Day traders ONLY - a continuing study

[soultrader]

soultrader

Well unfortunately I do not rate Brett Steenbarger at all.



What moves a futures contract [or a stock]

*sentiment
*price psychology
*news
*arbitrage
*hedging
*cash market
*interest rates
*inflation
*etc

These are by definition future events, and unknowable. Thus, Brett is waffling total nonsense.



See above.

Daytrading is really about assuming risk..........and managing that risk in a compressed timeframe. That's it. All you need know is;

*I will assume risk on my entry signal
*I will close the trade at my stop
*I will exit on my exit signal

That's it. Nothing else required. You need know or understand absolutely nothing further than this. If you can do this all day long, with large amounts of money, in a calm manner, you'll do very well.

jog on
d998

Youre right... but in intraday trading everything is 100% technical. Interest rates, inflation, etc.... affect the market definitely. But a day trader can simply choose not to trade the news and focus only on well developed setups. These setups will occur over and over again. This is the bread and butter for a day trader. Short term price movement can be anticipated in day trading. (I actually mean this 100%) Of course nothing is exact science, but more knowledge of the markets = higher probability of success.

As a intraday trader the state of the economy does not matter to me. Of course in a bull market we will see trending days more often and in times of consolidation one must apply a rangebound strategy. Long term sentiment does not matter as well. Market internals will provide me information to analyze the health of the market at that moment. Therefore market sentiment changes everyday, every hour, every minute.

I also think trading is alot deeper than just honoring your stops, exiting at your targets , and assuming risk. These are all important elements for a trader to survive. However, timing on entries and exits is alot more complicated. Why do you enter? Why do you exit? Do you exit mechanically or discretionary? What methods do you use to project your target points? etc..

You can not possibly be successful just by following stops, entries, and exits without a clear understanding of the market you are trading. Otherwise this would just be disciplined gambling. No way you can profit successfully without the markets stopping you out everytime.

Psychology plays a bigger part in trading. Depending on your own pscyhological makeup, traders may feel more emotional pain leaving profits on the table rather than losses. How you deal with your psychological weaknesses is definitely a challenge.

 

[nizar]

Daytrading is really about assuming risk..........and managing that risk in a compressed timeframe. That's it. All you need know is;

*I will assume risk on my entry signal
*I will close the trade at my stop
*I will exit on my exit signal

That's it. Nothing else required. You need know or understand absolutely nothing further than this. If you can do this all day long, with large amounts of money, in a calm manner, you'll do very well.

Great wisdom there.

Also, id like to add that the stop, and exit, needs to be determined before the entry, so you can trade the price action as it comes and not be suprised by anything ie. you will be in total control and will not panic as youve got a solution for every scenario that pans out.

 

[ducati916]

soultrader

but in intraday trading everything is 100% technical.

Incorrect.

Arbitrage is not technical.
Hedging is not technical.
Both of these volume & price executions will take place based on value. Nothing to do with *technical* at all. On occasion, randomly, technical & value will coincide.

choose not to trade the news and focus only on well developed setups.

Again, totally unrealistic nonsense.
Some news will be pre-announced; viz. Fed Interest rate announcements, Earnings, etc. Some news events just happen........and they just happen, while you are in a trade........oh dear!

Of course in a bull market we will see trending days more often and in times of consolidation one must apply a rangebound strategy.

Nonsense.
http://www.crestmontresearch.com/pdfs/Stock Yo Yo.pdf

Therefore market sentiment changes everyday, every hour, every minute.

Which rather makes a nonsense of your *predicting* anything based on market internals etc.

However, timing on entries and exits is alot more complicated. Why do you enter? Why do you exit? Do you exit mechanically or discretionary? What methods do you use to project your target points? etc..

You can make it as complicated as you wish, or as simple, it all boils down to 50/50, which = assume risk @ entry, manage risk, exit for profit or loss.

Otherwise this would just be disciplined gambling.

Well yes and no.
Depends how you define gambling really.

Psychology plays a bigger part in trading. Depending on your own pscyhological makeup, traders may feel more emotional pain leaving profits on the table rather than losses. How you deal with your psychological weaknesses is definitely a challenge.

Daytrading = Psychological adaptation to risk assumed.

jog on
d998

 

[soultrader]

Daytrading = Psychological adaptation to risk assumed.

True but not entirely. If day trading was only about risk management we would see alot more success rate in the field.

Short term price movement can be analyzed with internals. Im a futures trader so this may be different depending on what market you are currently trading. With index futures we have a good amount of tools one can use: TICK's, TRIN, PC ratio, premium, etc... These tools help to understand the market health.

For example, TICK's trading above zero indicates bullishness. So the best strategies would be to look for long setups. However, as I mentioned market sentiment changes all the time. A new TICK low, and now your bullish bias turns neatural to bearish. A balanced market in value... one should apply a rangebound strategy. However a breakout above value with buyers on tape shows a change in market sentiment from neutral to bullish. This is what I am reffering to changes in sentiment for day traders.

Also, news comes out all the time. Yes you are correct. However, how many news actually affects the instrument you are trading? If there are economic reports coming out at 10:00am... you can simply trade after the market reaction. If Fed numbers are coming out in the afernoon, simply trade the morning. There are ways to avoid getting caught up in the news. For index futures, this is very obvious. The market dries up before news is released and volume suddenly picks up.

I dont know about you... but how many independent traders do you know that use arbitrage in their trading technique???

Question for you: Do you day trade? If so, what market do you trade?

 

[nizar]

James,

I visited your website, some really good stuff there.
I thought this article was excellent

Three Pervasive Myths in the Trading World


Brett N. Steenbarger, Ph.D.


My work as a trading psychologist has provided me with a fascinating window on the factors that separate successful from unsuccessful traders across a variety of settings, from proprietary firms to investment banks to hedge funds. Having met and worked personally with well over 100 professional traders in the past few years, the main conclusion I’ve come to is that most of the generalizations about trading success are simply not true. In this article, I thought I’d summarize three of the more pervasive myths about trading success out there and offer my own, different perspectives.

Myth #1: Emotions are at the root of trading problems. Yes, emotions can interfere with concentration and performance, but that doesn’t mean that they are a primary cause. Indeed, emotional distress is as often the result of poor trading as the cause. When traders fail to manage risk properly, trading size that is too large for their accounts, they invite outsized emotional responses to their swings in P/L. Similarly, when traders trade untested patterns that possess no objective edge in the marketplace, they are going to lose money over time and experience an understandable degree of emotional frustration. I know many successful traders who are fiercely competitive and highly emotional. I also know many successful traders who are highly analytical and not at all emotional. Trading is a performance field, no less than athletics or the performing arts. Success is a function of talents (inborn abilities) and skills (acquired competencies). No amount of emotional self-control can turn a person into a successful musician, football player, or trader. Once individuals possess the requisite talents and skills for success, however, then psychological factors become important. Psychology dictates how consistent you are with the skills and talents you have; it cannot replace those skills and talents.

Myth #2: Anyone, with dedicated effort, can get to the point of trading for a living. That is nonsense. How many people make their living from acting or musical performance? What proportion of people playing sports can actually make their livelihood from athletics? Many people play chess or poker, but how many can sustain a living from it? Quite simply, to make a living from any performance activity means that you are consistently good at what you do. Not everyone has the talent, skill, or drive to be that successful””in any field. Across the many traders I’ve met in various settings, from home-based, independent traders to professional ones in firms, the best predictors of trading success have been the size of the trader’s accounts and the resources available to the trader. If a person were to make 25% per year on their accounts year after year, they would be among the world’s most successful money managers. Most money managers of mutual funds, hedge funds, and pension funds cannot sustain such performance. If, however, a trader begins with $50,000 of capital, he or she may not be content with $12,500 of profit. This leads the trader to accept huge leverage and court a risk of ruin when an inevitable string of losing trades occurs. Indeed, such excess leverage is a main cause of emotional distress in trading. Take a look at how the Turtles made their money: they learned a trading method, learned to be consistent with that method, and were given enough money by Richard Dennis that they could trade multiple markets with enough size to scale into positions in each. Even with those resources, not all of the Turtle students could succeed. Talent, skill, and opportunity are the ingredients of success, and these are relatively normally distributed in the trading population, just as they are relatively normally distributed in the population at large.

Myth #3: The main cause of trading failure is a loss of discipline. This is a myth perpetuated by “trading coach” and “guru” types that: a) don’t trade themselves and b) have a vested interest in your belief that their services are all that stand between you and success. The main cause of trading failure is a lack of an objective edge in the marketplace, trading random patterns that have never been tested out for success. We would never consider buying a car simply by looking at it. We’d want to research it, test-drive it, and peer under the hood. Amazingly, however, many traders will risk far more money trading patterns that they never research or test-drive. Many times, the reason they stray from those methods is that, intuitively, they realize that those methods are not working. In any performance field, we find a hard-and-fast truth: the great performers spend more time practicing their performances than actually performing. That is just as true for the Broadway actress as for the Olympic athlete. Many traders, however, think that on-the-job training will be enough. Unfortunately, their accounts often don’t survive their learning curves. A well-placed executive within a trading firm confided to me last year that the average time it takes the average trader to blow through their entire account is seven months. That is why brokerage firms are always on the hunt for new customers. It’s not that these traders are all deficient in discipline: they simply haven’t engaged in sufficient practice to figure out the right markets and trading styles for them and to hone their skills. In every other performance field, you can find relatively easy levels of competition: you can join a community theater, play rounds of golf at the par-3 course, or set the challenge level on your chess computer. There is no easy level of competition in trading, however. When you place a trade on a major exchange, you are up against the pros from day one. No wonder it is so difficult to succeed! Discipline is necessary for trading success, but there is much more to success than discipline. It takes concerted practice and the cultivation of skills at reading and acting upon market patterns.

In an ideal world, I wouldn’t have to challenge these myths. You’d be able to obtain very realistic messages about trading success from brokerage firms, vendors, trading gurus, books, and magazines. The reality, however, is that most of these commercial entities have a vested interest in perpetuating a dream that is, in reality, a cruel fantasy: that, without real, sustained effort, anyone can make it big as a trader.

Does that make me a Scrooge during this holiday season, saying “Bah, humbug!” to the aspirations of thousands of traders? I think not. The reason I wrote my most recent book, Enhancing Trader Performance, was to show that there is a common process beneath the development of elite performance in any field. That process involves several components:
Finding a Niche – Identifying a performance field that takes maximum advantage of your skills, talents, and interests;
Deliberative Practice – Rehearsing skills in increasingly realistic settings to prepare for the challenges of actual performance;
Constant Feedback – Intensive review of performance to identify strengths and weaknesses, so that you can capitalize on the former and address the latter.
The successful traders I’ve known have found a market (or set of markets) and a trading style that capitalizes on their abilities. They have been relentless in working on their skills, using videotaping to review markets and performance and using simulators to rehearse under different market conditions. To sustain such effort requires a love of the markets themselves, something not all traders have. Some traders love the action, some love the dream of making money, some love the opportunity to work for themselves””but many don’t love the work itself: the effort of mastering patterns in demand and supply.

Success is possible in trading as it is in any performance field. If anyone tells you, however, that the path to trading success is different than it is for the surgeon or Olympian, you know that you’re hearing a myth. If you choose the path of the elite performer, trading can be wonderfully challenging and rewarding. If trading is not your ideal path for self-development, however, you are far better off finding your passion elsewhere and managing your money prudently. The goal is to develop the best within you, whether that is as a trader or as something else. Your life deserves nothing less.

Also; a question for you. Why did you start trading futures? ie. instead of say, stocks. Have you ever traded stocks? Just curious.

 

[soultrader]

James,

I visited your website, some really good stuff there.
I thought this article was excellent

Also; a question for you. Why did you start trading futures? ie. instead of say, stocks. Have you ever traded stocks? Just curious.

Thank you Nizar. To be honest, I had little success day trading stocks. I wasnt losing money but I wasnt finding success. I was still a rookie trader when I started playing with stocks and I spent a good amount of time scanning stocks. I was also severly distracted by Level 2 market maker games. When I started trading index futures, I could concentrate on just a few instruments: like the dow, russell, and S&P. This made my life alot easier. I also use alot of market profile in my trading and they work nicely for the YM.

I am also located in Japan and we have a 13hr time difference. Which means I start trading at 11:30pm. Which is why I enjoy the emini's right now. They move in the first 60 minutes and I can call it a day and it fits my trading style.

I also enjoyed the article as I am a big fan of Brett Steenbargers work. I thought his book "The Psychology of Trading" was an excellent book.

 

[It's Snake Pliskin]

Soultrader

These tools help to understand the market health.

...or one's interpretation of it.

I dont know about you... but how many independent traders do you know that use arbitrage in their trading technique???

Not too many I would imagine.

I also think trading is alot deeper than just honoring your stops, exiting at your targets , and assuming risk. These are all important elements for a trader to survive. However, timing on entries and exits is alot more complicated. Why do you enter? Why do you exit? Do you exit mechanically or discretionary? What methods do you use to project your target points? etc..

You can not possibly be successful just by following stops, entries, and exits without a clear understanding of the market you are trading. Otherwise this would just be disciplined gambling. No way you can profit successfully without the markets stopping you out everytime.

Yes, it is ok to romanticise that only exits make money, but it is a process of parts, so to speak. So Soul I do agree with you.

Snake

 

[ducati916]

soultrader

Short term price movement can be analyzed with internals. Im a futures trader so this may be different depending on what market you are currently trading. With index futures we have a good amount of tools one can use: TICK's, TRIN, PC ratio, premium, etc... These tools help to understand the market health.

Take $TICK, scalpers will enter at extremes and fade the move, but they tend to fade it to equilibrium, possibly a couple of points. This is scalping, and you need lots of trades, and or large size.

TRIN uses the same mindset for scalpers, fade the extremes.
The point is, market internals only hold for very short moves, before you return to equilibrium, thus, you are scalping. If you scalp, you need even more discipline than a longer term daytrader.

The second consideration becomes, how reliable are these internal measuring devices? Well they are again, not much better than 50/50 They provide CONFIDENCE, or a psychological/emotional crutch [misplaced perhaps] in taking an entry, they define a stoploss exit, and a take profit exit.........just add discipline.

Also, news comes out all the time. Yes you are correct. However, how many news actually affects the instrument you are trading? If there are economic reports coming out at 10:00am... you can simply trade after the market reaction. If Fed numbers are coming out in the afernoon, simply trade the morning. There are ways to avoid getting caught up in the news. For index futures, this is very obvious. The market dries up before news is released and volume suddenly picks up.

Preannounced news releases can be avoided, or traded, I thought we pretty much covered that contingency already.

Unexpected news, this can be the killer, as you cannot plan in advance for the effects, you can only manage the outcome. It may be +'ve or -"ve and this is a pure discipline skill.

I dont know about you... but how many independent traders do you know that use arbitrage in their trading technique???

You have missed the point.
In missing the point you simply highlight your misplaced confidence within the *indicators* that you mention.

Hedging & Arbitrage tend NOT to be used by retail. They tend to be used by Institutions, as a way of managing, or off-setting risk. As such, their trades can go totally against the rational flow of the market [your indicators]
This would be fine, except they do it in such size, that it overwhelms for a brief period the *trend* and as price effects price, and there go your market internals for you.

Question for you: Do you day trade? If so, what market do you trade?

Not any more.
I used to trade stocks & the NQ contract.

jog on
d998

 

[ducati916]

nizar

The article that you have used as an example from Brett Steenbarger just illustrates perfectly why I consider him a peanut.

My work as a trading psychologist has provided me with a fascinating window on the factors that separate successful from unsuccessful traders across a variety of settings, from proprietary firms to investment banks to hedge funds. Having met and worked personally with well over 100 professional traders in the past few years, the main conclusion I’ve come to is that most of the generalizations about trading success are simply not true. In this article, I thought I’d summarize three of the more pervasive myths about trading success out there and offer my own, different perspectives.

He summarizes his credentials, thus, medically trained, I have great expectations for one of my own. Now note the highlighted sentence, he will refute three MYTHS

Myth #1
Emotions are at the root of trading problems.

Therefore, Brett should be arguing the case that *emotions*, however defined, are not correlated to trading problems.

Unfortunately, he makes the case for the opposite premise, that in point of fact emotions, and emotional dysfunctional states, are causative within failed, and failing traders.

Indeed, emotional distress is as often the result of poor trading as the cause. When traders fail to manage risk properly, trading size that is too large for their accounts, they invite outsized emotional responses to their swings in P/L.

This is almost a chicken & egg scenario.
Which came first, the bad decision, or the emotional response?
Emotions are a part, an inherent and inseparable part of human physiology & anatomy. As such, they cannot be removed.

Position size choice is composed of two elements, cognitive knowledge + confidence in that cognitive Knowledge. Confidence, is an emotion.
Thus the position size that is too large;

*poor knowledge + overconfidence in outcome
*average knowledge + overconfidence in outcome
*excellent knowledge + overconfidence in outcome

A better position equates to;

*good knowledge of risk assumed + plan to manage that risk + exit strategy + confidence in self to execute plan

Thus in both scenarios, emotions are vital.
Without confidence, you will not trade, invest, or assume any form of risk.
Thus *emotions* are vital to trading, they underpin participation.
You gotta be in to win baby!

Trading is a performance field, no less than athletics or the performing arts. Success is a function of talents (inborn abilities) and skills (acquired competencies). No amount of emotional self-control can turn a person into a successful musician, football player, or trader.

Incorrect.
I could know absolutely NOTHING about the market at all.
I might know tech/a
I might have absolute faith in tech/a
I might possess extreme discipline from dieting down from 160kgs to 100kgs
I use TT
I make a bundle of money

jog on
d998

 

[ducati916]

Myth #2: Anyone, with dedicated effort, can get to the point of trading for a living. That is nonsense.

While I am somewhat of a sceptic, I will also acknowledge that pretty much anyone with dedicated effort can get to the point of trading for a living.

Dedicated to amassing enough;
*capital
*knowledge
*psychology
*etc

Brett Steenbarger is the master of the ill-conceived generalization. While the above is not easy, may take quite a length of time, require working a normal job in the early days, nonetheless, it is possible.

jog on
d998

 

[soultrader]

Not any more.
I used to trade stocks & the NQ contract.

That's what I thought.


Corrections:

1. TICK fades are not only for scalpers. You obviously do not know how to apply TICK strategies to your trading.
2. TRIN fades? How do you possibly fade a TRIN extreme? I have never heard of anyone fading TRIN's. The trend of the TRIN is the most important. TRIN breakouts from a range is a powerful strategy.
3.The second consideration becomes, how reliable are these internal measuring devices? Obviously you do not know how to use them. Internals tell me everything I need to know about the short term direction of the markets. 50/50??? Nonsense... more like 8/10.

 

[ducati916]

That's what I thought.


Corrections:

1. TICK fades are not only for scalpers. You obviously do not know how to apply TICK strategies to your trading.
2. TRIN fades? How do you possibly fade a TRIN extreme? I have never heard of anyone fading TRIN's. The trend of the TRIN is the most important. TRIN breakouts from a range is a powerful strategy.
3.The second consideration becomes, how reliable are these internal measuring devices? Obviously you do not know how to use them. Internals tell me everything I need to know about the short term direction of the markets. 50/50??? Nonsense... more like 8/10.

As for #2............Well now you have.

As for the rest of your assertions, they are just that assertions.
If you wish to demonstrate your live trading skills, or more to the point the robustness viz 8/10 market internals, feel free to jump on the chat, I'm always up at the market open, and I'll keep you company.

Any day is fine, just post the date here, and I'll be there baby!

jog on
d998

 

[soultrader]

You have fading and breakouts all mixed up. Here are a couple charts I would like to share to make things clear. If you knew how to use market internals properly, 50/50 is just a bunch of nonsense.

First chart: This is a chart from yesterday. Internals say alot about the short term direction of the market. I rely on the TICK's alot as this is by far my favorite market internal tool.



1. Price lifts into value on a positive tick reading at the opening.
2. Volume dries up after the first 60 minutes.
3. In the afernoon, you can anticipate a breakout out of value due to the bullishness in the TICK's. Notice how the TICK's spent almost all its time above the zero line in the morning. You can anticipate a continuation of the trend in the afternoon.

This chart shows how to read TICK's to gauge market direction.

Second Chart: Another example of using TICK's to watch for shifts in market sentiment. I use a reference point first to judge whether the market is bullish or bearish. If price is trading below a reference point, a new TICK low adds further confirmation for my bias and a short setup.



Third Chart: This is an example of a TICK fade. Works in a rangebound market. In an uptrending market, you do not want to be fading upper TICK extremes. Instead time your entries on a pullback and a lower range TICK fade. Vice versa for a downtrend.

Notice how profitable TICK fades were on this day. By no means are TICK fades a scalping tecnique.



Last Chart: This is a TRIN breakout. Why would you fade TRIN extremes???

A TRIN that is usually caught in a range can offer powerful trading signals on a breakout. I usually like to see TRIN in a range for a minimum of 2 hours.

 

[ducati916]

soultrader

First off, none of your charts can be seen [not by myself anyway]
Second off, with daytrading, or any short-term analysis, or any trades really, I am not remotely interested in HINDSIGHT analysis, strange how it always seems to verify previous assertions.

I am interested only in live trades, done, well you know, live.
Anything other than live is just so much bs.

Either trade it live, or, stop wasting my time.

jog on
d998

 

[Bobby]

Soultrader those charts you posted are just little red crosses that I can't open ??

 

[soultrader]

Sorry about the charts. I have uploaded them again.

Heres them in order:

Chart 1:




Chart 2:




Chart 3:




Chart 4:

 

[soultrader]

soultrader

First off, none of your charts can be seen [not by myself anyway]
Second off, with daytrading, or any short-term analysis, or any trades really, I am not remotely interested in HINDSIGHT analysis, strange how it always seems to verify previous assertions.

I am interested only in live trades, done, well you know, live.
Anything other than live is just so much bs.

Either trade it live, or, stop wasting my time.

jog on
d998

All the strategies I mentioned are setups I take on a daily basis. I have a handful of intraday setups that I apply to my trading and I take them automatically.

I also find it hard to discuss any intraday topic to someone who doesnt even day trade. So, yes I am wasting my time and yours. Let's talk again when you are actually day trading.

 

[onemore]

Hi Duc

If my memory serves me right you used to make around $3,000.00 a week daytrading.
What were the reasons you stopped daytrading?

cheers

 

[Bobby]

Open question for anyone.

Fades on extreme Trin ratio's seems an option, But when & why?

 

[soultrader]

Open question for anyone.

Fades on extreme Trin ratio's seems an option, But when & why?

There are a few strategies based on fading TRIN extremes. But this is not common. For example if the TRIN closes at extreme readings of 1.5 and above (prefer 1.9-2.0), there is a good possibility that the markets will gap up the next morning. (have tested this out with index futures only) But the best entries are usually in the overnight session when price dips a little more.

Other than that, the TRIN tends to chop around or trend. Unlike the TICK's it doesnt move from one extreme to another. Therefore, TRIN fades can not be utilized like TICK fades. I personally watch the trend of the TRIN closely.

Once again, these are best to be used as tools for your trading. Setups can be developed but understanding price action is king in my humble opinion. There are days when TICK's are trading above zero but price is declining. Is price lagging the TICK? Or is TICK lagging price? Stick with price... its the only leading indicator. On Dec. 21st, 2006, the index futures declined on a positive TICK reading. This was definitely bearish and once it broke below value the markets went on for a nice downtrend day.


Chart for Dec. 21st, 2006