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Skate said:
Traders can obtain important insights and learn how to adapt such strategies to meet their own needs and goals by investigating and examining instances of successful trading techniques that have been previously used.
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We don't need to reinvent the wheel
There is no need to create the wheel from scratch when it comes to trading. There are numerous tried-and-true trading methods that have proven successful over time and withstood the test of time. This does not imply, though, that traders should adopt stale tactics and take it easy. Building on the basis of already-existing techniques and incorporating these enhancements is the key to creating a profitable trading approach. This entails evaluating the advantages and disadvantages and determining where enhancements might be made.

Creating a trading strategy
Traders can, for instance, use fresh technical indicators or analytical tools to gain a greater understanding of market trends and patterns. They can also employ risk management to reduce potential losses and increase potential gains. In the end, creating a trading strategy is not about coming up with novel concepts but rather it is about enhancing existing ones.

Making something old new again
Adding a volume-weighted moving average indicator to the blank chart above takes into account the trading volume, which can provide insights into the strength of a particular security. The (VWMA) indicator makes it useful for identifying trends with higher trading activity and I sell that position when the trend loses momentum. Simple and repeatable.




Skate.
 
ducati916 said:
Many swear that 'price' is the primary indicator, others (myself) laugh at that notion and maintain that price is only a momentary illusion and fade price.
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@ducati916 my interpretation of what you are saying here is that you would be entering a trade for fundamental reasons and therefore may be entering a bull position when price still falling. Please correct me if I'm mistaken. A lot of traders do this for a number of different reasons and for these traders, price becomes a confirming indicator. I think that @Skate would be entering on positive price movement due to the mechanical nature of his systems, Skate please correct me if I'm mistaken.
 
DaveTrade said:
I think that @Skate would be entering on positive price movement due to the mechanical nature of his systems, Skate please correct me if I'm mistaken.
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@DaveTrade you are absolutely correct when it comes to my style of trading, I'm a mechanical trend trader and I should expand on that. As a disclaimer, I should also point out that "mechanical trend trading is not risk-free", though. Unexpected market developments or shifts in patterns can always result in losses. To succeed, with this style of trading, traders must also be disciplined by continually adhering to their rules.

Mechanical trend trading
Trading this way takes most of the guesswork out of trading. This approach spots market patterns and employs a predetermined set of rules to enter and exit transactions. Mechanical trend trading has the benefit of taking emotion out of the equation. By concentrating on trends, traders can take advantage of the market's momentum which is more likely to result in gains.

Skate.
 
What should we buy?
What should we buy and when should we buy it are the two key concerns that traders must address. Risk tolerance, and @ducati916 edge time horizon, admittedly are critical elements to trading. When it comes to trading, timing is essential because making a purchase at the wrong time can result in large losses. It's crucial to keep in mind that these two questions only represent a portion of what's required to trade successfully.

Another essential component is knowing when to sell it
Traders should have a well-defined exit strategy in place so they can lock in profits or, if necessary, reduce losses. In the end, a thorough strategy that takes into account every step of the trading process, from spotting opportunities to timing trades and controlling risk is necessary for effective trading. Traders can significantly increase their chances of long-term success by adopting a systematic and methodical approach to trading.

Skate.
 
Skate said:
The (VWMA) indicator makes it useful for identifying trends with higher trading activity and I sell that position when the trend loses momentum. Simple and repeatable.
Click to expand...

The VWMA Strategy
Ultimately, striking a balance between profitability and risk management is the key to effective trading. To stay ahead of the curve, traders must be able to spot profitable opportunities, manage their risk wisely, and modify their methods as necessary. I have attached a few charts displaying the entry and exit positions taken by the VWMA Strategy this calendar year. (A4N, MYR, and WBT)











This is the worst trade taken by this strategy this calendar year
A precisely defined exit ensures losses from spiralling out of hand.




In Summary
The VWMA Strategy isn't too shabby & its timing is normally impeccable but losses are unavoidable.

Skate.
 

Mr Dave,

First off I wouldn't particularly expect anyone to grab the right end of the stick because I was purposely being a bit vague.

I do not use 'fundamentals' in trading, particularly not micro.

I trade volatility (vega) modified by (theta). As a consequence of that I implicitly trade time in addition. The greater the timeframe (duration) the greater the variability in volatility. I hedge out 'price'.

So the timeframe that I like is 8mths-1year. This usually allows for enough news flow...which drives volatility to make the trade profitable. It's definitely not everyone's cup-of-tea, but it means I only need check the market once a day and I'm not tied to the screen.

In addition to my full time job I trade for a prop. firm which provides access to huge capital (OPM) which of course leverages my base capital x100+. This is (obviously) a factor in a lethargic timeframe. The % return on capital is +/- 30%/annum. Which doesn't sound terribly exciting but leveraged up...nice dollars.

jog on
duc
 
My interpretation of the 70 20 10 rule given by Mr @ducati916 is that your knowledge/expertise..so to build a system or learning trading is 70% self taught experience, 20% shared knowledge like peer exchanges or ASF ? and 10% fundamental learning aka books etc
Unless as discussed before, the 70 20 10 related to the risk management strategy.
Context rules?
Only Mr Le Duc can confirm but both are quite valid
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

12. Emotions drive us
Our emotions are a typical source of irritation when it comes to trading. Strong emotions such as fear, greed, or enthusiasm may cause us to lose our emotional intelligence and make decisions that are not in our best interests. This is why trading can be so challenging since it involves a lot of emotional control and self-control.

Our decision-making is largely influenced by our emotions, and trading is no different. But it's crucial to realise that we don't have to let our emotions rule us. Although emotions can motivate us, this does not mean that we should allow them to rule our trading actions.

We may lessen the impact of emotional biases in trading by sticking to our trading plan and avoiding rash decisions. This calls for self-control and dedication to our trading plan. It is crucial to have a well-defined trading strategy, a clear grasp of one's own risk tolerance, and trading abilities if you want to successfully combat "emotional bias" whilst trading.

This involves identifying our emotional triggers and figuring out how to effectively control them. You may reduce the influence of emotions on your decision-making and improve your chances of long-term success by establishing a precise trading plan and adhering to it.

Successful trading requires a combination of knowledge, skill, discipline, and emotional intelligence for successful trading. By being aware of biases and actively attempting to overcome them, traders can enhance and improve their decision-making process and raise their chances of long-term success by actively managing their emotions and attempting to overcome them.

Skate.
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

13. Our first losing trade
Every trader has experienced the sinking sensation in their stomach when their first trade goes against them. This may set off a variety of feelings, such as dread, worry, anxiety, and panic, which may cloud our judgement and cause us to make poor decisions.

It's only natural to try and get rid of the bad feelings when a trade goes against us. It’s important to realise that selling under these circumstances is frequently influenced more by feelings than by reason.

Even if selling goes against our trading plan or strategy, many traders find that “exiting the trade" is the best course of action to let their anxiety go. Ending a trade on the basis of emotions might be a rash decision that could result in substantial losses.

Cutting a trade early might relieve stress right away, but it is crucial to understand that our emotions, not logic are driving that decision. Our brain stores this experience in memory, which can result in a behavioural pattern that prompts us to take the same course of action in the future.

Never enter the markets without a clear and well-defined trading plan, doing so avoids letting our emotions take over. We may reduce the influence of emotions on our decision-making and improve our long-term trading success by establishing a precise exit plan and profit targets and adhering to them.

It is important to have awareness of our present feelings and thoughts so we can make more thoughtful and careful decisions. With this understanding, we may step back and evaluate the issue more objectively, allowing us to make judgements driven by logic rather than emotions.

Skate.
 

Where there is a will there is a way
I have no doubt that trading can be thrilling as well as frustrating, especially when the market remains range-bound for an extended length of time. I also understand how difficult it may be to make money in a market with no direction as a trend trader. Even in a market that is range-bound, there are still ways to profit. From my perspective, it is better to trade the range's brief fluctuations by jumping on breaks only under defined circumstances. Trading this way needs patience, self-control, and an acute sense of timing.

In general
It's crucial to maintain your trading discipline and patience during choppy market conditions by timing the entry. By maintaining your trading discipline and patience during choppy market conditions ultimately you may be successful in turning a profit. Trading success ultimately depends on knowing when to enter and having the patience to wait for the appropriate exit. Finally, you can manoeuvre through difficult market situations and ultimately profit by doing this.

Skate.
 
Skate said:
From my perspective, it is better to trade the range's brief fluctuations by jumping on breaks only under defined circumstances. Trading this way needs patience, self-control, and an acute sense of timing.
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Timing is essential to trend trading
It is better to trade the range's fluctuations by jumping on breaks only under defined circumstances. Trading this way needs patience, self-control, and an acute sense of timing. Why? Because it is possible to produce consistent profits by combining a timing strategy with a carefully thought-out exit strategy. It's crucial to remember, nevertheless, that timing is not enough to guarantee trend trading success. To achieve long-term profitability, other elements including risk management, position sizing, and filters are also crucial. You can improve your chances of success and lower the dangers involved in trading by doing this. Just keep in mind that discipline and consistency are the keys to success.




Skate.
 

Exactitude, clarity, in a trading plan will not save you if you are too big in the trade.

Position size is the #1 rule, AKA capital allocation management.

Remember Mike Tyson's quote: everyone has a plan until they get punched in the face. Position size can mean the difference between a bloody nose and unconsciousness.

*Addendum

Some like to adjust trades. Fine.





jog on
duc
 
DaveTrade said:
Post number 8609. Skate said:
Ending a trade on the basis of emotions might be a rash decision that could result in substantial losses.
Click to expand...

ducati916 said:
Exactitude, clarity, in a trading plan will not save you if you are too big in the trade.

Position size is the #1 rule, AKA capital allocation management.
Click to expand...

Skate said:
To achieve long-term profitability, other elements including risk management, position sizing, and filters are also crucial.
Click to expand...

Buy a position too early or selling too late can result in substantial losses
Timing is crucial in trading because getting it wrong can lead to big losses. Additionally, it's essential to have the self-control to follow your plan and control your emotions when making trading selections. Greed and anxiety frequently cause traders to act irrationally and rashly, which can result in poor portfolio results. I'm just saying, position sizing & timing are important considerations when it comes to strategy development.



Skate.
 
Strategy construction
When creating a trading strategy, position sizing and timing are crucial factors to take into account. While precise trade timing can maximise earnings, proper position sizing can assist control of risk and prevent significant losses. Position sizing involves choosing how much money to put into each transaction based on variables like risk tolerance, and account size. This can ensure that profits are increased and losses are kept to a minimum.

Entry, exits and position sizing are the keys
It's critical to choose the best entry and exit points for each trade based on technical analysis when it comes to timing. This calls for perseverance and self-control. Overall, a winning trading strategy necessitates a careful balancing of position sizing and timing, as well as other crucial elements like risk management and emotional restraint. You may improve your chances of long-term profitability and reduce the dangers involved in trading by concentrating on these crucial components.

Skate.
 

So if your 'edge' is 50% and your R/R = 1:1



The above simply illustrates that trading too big kills you pretty quick.

So with an 'edge' of 50% how often would you encounter 5 straight losses?

In a 50 trade sequence you could expect that to occur 77% of the time. Now when you encounter that 5 straight loss run also makes a huge difference. If they are your first 5 trades, then pretty much anything over 2% and you are gone. In the middle the above. At the end, you can turn a small profit at 2% position size in almost every iteration.

With an edge of 60% that 5 run losing streak occurs 38% of the time. With an edge of 80% only 1.5%

Which is why you must skew your R/R well above 1:2 if you are a 50% edge player (random) to trade profitably.

The thing with high win ratios is that your R/R starts to look like 20:1 (a 98% win ratio). You HAVE to stay small because an early loss, only 1 or 2 can blow you up. Even 2% position size is too much. You need to be 0.05% or some-such.

Then I hear, stop losses. This is where the psychology (if you are too big) blows you up. You cannot adhere to the stop and take the loss (it'll come back, hold for the long term, blah, blah).

I can stick to my trading plan: the trading plan says weekly adjustments. Really? Your backtesting is to 3STD outliers. Bang you get hot with a 5STD in 3 trading days. What happens to your plan?

Your 2% position size isn't for a position operating under a stop loss. It is a position size (2%) that assumes a 100% loss of capital.

jog on
duc
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

14. Trade with a plan
A trading plan is a set of rules and guidelines that a trader follows when making decisions about entering or exiting a trade. Success in trading depends on having a clearly defined trading plan as it enables a trader to maintain discipline, focus, and objectivity in the face of market turbulence and uncertainty.

A solid trading plan is essential for achieving success whether you employ technical or fundamental analysis that should include the market index and time frames you wish to trade, assisting you in staying focused on your desired method of trading.

You will also need to determine the amount of capital allocated to trading so you can create a risk management plan that includes establishing stop losses, profit taking, and the bet size for each position. Another factor is deciding how much money you are willing to lose in each transaction in the event of unfavourable market conditions. Doing this will assist you in limiting your losses and safeguarding your capital.

Trading is a very emotional activity, so it’s important to create a strategy for controlling them. By doing so, you will remain disciplined in your approach and refrain from acting rashly out of fear or greed. This will enable you to remain focused even in times of market panic.

Keeping thorough records of every trade you make, noting entry and exit points, profit or loss, and the rationale behind each one will assist you in identifying trade patterns that may enhance your trading performance allowing you will learn from errors and mistakes.

By continuously reviewing your performance it may identify areas based on your trading results that need attention. Constantly evaluating your trading results will allow you to stay competitive, and up-to-date with current market conditions.

The bottom line is that a well-written trading strategy should outline your trading goals and objectives, time periods, risk management strategies, realistic targets for gains and losses, analysis techniques, emotional control plans, record-keeping, and ongoing growth. Your chances of succeeding in the markets and achieving your financial objectives can be improved by including these crucial components in your trading plan.

Skate.
 

@ducati916, I must say your post got my attention realising the graphs were generic. When it comes to trading methods and risk management, there is a lot to unpack. Reducing drawdowns and managing successive losses is a critical area of importance to me. To limit drawdowns I always code a precise set of exits condition in the event that the market swings against any position. Having multiple exits assist in protecting capital and limiting losses.

Combining "time and lack of momentum" stops means that you exit the trade if the market doesn't move in your favour within a specific time frame or if momentum isn't moving in the desired direction. By doing this, you can reduce losses by not hanging on to trades that are not performing as expected.

In general, it's critical to have flexibility and an open mind when it comes to improving risk management methods and trading tactics.





Although you gave a sample of 50 trades, I may expand my point by using a lower sample size, like 22 trades over a 6-month period. We may disagree on the best way to make money, but I firmly believe that sharp selling is an essential element of successful trading.

I will let the highlighted boxes provide extra context and background on my point rather than going into great detail. Even while the number of successive winners and losers may be equal, their "value can vary greatly" depending on the particular elements and justifications I mentioned previously.




Skate.
 
Last edited:

Agree. Your 'edge' is 55% with a R/R of what is approximately 1:2.7.

Those numbers will work.

Those numbers work in part due to your 'stop' strategy. If for whatever reason, failure in discipline or a market event that pushes the correlation to 1.0, then those numbers will change.

All the above is trade management.

Your 'risk' management taken as a portfolio, is for me far too risky. You are 100% long in a single strategy. Stocks: long. In an outright bull market, this is of course the correct overall position.



Currently and for some time now the ASX has been sideways.

Long only strategies should be scaled back in this scenario (possibly you have already done this). Portfolio management, or risk management or capital allocation, should now be sitting at strategies designed for a sideways market with small(er) allocations to bull and bear strategies. Only the strongest/weakest stocks in the strongest/weakest sectors should be taken as directional trades.

I know at one point your preference was for a weekly strategy. I'm guessing that your 'stale stop' has become far shorter in time than it may have been previously. A hard stop is a hard stop, so no particular adaption needed there.

This is 1 of my portfolio holdings:



Pretty much sideways with some volatility day-to-day. It is a sideways strategy. The point however is: if I was running a hard stop I would have been bumped out of this trade (potentially) several times. Therefore for me and this strategy a stop is a position size that allows a 100% loss. Ie. small relative to portfolio capital. I do however retain the ability to stop out or adjust the trade as I go. If I adjust, it becomes a NEW trade.

A caveat on adjustments: adjust your winners never your losers. If I do adjust, no longer can I run a 100% loss position. Now I must run a hard stop as the trade is a different trade than originally placed.

I would be very interested to see you develop a system or even adapt one of your stock systems to FX. This would provide you an opportunity to have a de facto 'SHORT' system. Traders in Aus. suffer great difficulties in having or executing a short system. FX would give you that ability. Surely there are any number of currency ETFs that could be traded?

Anyway, just food for thought.

jog on
duc
 
The ETf landscape has greatly changed in the last year or so on the ASX.
As a result, my initial research on a pure ETF system ( which allows you to be long only yet short..with bear ETF and to trade some FX etc..) might be worth redoing.
When I will have time.. never..or free capital again.. whenever that might be ? I will try a rerun and see if it is worth investigating again.
On my initial search, the realm was too small and I reverted to xao.
Edited to reset autospell
 
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