# CFDs - Eric Kratzer S/T Method



## prawn_86 (14 November 2007)

Hi all,

I have dedicated this thread to the discussion of a trading method i have come across designed by a man named Eric.

It is an intraday/short term plan and is really very simple and has produced excellent results so far, although it has not been operating for long.

I have been in contact with Eric and have his permission to post it so here it is:



> My selection criteria for trading the ASX20 is as follows:
> 
> Use the intraday chart set to 2 minutes.
> Set one EMA to 7, another to 15
> ...




I am going to start paper trading this method today to see how it pans out, as my biggest concern is the brokerage costs.

More details can be found at his website:
http://www.tradingaustralianshares.com/index.html


Enjoy!


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## Trembling Hand (14 November 2007)

prawn_86 said:


> Hi all,
> 
> I have dedicated this thread to the discussion of a trading method i have come across designed by a man named Eric.
> 
> ...




Someone should be able to back test this system.  Anyone?

The problem I see with this systems is the targets in practice are not large enough for the stops. With bad fills + brokerage plus nothing to keep you out of the market when longs are fighting the days treads + nothing to play on the short side your risk to reward with MA crossovers don't pay off.

But still willing to be shown otherwise. 

Why don't instead of paper trading you do 1 share CFDs trades. It’s going to cost you $20 per trade but I know it’s a waste of time paper trading a 2 minute chart. You will always be taking a guess as to your fills. With that kind of trades the entries and exits can be a huge part of the profit or added loss.


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## prawn_86 (14 November 2007)

I really cant afford to do the 1 share trades, the brokerage will kill me lol. 

Student = low capital base.

With my paper trading i am going to have all my screens in front of me so i will make the buy and sells as accurate as possible.

Check out Erics site to see his results so far.

I do agree however that the R:R is very low, but i guess that comes hand in hand with intraday trading.


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## Trembling Hand (14 November 2007)

prawn_86 said:


> I really cant afford to do the 1 share trades, the brokerage will kill me lol.
> 
> Student = low capital base.
> 
> ...




Tell you what if it works I will set up a BOT using IB and run it live for you.


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## prawn_86 (14 November 2007)

Awesome, thanks.

One other thing i noticed when i was manually eyeballing the charts yesterday was that another exit to preserve profits is to red candles (when going long) in a row.

If you exit then it generally saves you trailing down to the EMA15. 

But that is just my addition which i will be testing.


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## prawn_86 (15 November 2007)

Yesterday didnt fare too well, i think it was because there was not enough range in the market (maybe).

I wont be doing any paper trades today as i have to study for exams. But let me know if anyone else out there has tried.


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## nomore4s (15 November 2007)

prawn_86 said:


> I do agree however that the R:R is very low, but i guess that comes hand in hand with intraday trading.




I don't really agree with this, you can still have a good R:R intraday trading imo. A good R:R is a big part of being profitable, with a low R:R you only need a small run of a few losers - which will happen with all traders and systems - and it becomes hard to pull it back with a low R:R ratio. Just my


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## lbradman (15 November 2007)

I'll backtest this in WealthLab if anyone knows where I can get free intraday historical data. Doesnt have to be ASX.


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## Trembling Hand (15 November 2007)

nomore4s said:


> I don't really agree with this, you can still have a good R:R intraday trading imo. A good R:R is a big part of being profitable, with a low R:R you only need a small run of a few losers - which will happen with all traders and systems - and it becomes hard to pull it back with a low R:R ratio. Just my




 exactly.


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## nizar (15 November 2007)

nomore4s said:


> I don't really agree with this, you can still have a good R:R intraday trading imo. A good R:R is a big part of being profitable, with a low R:R you only need a small run of a few losers - which will happen with all traders and systems - and it becomes hard to pull it back with a low R:R ratio. Just my




Actually I beg to differ.

Shorter term systems TEND to have lower R/R and higher win% than longer term systems, and this is associated with the short trade length.

Maximum string of losses is actually entirely dependant on your win%. Nothing to do with R/R.

Prawn_86,

This system needs to be backtested before you trade it.
The backtest will tell you several critical information which is required before you risk real dollars.

Such as:
*Is the system profitable over a statistically significant number of trades?
ie. a month?
*What is the Profit factor and average win:average loss?
*What is the win%
*How long is average trade length?
*How many trades a day do you expect to make? ie. opportunity/trade frequency.
*What is maxDD?

Ibradman,

Free intraday data? lol if you find it, let me know please


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## prawn_86 (15 November 2007)

Yeh i would love to backtest it Nizar, but its not really a mechanical system as such, its more designed to be used manually while all your screens are open. thats not to say a system couldnt be designed for it, if it was profitable in backtesting.

But since i dont have the correct programs/data/experise i am just going to paper trade it for a while and see what i think.

Thanks for the discussion so far guys.


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## nizar (15 November 2007)

Prawn_86,

Is this what you were referring to as excellent results?

http://www.tradingaustralianshares.com/CFD.HTML

Profit of $1,670 in 2 months playing with $10k parcels doesnt look too flash to me


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## prawn_86 (15 November 2007)

But the margin used was only $300 per trade as it was via 3% CFDs.

Does this make it better? I think it was like a 20% profit in 6 weeks


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## professor_frink (15 November 2007)

nizar said:


> Actually I beg to differ.
> 
> Shorter term systems TEND to have lower R/R and higher win% than longer term systems, and this is associated with the short trade length.
> 
> ...




This method won't backtest well. I don't think there is much point in trying to make it mechanical. It(or a variation of it) could make money with a small amount of discretion involved in trade selection though.


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## prawn_86 (15 November 2007)

professor_frink said:


> It(or a variation of it) could make money with a small amount of discretion involved in trade selection though.




That is also what Eric has stated in my discussions with him. He has said it is part intuitive, and obviously needs some fundamental basis when being applied.

Eg - If a company has released a bad announcement but the MA crosses up at some stage, it is probably not going to rise high enough for brokerage to be covered. 
**this is just my own example not Erics** but i think (hope) it makes sense.


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## nizar (15 November 2007)

professor_frink said:


> This method won't backtest well. I don't think there is much point in trying to make it mechanical.




And as such I wouldn't trade it.

But all the best with it Prawn_86, i will be keeping an eye on this thread to see how you are going.


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## professor_frink (15 November 2007)

prawn_86 said:


> That is also what Eric has stated in my discussions with him. He has said it is part intuitive, and obviously needs some fundamental basis when being applied.
> 
> Eg - If a company has released a bad announcement but the MA crosses up at some stage, it is probably not going to rise high enough for brokerage to be covered.
> **this is just my own example not Erics** but i think (hope) it makes sense.




Yeah that makes sense. Another problem you will find with this kind of method is dealing with the opening period+ gaps. The moves around the open are more volatile, and you'll miss out on quite a bit of action, as the MA's won't respond to a gap opening well. If I was going to trade it, I'd look for a different strategy for the open(unless it's a flat opening).

Honestly Prawn, I think you would have a much better chance of success trying this kind of method on index cfd's. The intraday swings on a 5 minute chart are generally going to be big enough to make up for the slightly larger spread(compared with the futures market)


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## prawn_86 (15 November 2007)

Funny you mention that prof, I actually was going to try it against the index prbably tomorrow when i get a chance.

thanks for the heads up


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## professor_frink (15 November 2007)

prawn_86 said:


> Funny you mention that prof, I actually was going to try it against the index prbably tomorrow when i get a chance.
> 
> thanks for the heads up




No worries Prawn


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## professor_frink (15 November 2007)

nizar said:


> Such as:
> *Is the system profitable over a statistically significant number of trades?
> ie. a month?




I only just noticed this part of your post nizar. Why would a month of trading be considered a statistically significant number? Sure you may get a few hundred trades out of a test, but it takes a hell of a lot longer than that for the market to experience different levels of volatility intraday. If you ran a test out over a month, and then ran an out of sample test for another month and found a good system to trade, you could get smoked when you try to trade it live and the intraday volatility all of a sudden dries up.

Because I'm not a mechanical trader, feel free to ignore any advice that comes from my keyboard, but that sounds like it could be a fast track to quite a bit of lost money.


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## prawn_86 (16 November 2007)

I tried paper trading the ASX200 index via CFDs using this method as Prof suggested and came out break even after 3 trades.

I will continue today using both 2 and 5 min charts to see if that makes any difference, and  when my exams are over i might spend a few late nights and try it on the DOW as that tends to have wider point swings, which means the brokerage wont eat into profits as much.

Anyone else out there been playing around with this method?


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## nizar (16 November 2007)

prawn_86 said:


> I tried paper trading the ASX200 index via CFDs using this method as Prof suggested and came out break even after 3 trades.
> 
> I will continue today using both 2 and 5 min charts to see if that makes any difference, and  when my exams are over i might spend a few late nights and try it on the DOW as that tends to have wider point swings, which means the brokerage wont eat into profits as much.
> 
> Anyone else out there been playing around with this method?




Prawn,

In my opinion leverage should be used to boost the returns of an already sound method. 

Don't expect it to turn a break even system into a very profitable one.

Is 3 trades enough to come to any sort of conclusion?
How many trades is enough?


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## professor_frink (16 November 2007)

prawn_86 said:


> I tried paper trading the ASX200 index via CFDs using this method as Prof suggested and came out break even after 3 trades.
> 
> I will continue today using both 2 and 5 min charts to see if that makes any difference, and  when my exams are over i might spend a few late nights and try it on the DOW as that tends to have wider point swings, which means the brokerage wont eat into profits as much.
> 
> Anyone else out there been playing around with this method?




Do you have a screenshot of the chart with trades marked on it? If you do, post it up for some opinions. If you don't, it might be time to start


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## prawn_86 (16 November 2007)

nizar said:


> Prawn,
> 
> In my opinion leverage should be used to boost the returns of an already sound method.
> 
> ...




It was only the first (half) day of paper trading Nizar.

I will prob paper trade for a month whenever i am at home and not studying and see how it goes after that and decide to pursue it further or not.

Prof - i will work on some screenshots


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## prawn_86 (16 November 2007)

Ok here is my first 2 trades from this morning. I have kept the chart big so entrys and exits can be shown clearly.

Remember this is not a mechanical system and is just a guideline not a set rule. The brokerage fees cmc charge are just the spread which is always 2 points during the day, so this has been subtracted/added to the profit and loss figures i will post.

Trade 1:
Short @ 6486    Out @ 6472   Profit = $12
Exited this based on 'gut feel'

Trade 2:
Long @ 6486     Out @ 6496   Profit = $8
Exited this as i was worried about 6500 acting as resistance

Feel free to ask any questions.


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## professor_frink (16 November 2007)

prawn_86 said:


> Ok here is my first 2 trades from this morning. I have kept the chart big so entrys and exits can be shown clearly.
> 
> Remember this is not a mechanical system and is just a guideline not a set rule. The brokerage fees cmc charge are just the spread which is always 2 points during the day, so this has been subtracted/added to the profit and loss figures i will post.
> 
> ...




Does the index you are trading have the night session Prawn?


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## prawn_86 (16 November 2007)

Yeh it does, but the spreads are usually about 5 - 8 points so you get slugged a lot more in brokerage.


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## Trembling Hand (16 November 2007)

prawn_86 said:


> Trade 1:
> Short @ 6486    Out @ 6472   Profit = $12
> Exited this based on 'gut feel'
> 
> ...





Here is the problem with a system that is not a system. You have a 'rule' for entry yet gut feel for exit? Your Method then becomes a discretionary one. And I would think if you are trading by using discretion you can do a lot better than MA crossovers. If you had rules for exit like close position after a bar crosses the slower MA as you can see the result would of been diff. If you are going to use discretion why didn't your gut get locked up at the point I have put ??? on the chart and you exit?


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## prawn_86 (16 November 2007)

I have to admit at the '???' point i was very close to closing the trade.

This system was never meant to be mechanical, even Eric has stated in his website that if he feels a price has risen (or dropped) too fast then he will exit the trade to preserve profits.


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## professor_frink (16 November 2007)

prawn_86 said:


> Yeh it does, but the spreads are usually about 5 - 8 points so you get slugged a lot more in brokerage.




Na, I wasn't going to mention trading the night session, I was more curious as to whether it was in your chart or not. On the futs, there wasn't a cross on the 2 min at the open, it was more of a continuation play on the downward move. But it was your exit that got me interested- you got out right at the o/n lows as they were being rejected. A little early, I would have waited for some kind of a reversal pattern at that level before exiting, just in case it was just pausing before carrying on lower, which happened a couple of minutes after you exited. But the result would have been pretty well the same in this case. 

All looks good though prawn Even with the spread on the index, you've probably done a whole lot better than if you had of taken a couple of swings at a large cap and had to pay 4 lots of brokerage.


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## prawn_86 (16 November 2007)

Thanks Prof,

The point about waiting for a reversal is a valid one, as i tend to lock in profits a bit too early. I did it yesterday with one of my short trades, only to see it keep falling.

I guess thats why you paper trade, to iron out these problems/details.


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## prawn_86 (16 November 2007)

next 2 trades wern't too good.

Trade 3
Short 6478   Out 6482   Loss 6
Exited with my own theory; 2 opposite coloured bars. 


Trade 4
Long 6488   Out 6482   Loss 8


This is the problem with the ASX200 imo, there is not enough of a daily range. By the time the MA's cross over it is halfway through its range meaning you have to pick the exact top to make any decent profit. Hence why i am going to try it on the DOW when exams are over


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## professor_frink (16 November 2007)

prawn_86 said:


> next 2 trades wern't too good.
> 
> Trade 3
> Short 6478   Out 6482   Loss 6
> ...




The daily range on our market is fine Prawn! The method just needs a little work


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## prawn_86 (16 November 2007)

Ok, perhaps i just get frustrated not knowing things instantly lol.

Im here to learn and practice


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## Trembling Hand (16 November 2007)

prawn_86 said:


> Ok, perhaps i just get frustrated not knowing things instantly lol.
> 
> Im here to learn and practice




Practice is the best learning so keep at it.

I suspect you will find out that your entry and exit signals are just too slow. You will be entering half way through a new trend . And more often than not just too close to the end of the trend. Have a look at your entry price and see how far away it is from the high or low of that trend. You are getting in at the middle not much move left to pay for mistakes, stopped out trades, bad fills and then pay for a beer and the rent.


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## prawn_86 (16 November 2007)

thanks TH,

thats what i alluded to in one of my other posts.

Do you have any suggestions as to how it could be improved?

im open to all ideas. but basically i want a set of intraday rules/guidelines that i can use for those times when i am in front of the computer.


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## professor_frink (16 November 2007)

prawn_86 said:


> Ok, perhaps i just get frustrated not knowing things instantly lol.
> 
> Im here to learn and practice




You traded the opening 2 swings of the day and got them both right. I would have taken my money and ran! There seems to be a perception that intraday traders are glued to the screen all day trying to pick up every last tick available. It doesn't have to be this way, and IMO opinion shouldn't be. Right now, I'm done with the SPI for the day(I only took 1 trade today). Whilst your paper trading and just looking for something that 'fits' with you, then take all the trades you want, but when(if) you decide to go live, you don't have to trade all day, or even all morning for that matter. My goal for the SPI is to pick something up in the morning whilst it's active and moving quickly, then if I still feel like trading, I'll go and have a look at some other markets in the region. Occasionally, I'll snag a runner and get to hold it for extended gains and clean up, but most of the time, it's about picking up the small moves, making some money and enjoying the rest of my day


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## CFD (16 November 2007)

What are the indicators used in the lowest third of your chart?
For an entry the MACD would normally cross over before two MA. Doesn't help with an exit though.


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## professor_frink (16 November 2007)

trembling Hand said:


> Practice is the best learning so keep at it.
> 
> I suspect you will find out that your entry and exit signals are just too slow. You will be entering half way through a new trend . And more often than not just too close to the end of the trend. Have a look at your entry price and see how far away it is from the high or low of that trend. You are getting in at the middle not much move left to pay for mistakes, stopped out trades, bad fills and then pay for a beer and the rent.




yep, trading the crossover isn't 100% ideal. There has been a pullback after every crossover this morning that would have provided a better entry price, and a closer stop, which makes a huge difference when it gets choppy.


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## prawn_86 (16 November 2007)

CFD - its a MACD and a stochastic. I have noticed the MACD crosses before the MA but havent actioned on it yet.

Prof - i am the same really, i just want to place a couple of trades when im able to, like i said to TH. But since im here today im just seeing how it works across the whole day


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## Trembling Hand (16 November 2007)

prawn_86 said:


> thanks TH,
> 
> thats what i alluded to in one of my other posts.
> 
> ...




Have been waiting for someone to ask since this thread started.

*Throw away one of the MAs.* Why does it have to be a MA cross? They are for dummies looking for a holy grail. They get so wound up in looking for an indicator that they forget about the only thing that matters, the PRICE. Why not a Price cross over one MA have a look at the charts better entry and exit every time.

Why use two lagging indicators to give you a signal?? I have a theory on this one but that’s for another time.


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## prawn_86 (16 November 2007)

thanks TH,

i had a quick look at the chart and it looks interesting...

one must remember that Eric designed this to use on stocks, but now im just adapting it on the index.

i guess it just comes down to whatever works for each person. but i will def start looking at just a price cross on the 7min and 15min MA


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## eric35 (16 November 2007)

People had some question about the profit possibility of this trading plan. I see it as follows:
Assume you have $5000 in your CFD account. Assume we use this figure to calculate our profit/loss, because this is the amount of money we have tied up.e.g., taken out from our normal trading account.
The profit as show in my table is approximately $1500. We did 33 trades at $10,000, brokerage $10 per trade. Take this amount away so we have a net profit of about $1170.
A profit of about 23%, not bad for 2 months investing. I leave it up to you to work out the annual return.
You do not have to sit at your computer everyday unless you wish to increase your trades. Many days you could have 2 trades, up to you. But it is a good little system to carry out if you are sitting at your computer do other trading.


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## prawn_86 (16 November 2007)

Welcome aboard Eric 

I trust you will find some interesting discussion here at ASF.

Just to follow up from my other posts i executed one other trade of the index today.

Trade 5
Long 6486   Out 6494   Profit 6


Total profit for the day = $12
Total profit over 2 days (8 trades) = $12

This is assuming a 1 contract 1% CFD via CMC Markets which would have a margin each trade of approx $64. You could purchase more contracts and scale up the margin and profit/loss.

therefore profit over 2 days = 18.75%.
Not too shabby at all 

I will be continuing next week, but due to exams will not have a lot of time so probably not many trades will be executed.


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## Trembling Hand (16 November 2007)

eric35 said:


> People had some question about the profit possibility of this trading plan. I see it as follows:
> Assume you have $5000 in your CFD account. Assume we use this figure to calculate our profit/loss, because this is the amount of money we have tied up.e.g., taken out from our normal trading account.
> The profit as show in my table is approximately $1500. We did 33 trades at $10,000, brokerage $10 per trade. Take this amount away so we have a net profit of about $1170.
> A profit of about 23%, not bad for 2 months investing. I leave it up to you to work out the annual return.
> You do not have to sit at your computer everyday unless you wish to increase your trades. Many days you could have 2 trades, up to you. But it is a good little system to carry out if you are sitting at your computer do other trading.




Welcome to ASF

I have to say that I find it amusing, misleading and maybe even dangerous to be concentrating on % gain with a couple of CFD trades.

Your exposure when you open a CFD trade is not the margin required. Anyone serious about a trading system would be more interested in their exposure or real risk rather than return on a very highly leveraged product.

I would suggest also that if you really want to pimp a 'system' that a bigger sample is tested. If you have a larger sample, either live or back tested, it would look a lot better. Really a system should be judged on numbers like,
Avg win, Avg loss
% win, % loss
Max # of losers
Max draw down... Etc. not on return over a month or two.

Then after you know these numbers can you draw a real conclusion about the expected return. 

But in any case look forward to some more results.


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## prawn_86 (16 November 2007)

TH,

i agree that there has not been enough trades carried out in order to decide how good this method really is.

However, how is one supposed to backtest when the method relies on judgement, and is more of a 'framework' than a mechanical system? three out of my 5 trades today were exited on my own feeling rather than the 'rules'

After my exams finish i will experiment with just one MA and price action also.


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## eric35 (17 November 2007)

Trembling Hand,
What do you think is the real risk or exposure? Of course in this case, the exposure is $10000, but where do you place the real risk? 
In day trading the ASX20 you attend to your computer all day and you can get out of a trade anytime you wish. So your risk is down to your stop loss. Perhaps you don't fully understand day trading.
As far as your %win,%loss and number of wins and number of losses etc are concerned, you can easily work them out for yourself on my table on my web site.
Yes, the sample is far too small to do any statistical analysis, backtesting is impossible due to the flexibility invoved. Wait til the sample grows, then we can assess further.
BTW, I put ALL my daytrades on the website, not just a few selected ones.


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## nizar (17 November 2007)

trembling Hand said:


> Welcome to ASF
> 
> I have to say that I find it amusing, misleading and maybe even dangerous to be concentrating on % gain with a couple of CFD trades.
> 
> ...




TH you have putting up some really good posts lately.

This one I like it very much -- in fact, it could have easily been me that wrote this, lol.

One more criteria to judge a system ESPECIALLY if using high leverage, is the largest string of losses.

Its critical to know this beforehand so you will know the probabilities that the system will destroy you.

And Prawn, you'd do well to listen to what TH is saying.
Try to look for price based signals, not MAs that lag the price action.


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## nizar (17 November 2007)

eric35 said:


> Trembling Hand,
> What do you think is the real risk or exposure? Of course in this case, the exposure is $10000, but where do you place the real risk?
> In day trading the ASX20 you attend to your computer all day and you can get out of a trade anytime you wish. So your risk is down to your stop loss. *Perhaps you don't fully understand day trading.*
> As far as your %win,%loss and number of wins and number of losses etc are concerned, you can easily work them out for yourself on my table on my web site.
> ...




Daytrading or any type of trading has risk.
As competent traders, its important that we understand this, and try to quantify and manage our risk.

You say your risk is down to your stop loss.
But how many consecutive losses can your capital handle?

How many consecutive losses are statistically possible according to the win% of the system?

If you don't know this then you have no idea of what your risk of ruin is from trading the system.


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## CFD (17 November 2007)

nizar said:


> ~~
> How many consecutive losses are statistically possible according to the win% of the system?




In Excel
=ROUND(LN(_1000_)/-LN(1-_35%_),0)

Trades = _1000_
% of winning trades = _35%_
Longest loosing sequence = 16

Maximum draw down is something different, because you could have say 2 or 3 wins after this loss sequence and then have another run of outs of say 8 or 10 or 12.


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## nizar (18 November 2007)

CFD said:


> In Excel
> =ROUND(LN(_1000_)/-LN(1-_35%_),0)
> 
> Trades = _1000_
> ...




Yes thats true.

But even 16 losses in a row, Im pretty sure this would send all CFD traders bankcrupt.


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## vishalt (18 November 2007)

imo aussie shares are the worst to day trade due to the market generally pricing in all the good news right before the open, 

i disagree with his methods but yeah, it really sounds like you have to be hawking the computer to trade.


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## nizar (18 November 2007)

vishalt said:


> and wow @ all these forumlas to calculate a good trade, sounds like youd have to a full time sit at home all day trader for that.




Actually no, not quite.
I use "all these formulas" and I trade using a weekly timeframe. I only have to really spend 1hr a week trading roughly.


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## vishalt (18 November 2007)

[QUOTEnizar;225015]Actually no, not quite.
I use "all these formulas" and I trade using a weekly timeframe. I only have to really spend 1hr a week trading roughly

is it working?


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## nizar (18 November 2007)

Too early to tell.

But i need to have some degree of confidence in the system before i start trading it -- as opposed to "trading blind".

Trading blind is where you trade a system having no idea if the system is even profitable, no idea of how profitable it is, no idea how long to expect before results start to show, no idea on what sort of drawdown you are likely to experience during trading, and no clue as to what largest string of losses will be.

Though I must say I am suprised at the number of people (or punters?) that trade a system without knowing the basics as I've outlined above.

Each to their own i guess.


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## So_Cynical (18 November 2007)

I cant help but think all these "methods" are just a way to be more confident with 
your punting....i used to do the same with horses and roulette wheels.

Happy Trading/punting.


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## professor_frink (18 November 2007)

eric35 said:


> Trembling Hand,
> What do you think is the real risk or exposure? Of course in this case, the exposure is $10000, but where do you place the real risk?
> In day trading the ASX20 you attend to your computer all day and you can get out of a trade anytime you wish. So your risk is down to your stop loss. *Perhaps you don't fully understand day trading.*
> As far as your %win,%loss and number of wins and number of losses etc are concerned, you can easily work them out for yourself on my table on my web site.
> ...





Morning Eric,

welcome to ASF

Interesting that out of all of the people that have posted in this thread on your method, you've managed to make this comment to one of the few people on this forum that actually daytrades!

I'm sure Trembling Hand understands daytrading just fine

Couple of questions/coments about your method if you don't mind.

1. Do you have any way of dealing with the opening? Gaps and moving averages don't work too well together.

2. Why crossovers? Wouldn't the method be a lot better off if you used the crossover of the two averages as your trend filter, and then started loking for a pullback in a trend? Most of the time(as prawn found out on Friday) buying crossovers will have people buying/selling into the top/bottom of an inital move up or down. Waiting for a pullback after the crosover will provide a better entry price, closer stops, and will allow the trader to at least scratch out on a minor move on a non trending day.




nizar said:


> Though I must say I am suprised at the number of people (or punters?) that trade a system without knowing the basics as I've outlined above.
> 
> Each to their own i guess.




*BOOO!*

So after a total of a few weeks trading a 'system' yourself, and with less than 20 trades under your belt, you are now in a position to refer to people that don't trade the same way as yourself as punters. How funny.


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## prawn_86 (18 November 2007)

nizar said:


> Though I must say I am suprised at the number of people (or punters?) that trade a system without knowing the basics as I've outlined above.
> 
> Each to their own i guess.




Yeh Nizar,

I have to agree with Frinky's comment.

As i have said previously this is not a purely mechanical 'system' so there is no way in which it can be properly backtested, hence making your figures useless, *in this scenario*.

Maybe it is not a representative sample, but system traders seem to be very 'sole focused' on their method and not able to see that there are other ways/combinations/mixtures/hybrids/styles of trading that can involve a mash up of different styles. 

I appreciate the discussion but can you please tell me a way to test and gain all your figures, other than how i am doing it? Ie - paper trading, as historical perspectives will not work due to the human decisons needed to be made


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## CFD (18 November 2007)

nizar said:


> Yes thats true.
> But even 16 losses in a row, Im pretty sure this would send all CFD traders bankcrupt.




Hence the need to also relate the S/R to the R/R.


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## Trembling Hand (18 November 2007)

eric35 said:


> Trembling Hand,
> What do you think is the real risk or exposure? Of course in this case, the exposure is $10000, but where do you place the real risk?
> In day trading the ASX20 you attend to your computer all day and you can get out of a trade anytime you wish. So your risk is down to your stop loss. Perhaps you don't fully understand day trading.




Eric, Sorry to come out on the attack so strong but I do have a real problem with people stating % return on trades or trading systems without recognition of the high leverage and therefore the high risk of the system.

Let me try and explain. What gave you the 20% return is not *your system *but *your leverage*. You were buying shares of the value of $10,000. I believe that anyone who has tried to put together a trading system after blowing up a couple of accounts realises that you need a system that works regardless of the leverage. And your system, from a quick scan admittedly, is relying on small win to loss ratios suped up with huge leverage. In this little day trader’s mind is a recipe for going nowhere long term if not going backwards fast.

CFD providers use that kind of marketing to suck the newbies into their market making CFDs by appealing to everyone’s weakness. Who wouldn't want to make 20% in two months. The problem is there is no thought given to your risk. And why do they give you the huge leverage? Because they are on the other side of your trade and they know the best way to ruin someone’s account is give them huge leverage. With huge leverage your chances of getting into a distressed state is great. Not stressed but distressed and as I noticed on your website you are a Psychologist, surely you can recognise the MASSIVE problems that this can create. And once you have taken a decent hit with leverage the damage is done. Rarely do newbies come back from such hits. Which brings me to my point that as a health professional you will surely understand....
Prevention is better than cure. 

Systems that rely on leverage to win are destined to fail.

Oh and while I'm ranting on if you think your mental stoploss is your risk you haven’t traded enough yet. How many times do stocks in the ASX20 halt trading unannounced to release news? I would say at least a couple of times a week. There is a big risk that your stop will not help. But the biggest problem with CFDs is anyone that has taken real $$ from them soon finds their account not getting the same fills as when they started. You get requotes just as you try to get out of a trade or their 'award winning' software crashes. Not to mention the effect that always buying/selling 'at market' has on expectancy of a short term trading system. And I am yet to see a new trader have an average stoploss anywhere near their mental stop on a short term market system. Just too hard, when the stocks move they move too fast to get good fills and this effects learners average stop big time.

But still will be more than happy to be shown your system works just not too happy with claims of 20% return due to big time leverage.


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## nizar (18 November 2007)

professor_frink said:


> *BOOO!*
> 
> So after a total of a few weeks trading a 'system' yourself, and with less than 20 trades under your belt, you are now in a position to refer to people that don't trade the same way as yourself as punters. How funny.




LOL good point Prof 

But really thats how I saw it for myself.
I stopped trading for about 3-4 months while i was designing my system. My mates asked me why and I told them because I felt like I had no idea what I was doing and felt like I was punting.


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## eric35 (18 November 2007)

Trembling Hand, just a very quick reply about CFD providers. I deal with a provider that gives DMA, no requoting as you have access to the market directly.  You see what u get


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## AMR (19 November 2007)

trembling Hand said:


> Have been waiting for someone to ask since this thread started.
> 
> *Throw away one of the MAs.* Why does it have to be a MA cross? They are for dummies looking for a holy grail. They get so wound up in looking for an indicator that they forget about the only thing that matters, the PRICE. Why not a Price cross over one MA have a look at the charts better entry and exit every time.
> 
> Why use two lagging indicators to give you a signal?? I have a theory on this one but that’s for another time.




I'm quite new to daytrading, but won't a price/MA crossover generate a pile of whipsaws? How would you deal with this?


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## prawn_86 (19 November 2007)

Just an update:

No trades today as i was in exams all morning.


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## Trembling Hand (19 November 2007)

AMR said:


> I'm quite new to daytrading, but won't a price/MA crossover generate a pile of whipsaws? How would you deal with this?




If you are getting whipped out of trades to soon you are trading a pattern that isn't there to trade. i.e. you enter on a price cross of a MA but it whips back. Fine didn't work this time but if it doesn’t work the next 5 trades your pattern is not there to trade. Learn historical patterns for the market you are trading then try and trade them live.

My comment came from the fact that by the time two lagging MAs cross you are well into the move. Especially if we are talking intraday. If you are day trading you need very small stops IMO. To keep the avg loss to avg win in your favour. When you enter half way thru a move where do you place a stop that is 1 not going to whip you out on a small counter move and 2 is small enough that you don't have to hit home runs to be greater than your avg loss.


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## >Apocalypto< (20 November 2007)

prawn_86 said:


> Just an update:
> 
> No trades today as i was in exams all morning.




Prawn,

From start till now how has the system done? I am lost in this thread to much banter going on.

Have you traded on any shares or are you sticking to the indexes?

Well done for publicly sharing your project with us and good luck on your exams.

Cheers


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## Trembling Hand (20 November 2007)

prawn_86 said:


> Just an update:
> 
> No trades today as i was in exams all morning.




Hey Prawn. Even if you miss the days action it may be of use to print out the charts and see if your setups trigged on that day.

If you keep them they may end up as a good resource for reviewing the system.


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## prawn_86 (20 November 2007)

Thanks guys, once again no trades today cause of exams.

TH - I do look at the graphs for the set ups, but because the exit is not perfectly defined, i dont like t use those 'what if' scenarios for too much detailed analysis.

Trade It - I have executed 8 trades so far, just on the index, and have made a gain of 11 points. So the $ and % amount profit would depend on each individuals account/margin/brokerage etc etc.


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## PhoenixXx (21 November 2007)

trembling Hand said:


> How many times do stocks in the ASX20 halt trading unannounced to release news?




Good point TH. Even if stop loss is set, there's no guarantee that we would get the price close to what the stop loss is. would love to try the 'system', but setting up the stop loss is still too grey for a newbie like me.


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## prawn_86 (22 November 2007)

Ok Guys,
No exam for me today so i set myself a target of 10points, which may have ended up a little conservative, as i exited both trades a little early.

*Trade 9*
Short 6337   Out 6327   Gain 8 points

**this was not done on the criteria. I have noticed that on days when the DOW drops, our index opens down, naturally, but then it seems to fall alittle more. My guess is the panic sellers getting out. One has to remember the index is just a composite of stocks**


*Trade 10*
Long 6332   Out 6338   Gain 4 points

**entered this one on TH's suggestion, as the price went above both the EMA's. Exited too early as it went as high as 6445, but i was happy with my 12 point gain for the day**


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## prawn_86 (22 November 2007)

Ok so just to sum up progress so far.

I have made a *total of 10 trades, across 3 days*. This has only really been in the morning however, as that is when the index is most volatile.

I am sitting on a *gain of 23 points *so far, after brokerage.

Average time for a trade to be open is around 8 min.


I am now playing around with a few different suggestions. Such as TH's to just use price rather than cross overs.

I stress once again that this _is not a mechanical system _so the results would probably never end up the same if it was to be carried out again, but so far i am pleased with my progress.


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## prawn_86 (23 November 2007)

Took 3 trades this morning for a total loss of 6 points. The 3rd trade is not listed on the chart as it turned against me straight away.

Trade 11
Short 6357   Out 6350   Gain 5
**this was again working on my opening theory in my post above**

Trade 12 
Long 6334    Out 6330   Loss 6
**price above both EMAs. (im still trying to figure this type of entry out. Any clus TH? **

Trade 13
Long 6341    Out 6338    Loss 5


So far 13 trades executed for a gain of 17 points after brokerage.


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## professor_frink (23 November 2007)

prawn_86 said:


> Took 3 trades this morning for a total loss of 6 points. The 3rd trade is not listed on the chart as it turned against me straight away.
> 
> Trade 11
> Short 6357   Out 6350   Gain 5
> ...




my take on trade 12- price was above both ma's, but they were both sloping down, price hadn't even come close to printing a higher low or higher high. If you wanted to be aggressive and get long, waiting for some kind of bottoming formation is a good idea. The double bottom on the SPI shortly after(which looks more like a higher low on your chart) would have been a more appropriate place in this instance.


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## prawn_86 (23 November 2007)

Thanks Prof,

as usual very insightful/helpful. 

I can see why Eric used crossovers, as they are easy to define and see. Next week i will be trying this method on the DOW, which has a bigger point movement, so it will be interesting to see if a crossover can still catch enough of a movement to be profitable.


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## motorway (23 November 2007)

professor_frink said:


> my take on trade 12- price was above both ma's, but they were both sloping down, price hadn't even come close to printing a higher low or higher high. If you wanted to be aggressive and get long, waiting for some kind of bottoming formation is a good idea. The double bottom on the SPI shortly after(which looks more like a higher low on your chart) would have been a more appropriate place in this instance.




Another way of saying that ...

Is with trade 12 you bought resistance...

Concepts of support and resistance  are important I think ...
before you worry about the averages..

motorway


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## prawn_86 (27 November 2007)

motorway said:


> Concepts of support and resistance  are important I think ...
> before you worry about the averages..
> 
> motorway




Hi Motorway,

thanks for you input, always nice to get a range of opinions.

i do have one question, apologies if it is simple, but i am relatively green when it comes to any form of intraday trading.

How do you recognise support and resistance when it is shuch a short time frame? ie - 2 min charts. 

Personally it is easy to look back and say "ahh thats where it was" but when its happening live i find it a lot harder to determine.

Input always appreciated 

prawn


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## Trembling Hand (27 November 2007)

prawn_86 said:


> How do you recognise support and resistance when it is shuch a short time frame? ie - 2 min charts.
> 
> Personally it is easy to look back and say "ahh thats where it was" but when its happening live i find it a lot harder to determine.
> 
> ...



There is the problem with daytrading you have to be able to trade fast and cover all the possibilities within a short period of time. On a daily basis you have at least the luxury of studying the danger points(support/resistance/retracement etc.) out of hours.  Not so when your trades are lasting 10 to 20 min.

With day trading there is another problem. As you are looking at the 2 min chart the big money may be looking at the 5 min/15 min/hourly etc. What setup you enter on the 2 min chart could look to be a fading opportunity on a larger time frame. I think you will find a lot of daytraders trade with multiple time frame charts of the same instrument. A setup presents on a larger time frame and is managed on the smaller time frame.

With that said I think your approach is the correct one. That is trading an idea to test a simple setup and exit to see how it goes. Daytrading is simply pattern recognition it’s just that the patterns are not always simplistic..


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## prawn_86 (27 November 2007)

Hit my 'loss limit' in the first 2 trades today so thats it. Try again on the DOW tonight and on ours again tomorrow.

Trade 14
Short 6350   Out 6356   Loss 8 points
**testing my opening theory again. certainly didnt work this time**

Trade 15
Long 6357    Out 6354   Loss 5 points
**previous candle was above both EMAs and then tested support (there you go motorway  ). I held this one a bit too long as i was tempted to take a small profit but got greedy (bad me!!)**


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## motorway (27 November 2007)

prawn_86 said:


> Hi Motorway,
> 
> thanks for you input, always nice to get a range of opinions.
> 
> ...




Trade 12 was at an upside bulge in a downtrend...

Down trends have new highs too ! Just lower ones.

You still have to work within the bounds of the trend.

This is support and resistance

A higher low then followed
So then the behavior changed.

motorway


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## anthon (8 January 2008)

prawn_86 said:


> Hit my 'loss limit' in the first 2 trades today so thats it. Try again on the DOW tonight and on ours again tomorrow.
> 
> Trade 14
> Short 6350   Out 6356   Loss 8 points
> ...




Prawn,

I am quite the rookie so take this as you like it but I think your opening trade being based on the US movement overnight is a good idea however I think you should have a closer look at the reasons for the US's fall as sometimes (as what happened on Trade 14 for you) a fall in the US (or an announcement of some data) can be a boon for the ASX, hence the increase from open.

Just a thought.


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## eric35 (23 January 2008)

Hi All,

What a couple of weeks we had. Today certainly looks better.

The only way I was able to make some money was day trading with CFD. 

Hopefully the rally holds and we can do some longs again.


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## eric35 (2 February 2008)

The market certainly has changed and we have to look at new methods to make money. The old swing trading stops us out too early, and as soon as we are out, the market moves up again. 
I have found that day trading and very short trading gives me the best profits at the moment. 

I am putting together a revised plan for this type of market. Any ideas would be welcome.


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## porkpie324 (2 February 2008)

I have had limited success day trading index CFD's, I start by identifying a trend using hourly charts, then using a 3 min chart for an overbought/sold situation, then a 1 min chart for entry. I started looking at a system last week, I'm only trading stocks now in extreme oversold situations. Would be interested in your comments or system Eric. porkpie


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## Trembling Hand (2 February 2008)

eric35 said:


> The market certainly has changed and we have to look at new methods to make money.


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## Trembling Hand (7 February 2008)

Ok guys! Just ran a back test on this system with SPI day session data for this year.
This is my first every back test so, pick away. Parameters as follow,


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## Trembling Hand (7 February 2008)

And the results?
Not pretty. If you traded every signal. Note this is without brokerage @ say $8 a round trip(costing $2872). 39% wins.

And this doesn't account for slippage!


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## happytrader (7 February 2008)

Very interesting TH

From your sample were you able to identify at which times you were better off staying out of the market or waiting until a direction was established enough to trade to your advantage?

Cheers
Happytrader


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## professor_frink (7 February 2008)

Trembling Hand said:


> Ok guys! Just ran a back test on this system with SPI day session data for this year.
> This is my first every back test so, pick away. Parameters as follow,




Running a test of the 7/15 cross on a 2 min chart based on the morning session( up to 11:30 am as per the first post in the thread) on a lower vol environment(July 06- Jun07), and allowing for $5 a side brokerage + 1 point slippage on entry and exit(for a grand total of $30 cost entry + exit per trade), based on 24 hour data on a single contract traded gives the following results-

683 trades
227 winners(33.24%)
456 losers(66.76%)
av win $285.81
av loss $176.67
payoff ratio 1.62
profit factor 0.81
max drawdown $-20075
Sharpe -6.95

Pretty dodgy results. But I think most of us knew that before it was even tested


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## professor_frink (7 February 2008)

Just to add, this is only half the method tested as described earlier by prawn- I have no idea how to code in the change over to a higher timeframe half way through the session. Running the same test based on 5 minute data, and trading the entire session instead of just the morning period actually manages to turn a profit....just. But with a profit factor of 1.17 it leaves the possibility of that profit quickly turning into a loss if slippage turns out to be greater in real trading.


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## professor_frink (7 February 2008)

Scratch both of the posts I made above- I didn't have the backtester set up properly- it was coded to buy the open of the bar where the cross took place, not the bar after, so those results should be considered quite flattering to the method, and real trading would result in much, much worse results


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## Trembling Hand (7 February 2008)

Hello Professor.

Ran another test on BHP entries from 10:02 to 12:00 excluding the lunch period when the Averages are going to merge and give you false signals. For this year. long and short. 100 shares per trade. no brokerage or slippage.

Results? Same cut up!


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## prawn_86 (7 February 2008)

Good work guys.

I have to say that the more i trialled it manually, the worse (averaging down) the results got.

I have hence put my day/index trading on the backburner until i get time (and capital) once again 

Why cant there be an easy way to day trade :


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## Trembling Hand (7 February 2008)

prawn_86 said:


> Why cant there be an easy way to day trade :




There is. It is widely recognised to become an expert at any performance field there is just one thing you need to do......

*Spend 10 years in deliberative practice.*

Of course Eric Kratzer would know this. He is the training and mentoring expert!


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## prawn_86 (7 February 2008)

10 Years...

That is 50% of my age!! 

But as they say practice makes perfect


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## Eric (7 February 2008)

Well, guys, the point I always made is that it is NOT a purely mechanical system. It creates a framework, you still have to use your brain to select the right stocks to enter, as well as when to exit. That is why mechanical backtesting will never work.

The fact is, that, especially in this market, day trading according to this method still gives me my best income.

Eric
www.tradingaustralianshares.com


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## Trembling Hand (7 February 2008)

Eric said:


> The fact is, that, especially in this market, day trading according to this method still gives me my best income.




Yes it would seem so. A 80% win rate is outstanding.


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