-research into T/A because I like watching the randomness of the market. I still haven't got a system yet because my capital is so low and I'm unable to buy live software and charting tool programs. Is this shooting myself in the foot?

The reason why I chose 3-4 day swing-trading is because I feel I can make better decisions watching the close-prices of stocks rather than get caught up in the middle of the day. This is just me. And I also believe that I will over-trade on an intra-day basis. This 3-4 days might even become 5-10 days but I would still feel confident doing so.


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## Sir Osisofliver (3 September 2010)

Hi Sommi,

Well your degree certainly won't hurt...but I came to realize fairly quickly after my degree that what academics do versus the harsh realities of the market are poles apart.

Your statement that most of what you have learnt so far says you can't trade profitably sounds like you've been listening to the old EMH (Efficient Market Hypothesis) and Modern Portfolio Theory. 

If this is the case there are some significant criticisms of the above couple of theories, only strengthened by the recent financial crisis.  



> But for the past 12 months I have been doing extra-research into T/A because I like watching the randomness of the market.




Is the market random? I'd have to disagree with you there. To me the market is chaotic - which is very different to random, and exploitable to those who can figure out how to do so.

Cheers

Sir O


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## sinner (3 September 2010)

Sir Osisofliver said:


> Hi Sommi,
> 
> Well your degree certainly won't hurt...but I came to realize fairly quickly after my degree that what academics do versus the harsh realities of the market are poles apart.
> 
> ...




Sir O said it all.

Market looks like a random walk, but it isn't, otherwise there would be no such thing as a trend. 

Market is a chaotic system which becomes quantised in fractal dimensions as information enters and exits the system in those dimensions. Information in this case being the forces of supply and demand.



> t for the past 12 months I have been doing extra-research into T/A because I like watching the randomness of the market. I still haven't got a system yet because my capital is so low and I'm unable to buy live software and charting tool programs. Is this shooting myself in the foot?




600 hours is the timeframe the average person can be expect to expend before becoming proficient at anything. A day is a perfectly good amount of time for supply and demand to agree on the closing price of a contract, therefore EOD data is eminently suitable for testing. Plenty of free data around:

http://www.tradingblox.com/tradingblox/free-historical-data.htm
http://www.eoddata.com 

spring to mind immediately. If you are 4th year uni you should know at least a little MATLAB or SPSS or something, run your data in that. It's just a time series, you can run the data any style you like, doesn't have to be T/A style. Quantify a few things, is what tech/a and sirO are trying to say. What can you expect from a breakout on low volume on a Wednesday? How many days does the average gap take to fill? If your idea works, how well? If it fails, how badly? A million questions to ask, so figure out the right questions, and work out the answers. None of that will teach you how to trade (only screen time, effort and research will do that - 600 hours of 1 hour a day EOD trading will take you 600 trading days, 250 trading days a year roughly) just how to make trading boring.

Income, Savings, Investment. In that order. Income must be stable, productive, and preferably have nothing to do with the markets. Savings must be liquid, safe, easily accessible, and have nothing to do with the markets. A wise man once said, you are only as wealthy as how many months burn rate you have saved. Once you are wealthy, you can invest only money you can afford to lose, and nothing to do with your savings or income! I like to split the investment 30:70 high risk low risk, in good years high risk will outperform low risk, and in bad years low risk will keep your equity curve smooth. Others I know like to be more risky, and still others, less risky. Up to you, it's all money you can afford to lose, right?

Trading is a profession. There are prerequisites. Without these, trading is HARD.  I assume fourth year macro-economics is "HARD" if you haven't done first year econ 101? Same concept applies.


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## Gringotts Bank (3 September 2010)

I fall into the boring mechanical category with what I currently do, but I'm working on other methods.

A  fun, fast paced 100% discretionary system, similar to what iPod from HC used, but applying some psychological rules in place of profit targets and stop losses would be the ultimate.  iPod (and to a lesser degree Trembling Hand from this site) was the only highly profitable day trader on that ****ty website and they banned him.  He was brilliant.  Just going through his old posts makes me think 'wow'.  Gut feel day trading would have to be the most profitable 'system' I have seen work, by a long shot.... but possibly also the hardest to master, depending on your starting point.


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## tech/a (3 September 2010)

> Gut feel day trading would have to be the most profitable 'system' I have seen, by a long shot.




(A) What is it you have REALLY "seen".
(B) How many account blowups have you see with this amazing 'system'
(C) From Hot Cr8pper---explains it all.


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## Gringotts Bank (4 September 2010)

Since you don't really want an answer, I won't bother giving you one.


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## nunthewiser (4 September 2010)

lol ....... what a copout

no offense intended


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## tech/a (4 September 2010)

Gringotts Bank said:


> Since you don't really want an answer, I won't bother giving you one.






nunthewiser said:


> lol ....... what a copout
> 
> no offense intended




There is a lot posted on forums which are 
"as expected"
This is a perfect example.


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## ducati916 (4 September 2010)

> Market looks like a random walk, but it isn't, otherwise there would be no such thing as a trend.




You can have a _trend_ in a random walk. The usual example being coin tosses: [assuming all the fair coin provisions] flip enough coins and you will get random runs of heads/tails. Look at charts generated by coin tosses, very similar to price charts.




> Market is a chaotic system which becomes quantised in fractal dimensions as information enters and exits the system in those dimensions. Information in this case being the forces of supply and demand.




Numerous ideas here.

First off, you say _information_ is causative of the forces of supply/demand: this rather begs the question, what information, and how is it interpreted, so as to be transformed into forces that drive supply/demand.

Lots and lots of information out there.

jog on
duc


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## nomore4s (4 September 2010)

Gringotts Bank said:


> I fall into the boring mechanical category with what I currently do, but I'm working on other methods.
> 
> A  fun, fast paced 100% discretionary system, similar to what iPod from HC used, but applying some psychological rules in place of profit targets and stop losses would be the ultimate.  iPod (and to a lesser degree Trembling Hand from this site) was the only highly profitable day trader on that ****ty website and they banned him.  He was brilliant.  Just going through his old posts makes me think 'wow'.  Gut feel day trading would have to be the most profitable 'system' I have seen work, by a long shot.... but possibly also the hardest to master, depending on your starting point.




TH doesn't trade off "gut feel" and I have no idea who iPod is but I'm guessing he also doesn't trade off "gut feel" alone.


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## tech/a (4 September 2010)

> I have no idea who iPod is




Here you go


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## Gringotts Bank (4 September 2010)

Why would I answer some rude smart-**** who knows it all already?


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## tech/a (4 September 2010)

Gringotts Bank said:


> Why would I answer some rude smart-**** who knows it all already?




I didn't know we'd met!!


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## mazzatelli (5 September 2010)

ducati916 said:


> You can have a _trend_ in a random walk. The usual example being coin tosses: [assuming all the fair coin provisions] flip enough coins and you will get random runs of heads/tails. Look at charts generated by coin tosses, very similar to price charts.




For pedant reasons: random walk = stochastic process
Stochastic trends differ to deterministic - the latter is what most try separate from the noise to exploit.


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## ducati916 (5 September 2010)

mazzatelli said:


> For pedant reasons: random walk = stochastic process
> Stochastic trends differ to deterministic - the latter is what most try separate from the noise to exploit.




So you are arguing that a _random walk_ = a process involving a randomly determined sequence of observations each of which is considered as a sample of one element from a probability distribution.

This is a statistical viewpoint, and is very common in the financial markets. It is also only one view of a random walk. A second view of a random walk, and one that speaks to the original observation of the information discounting function of markets, are future events that become actual reality, which were totally unexpected.

The result being, a statistical move of say 20 standard deviations, which should never happen in our lifetimes, statistically speaking, which blows out our deterministic position, and can be considered random.

One recent example being the Flash Crash of a couple of months ago.

jog on
duc


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## mazzatelli (5 September 2010)

ducati916 said:


> So you are arguing that a _random walk_ = a process involving a randomly determined sequence of observations each of which is considered as a sample of one element from a probability distribution.




No, my original point is regarding differences in decomposition of a stochastic trend [coin tosses] vs. deterministic trend [e.g. seasonal. momentum etc] from a stat/math perspective.

Yes, there are several definitions of random walk. There is no point using returns of independent and identical distributions, if testing predictability of returns with autocorrelations.

Apologies to the OP for dragging this OT


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## ducati916 (5 September 2010)

matz,



> No, my original point is regarding differences in decomposition of a stochastic trend [coin tosses] vs. deterministic trend [e.g. seasonal. momentum etc] from a stat/math perspective.




Either way you seem to be arguing that market prices somehow conform either to a mathematical process, or, a continued trend driven by the non-independence of the participants, unlike the independence of the coin toss. My argument is that for periods of time, these [seasonal, momentum, mathematical] models will work. Until they don't. This is due to randomness.




> Yes, there are several definitions of random walk. There is no point using returns of independent and identical distributions, if testing predictability of returns with autocorrelations.




I would argue that using any form of statistical distribution in the market is asking for trouble that will eventually wander along.

jog on
duc


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## mazzatelli (5 September 2010)

ducati916 said:


> Either way you seem to be arguing that market prices somehow conform either to a mathematical process, or, a continued trend driven by the non-independence of the participants, unlike the independence of the coin toss. My argument is that for periods of time, these [seasonal, momentum, mathematical] models will work. Until they don't. This is due to randomness.






> For pedant reasons: random walk = stochastic process
> Stochastic trends differ to deterministic - the latter is what most try separate from the noise to exploit.




Where did I argue this, other than make a distinction between stochastic and deterministic trends, and comment that most are trying to find the latter in Px [regardless of whether you believe it exists or not]?

As far as mathematical randomness, there is no question  that defining it is a deep question. Whether that says anything about  EMH or other market theories, is well, interesting...


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## Wysiwyg (18 October 2011)

sommi said:


> Hard. Hard. Hard. Hard.
> 
> Who'd have thought that buying low and selling high could cause a heart attack?



You aren't alone. To buy a low you have to know it is a low and that aint gonna happen till after more trading periods have passed. To sell a high you have to know it is a high and that aint gonna happen until after more trading periods have passed. Both high and low being dependent on the periods observed ... 1 min., 1 day etc.  

*The trick is knowing when to sell* for consistent profit and preferably maximum profit. To know when to sell is dependent upon multiple, maybe infinite variables that effect the price movement. Hard wired sell rules fail on that. Can't sense.  

Know when to sell.


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## young-gun (18 October 2011)

sommi said:


> Hard. Hard. Hard. Hard.




If trading was easy. easy. easy. easy,

Then trading wouldnt be profitable at all


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## tothemax6 (18 October 2011)

sommi said:


> And most of what I learn is that you can't actually trade profitably



Sorry mate, economics has been a stagnant swamp of quackery for quite some time. There is a long list of very wealthy men who have proved the random walk / efficient markets hypothesis completely wrong. Druckenmiller is my favourite example.  

The idea that prices are random is so bizarre, it boggles the mind. Prices are the result of exchanges between men, indeed they are instantaneous ratios of exchange. These exchanges are made based on information and predictions (as a very basic example, I exchange $2 for a loaf of bread because I know I will be hungry, and based on the comparative value of going hungry vs using the $2 for something else). To say that it is impossible to predict future price movements based on information implies that all men are equal, and that all men have equal understanding of the world, and equal predictive abilities. Only under this situation (which is impossible) is it impossible to profit from price movements. 
My favourite example of a 'winner' at processing information better than others, and profiting accordingly, is the Medallion fund.


ducati916 said:


> One recent example being the Flash Crash of a couple of months ago.



I side with those who believe that is was caused by algo/hft trading. I also side with those who believe it was abruptly corrected by algo/hft trading, which rather than people back in 1987, automatically and instantaneously started buying based on fundamental value rather than standing back from fear.


Wysiwyg said:


> Know when to sell.



Isn't that like telling a rugby player 'score more points?'.


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## sinner (18 October 2011)

tothemax6 said:


> The idea that prices are random is so bizarre, it boggles the mind.




Yes, very bizarre!



> If the markets behavior were truly random, then it would be difficult if not impossible to create consistency. If it's impossible to be consistent, then we really don't have to take responsibility. The problem with this logic is that our direct experience of the markets tells us something different. The same behavior patterns present themselves over and over again. *Even though the outcome of each individual pattern is random, the outcome of a series of patterns is consistent* (statistically reliable). This is a paradox, but one that is easily resolved with a disciplined, organized, and consistent approach.



 (Mark Douglas -- Trading in the Zone)

Here is a good thought experiment on the topic...




This is a graph of wind speeds I pulled off google images. You could even imagine the graph is part of a larger index representing broad weather conditions! You could just as easily imagine it was a chart of some mining stock or whatever if I changed the labels. 

Prices *aren't* random, but the outcome of each individual participation in the market is! Maybe then the better description would be chaotic, or nonlinear. 

From wiki http://en.wikipedia.org/wiki/Chaos_theory#Distinguishing_random_from_chaotic_data


> It can be difficult to tell from data whether a physical or other observed process is random or chaotic, because* in practice no time series consists of pure 'signal.'* There will always be some form of corrupting noise, even if it is present as round-off or truncation error. Thus *any real time series, even if mostly deterministic, will contain some randomness.*




Most electronically traded markets these days come with inherent "corrupting noise" in the form of leveraged speculators who don't have to eat their losses thanks to taxpayer subsidy and government bailouts (got nothing against the leveraged specs who have to eat their losses like the rest of us). So markets are much more random these days than they were. Graph some long term Hurst exponents of the markets. iVAR(5) weekly/monthly is a good proxy if you can't calculate it.


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## motorway (19 October 2011)

> Looks Random, Seems Random, So It Must Be Random?
> 
> The rational school of economists who postulated efficient markets assumed stock prices were random. Harry C. Roberts presented one of the earliest renderings of randomness in stocks in 1959. Of course the simplest way to prove randomness in stocks is to discredit anyone who postulates patterns in stocks.
> 
> ...







If you showed a physician an EKG graph generated from random numbers and he gave you a diagnosis, does it prove that the patterns in all the real EKG data are random or did you just put one over on the good doctor? 

So==>

If I give you a series of random numbers  and tell you they are temperatures and ask you is it winter or summer... And you say summer ... Does that mean winter and summer  do not really exist but are just random ?

Or

If I give you a series of random numbers and tell you they are a price series and you say they are showing a trend.... Does that mean that trends so not exist ?

Because The Generators of the numbers  matters .

Motorway


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