Learning to trade

[Chipp]

Consistency is the hardest thing to achieve in trading, it requires a trading system with no weak spots. @Chipp has achieved it with this system. Chip can you tell us more about your system?

That system ive posted is more to exhibit how easy it is to curve fit an algo to suit that data set . A warning of sorts , plenty out there selling these types of almost perfect looking bots that are all hindsight based with minimal if any ability to repeat these results in realtime into the future . An actual robust algo capable of trading decades with a curve like that need to be multi faceted with filters to adjust to changing market states and volatility .

In reality achieving this is more complex than you would think . An algo of this type sort of needs to be a suite of individual algos that each can handle a defined set of market conditions with a filter to change from one to the other , some market conditions just cannot really be dealt with tbh and in these rare conditions the bot needs to be effectively turned of until conditions are more stable . An intuitive algo such as this if built will not be sold or rented for any amount of money , it will be traded . Recently Jim Simons passed , The goat of systematic rules based trading . Possibly the only guy to truly master this style of trading . Go and check him out and dig up the returns of his Medallion fund , absolutely mindblowing .

The takeaway here is be dubious on extraordinary returns touted by online sellers of algos . If they legitimately could return 25% annually over 40 years the last thing they would ever do is sell/rent it out at $99 a month , they would trade it ....

 

[DaveTrade]

The No. 1 Secret to Making Money in the Markets​

By Larry Benedict, editor, Trading With Larry Benedict

What’s the best way to make money in the markets?

Believe me, it’s a question I get all the time.

Especially given my profile as one of the traders featured in Jack Schwager’s Hedge Fund Market Wizards.

I’m in that book in the chapter just after billionaire Ray Dalio. And my inclusion came off the back of a long winning streak that saw me rack up 20 winning years in a row.

What’s more, during my career I made over $1 million on a trade more than 500 times.

Of course, when most folks ask about making money, they expect me to reel off a whole lot of technical jargon…

Like about key levels on a chart, crossover points in technical indicators, or things like reversals in momentum.

And to be fair, these all play a part in my trading.

But the single most important thing that made me as a trader was something far simpler than that…

It was my strict commitment to risk management. I just hated to lose money.

After blowing up multiple accounts and having to start over, I swore that I’d never put myself in that position again.

Don’t Ride Losers​

What new traders often miss is that there are countless opportunities in the markets every day. When I ran my hedge fund, I often made hundreds of trades in a day.

And with all those trades, I was happy to bank lots of tiny profits. It was the accumulation of all these small winners that snowballed into something much bigger over time.

But what I didn’t do (and I was an absolute stickler for this) is that I wouldn’t ride any losers. The moment a trade went against me, I exited it right away.

No sulking or “what ifs.” Nor were there any thoughts of “let’s just give it some more time.” Instead, I just closed out any losing trade and moved onto the next one…

By doing this over and over, exiting a trade for a small loss became something I did automatically. I never got emotional about it.

And that helped stop those small losses turning into something much larger and potentially putting me out of the game.

The other thing I did was quickly cut my position size if a series of trades went against me. It would typically only take a 2% drawdown in my account for me to cut my position in half.

And if for whatever reason I kept losing, I would either cut that position in half again… or simply switch off my computer and go for a walk.

Only when I turned those losses back into profits would I look to go back to trading my original position size.

Remember, you never go broke taking a profit. But not taking a loss is a surefire way to blow up your account.

I’ve seen this mistake destroy countless trading careers.

Focus on Risk Management First​

Too many new traders are only interested in the first part of trading. That is, how much money they can make.

But the way I see it, they’ve got it backward…

Instead, the key thing to ask first is the maximum you’re prepared to lose on any trade. And then to stick to it no matter what.

By strictly capping your losses, you’re protecting your capital to keep you in the game long term.

Understand this and apply it to your trading. It will surprise you how quickly your profits grow.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

 

[colly601]

The No. 1 Secret to Making Money in the Markets​

By Larry Benedict, editor, Trading With Larry Benedict

What’s the best way to make money in the markets?

Believe me, it’s a question I get all the time.

Especially given my profile as one of the traders featured in Jack Schwager’s Hedge Fund Market Wizards.

I’m in that book in the chapter just after billionaire Ray Dalio. And my inclusion came off the back of a long winning streak that saw me rack up 20 winning years in a row.

What’s more, during my career I made over $1 million on a trade more than 500 times.

Of course, when most folks ask about making money, they expect me to reel off a whole lot of technical jargon…

Like about key levels on a chart, crossover points in technical indicators, or things like reversals in momentum.

And to be fair, these all play a part in my trading.

But the single most important thing that made me as a trader was something far simpler than that…

It was my strict commitment to risk management. I just hated to lose money.

After blowing up multiple accounts and having to start over, I swore that I’d never put myself in that position again.

Don’t Ride Losers​

What new traders often miss is that there are countless opportunities in the markets every day. When I ran my hedge fund, I often made hundreds of trades in a day.

And with all those trades, I was happy to bank lots of tiny profits. It was the accumulation of all these small winners that snowballed into something much bigger over time.

But what I didn’t do (and I was an absolute stickler for this) is that I wouldn’t ride any losers. The moment a trade went against me, I exited it right away.

No sulking or “what ifs.” Nor were there any thoughts of “let’s just give it some more time.” Instead, I just closed out any losing trade and moved onto the next one…

By doing this over and over, exiting a trade for a small loss became something I did automatically. I never got emotional about it.

And that helped stop those small losses turning into something much larger and potentially putting me out of the game.

The other thing I did was quickly cut my position size if a series of trades went against me. It would typically only take a 2% drawdown in my account for me to cut my position in half.

And if for whatever reason I kept losing, I would either cut that position in half again… or simply switch off my computer and go for a walk.

Only when I turned those losses back into profits would I look to go back to trading my original position size.

Remember, you never go broke taking a profit. But not taking a loss is a surefire way to blow up your account.

I’ve seen this mistake destroy countless trading careers.

Focus on Risk Management First​

Too many new traders are only interested in the first part of trading. That is, how much money they can make.

But the way I see it, they’ve got it backward…

Instead, the key thing to ask first is the maximum you’re prepared to lose on any trade. And then to stick to it no matter what.

By strictly capping your losses, you’re protecting your capital to keep you in the game long term.

Understand this and apply it to your trading. It will surprise you how quickly your profits grow.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

That's definitely refreshing to read, time and time again the importance of risk management has to be out there above all else. It's easy to get caught up in the allure of big profits, preserving capital is paramount for long-term success in trading. the approach to cutting losses and focusing on protecting capital is certainly a valuable lesson for traders at any level too

 

[DaveTrade]

If you are trying to make money in the markets from a directional move then the market that you’re trading needs to trend in the direction of your trade for at least for a short time. I’m stating the obvious here to lay the foundation for building a sound understanding for the point I’m going to make. In my own experience learning about trading the markets, a firm understanding of the basics is the secret sauce that enables putting it all together and finding success. So I’m saying here that in order to be successful trading a directional move, the most important factor is having a trend for your trading time-frame.

Another basic fact is that you’re actually trading the price-action of the market and therefore ‘price-action’ is the most important element to which you should be paying attention. On another thread of this forum a member is paper trading a single momentum indicator and taking the signals directly from that indicator ignoring the ‘price-action’ and trend of the market. I told him I was sceptical. There is nothing wrong with taking entry and exits from an indicator but any momentum indicator will not produce successful trades unless you have a trend for the time frame that you’re trading.

Indicators are very useful, I use them and I’d be a bit lost without them, indicators help me see things about the price-action that I don’t see in the price-action itself, but the price-action is the most important thing to pay attention too, and the number one element that is needed for a directional trade is the trend of price. If you use an indicator to determine trend then this is the most important indicator that you have. So if you decide to use any indicators for your trading, the first and most important indicator that you should have is a trend indicator.

I’m not a trained educator and I’m by no means a wordsmith so I’m not sure if this post will hit the mark, ring a bell or switch on a light bulb with many or any people, but I thought I’d give it a go.

 

[rocket1172]

If you are trying to make money in the markets from a directional move then the market that you’re trading needs to trend in the direction of your trade for at least for a short time. I’m stating the obvious here to lay the foundation for building a sound understanding for the point I’m going to make. In my own experience learning about trading the markets, a firm understanding of the basics is the secret sauce that enables putting it all together and finding success. So I’m saying here that in order to be successful trading a directional move, the most important factor is having a trend for your trading time-frame.

Another basic fact is that you’re actually trading the price-action of the market and therefore ‘price-action’ is the most important element to which you should be paying attention. On another thread of this forum a member is paper trading a single momentum indicator and taking the signals directly from that indicator ignoring the ‘price-action’ and trend of the market. I told him I was sceptical. There is nothing wrong with taking entry and exits from an indicator but any momentum indicator will not produce successful trades unless you have a trend for the time frame that you’re trading.

Indicators are very useful, I use them and I’d be a bit lost without them, indicators help me see things about the price-action that I don’t see in the price-action itself, but the price-action is the most important thing to pay attention too, and the number one element that is needed for a directional trade is the trend of price. If you use an indicator to determine trend then this is the most important indicator that you have. So if you decide to use any indicators for your trading, the first and most important indicator that you should have is a trend indicator.

I’m not a trained educator and I’m by no means a wordsmith so I’m not sure if this post will hit the mark, ring a bell or switch on a light bulb with many or any people, but I thought I’d give it a go.

Now that's something I learned the hard way! I also learned that I am a "coat tails" trader and I let people who are much more experienced and professional than me set the trend. Kind of like catching a bus. If the bus has my destination displayed on the front of it and its travelling in the correct direction, then I'm getting on. Other than that, I will just sit and watch the circus!

 

[DaveTrade]

Always Beware of Greediness
By Jeff Clark, editor, Market Minute

In 1999, two of my favorite clients fired me as their financial advisor.

It was a young husband and wife. I handled the husband’s father’s money for more than a decade.

The father passed away a few years before, and the couple inherited the estate. It was a LARGE sum of money – large enough that if we earned 10% per year on the assets, this couple could’ve lived off the earnings and never work again.

In 1999, the various conservative mutual funds I recommended they invest in earned 58%. It was far more than we had projected. It was far more than they needed to maintain their standard of living.

But the Munder NetNet Fund their neighbor invested in – which only bought internet-related stocks – earned three times that amount.

The couple told me they wanted to sell the funds I recommended and put everything into the Munder NetNet Fund.

I reminded them of their long-term goals. I told them that 1999 was an “outlier” year. Just about everything made money. They had made far more money in their conservative funds than we had projected. It wasn’t likely to happen again anytime soon.

And even though I would have profited handsomely on the commission earned by selling their existing funds and buying the Munder NetNet Fund, I told them not to do it. In fact, I refused to do it.

So, they fired me. They took their money to another broker who did exactly what they wanted to do…

Over the next three years, the conservative funds gained an average of 9% per year. The Munder NetNet Fund lost an average of 27% per year.

The couple’s money evaporated. Their financial security disappeared.

Had they simply stuck with the plan we had set up to make 10% per year over time, they would’ve been just fine.

They never would’ve had to work again. They’d never have any financial concerns. They could’ve raised their family with all the benefits that financial independence provides.

But that wasn’t good enough. Their neighbor had made more and that wasn’t acceptable. So, they threw away the strategy that worked best for them… and rolled the dice on a more aggressive posture.

That’s the danger of FOMO (Fear of Missing Out).

Whenever there’s a hot trade in the market, whenever an asset class captures the headlines for producing HUGE gains, the automatic response for most investors is, “Damn! I have to jump on board.”

To them, valuations don’t matter. Logic doesn’t matter. All the time-tested market-based fundamentals don’t matter.

All that matters is… “This asset is moving higher. My friends and neighbors are making more money than me. So, I have to get on board.”

It’s a classic FOMO event.

Folks, I must tell you… FOMO will destroy you.

If your neighbors are making money, then good for them. If Biff and Muffy at the holiday cocktail party are bragging about their HUGE profits in cryptocurrencies, then good for them. That’s wonderful. You should be glad that your friends, neighbors, and in-laws are doing well.

Prosperity is a good thing.

But when logic doesn’t support the trade – or when your own financial objectives require a more conservative stance – then chasing the trade is a mistake.

You should focus your investing and trading strategies on what is right for you. That means you’ll underperform your neighbors in some years.

But who cares? As long as you meet the performance necessary to achieve your long-term goals, then it’s a win.

I’m a trader. My immediate objectives are to make profits on short-term trades. But my recommendations fall within the constraints of a longer-term objective. And in the longer-term, it’s the contrarian – or less popular – trades that will generate the largest gains.

Logic and reason always win out over emotion.

Chasing performance… chasing the hot idea… is almost always a bad idea.

Traders who rush to get into trades simply because it’s the hot idea of the moment, or because their neighbors are profiting, are making a mistake.

If the trade doesn’t have a fundamental backing… if it doesn’t fit with your overall longer-term strategy… then it’s not likely to turn out well.

So, when it’s time to sit on the sidelines, I don’t mind telling folks to do so until a better opportunity arises.

We don’t need to chase any trades just to keep pace with the neighbors.

FOMO will argue otherwise. But I have more faith in the profitability of an anti-FOMO trade.

Best regards and good trading,

Jeff Clark
Editor, Market Minute

 

[rcw1]

Now that's something I learned the hard way! I also learned that I am a "coat tails" trader and I let people who are much more experienced and professional than me set the trend. Kind of like catching a bus. If the bus has my destination displayed on the front of it and its travelling in the correct direction, then I'm getting on. Other than that, I will just sit and watch the circus!

Good morning rocket1172,
If I maybe so bold as to suggest, so long as one learns the whys and the why nots to catching the bus at the right destination at the right time then getting off that bus at the right destination and at the right time, avoiding the bus drivers erratic and dangerous driving...


Kind regards
rcw1

 

[Chipp]

A large majority of trading systems concentrate on price singularly where a naked stock chart has 2 axis and the other axis gives is just as useful and in a few cases more useful . As Bruce Buffer says " It's TIME " A holistic approach is the best approach

 

[DaveTrade]

A large majority of trading systems concentrate on price singularly where a naked stock chart has 2 axis and the other axis gives is just as useful and in a few cases more useful . As Bruce Buffer says " It's TIME " A holistic approach is the best approach

@Chipp you need to say how you can use "TIME" in trading, the name of the thread is 'Learning to trade', so you have teach something here.

 

[Chipp]

@Chipp you need to say how you can use "TIME" in trading, the name of the thread is 'Learning to trade', so you have teach something here.

I am sure you can run with it . Google is your friend , I just supplied the seed , plant it and water it . I am not an educator , i am a trader .

 

[ducati916]

So on this topic of 'time' as opposed to 'price'

How the World Sped Up

More change is happening, faster than ever before. Can we keep up? Or will we get left behind, obliterated by catastrophic risk in a world that shifts too quickly?

www.forkingpaths.co

Two concepts: stochastic process and ergodicity.

This is essentially how you trade time or another name would be volatility.

jog on
duc

 

[Chipp]

So on this topic of 'time' as opposed to 'price'

How the World Sped Up

More change is happening, faster than ever before. Can we keep up? Or will we get left behind, obliterated by catastrophic risk in a world that shifts too quickly?

www.forkingpaths.co

Two concepts: stochastic process and ergodicity.

This is essentially how you trade time or another name would be volatility.

jog on
duc

On the money duc . Volatility is basically price/time or is that time/price , you will get the drift , this is where the fastest money lies , double edged sword of course but if you make vol a friend you have no need to fear it . In fact quite the opposite . As you know the largest option returns come when vol upticks and the same can be said for trading the underlying .

 

[Chipp]

Bit of addendum to the price/time thing . This is a bit of gold to be honest and once again i am planting a seed not handing out keys . The average systematic approach thats barely profitable with many signals suffering from whip , generally in a quiet period , can be dramatically improved by adding a volatility filter . A volatility filter can keep you out of false signals and improve win rates and contrary to what many may profess out there Win Rate is #1 in system trading , of course RR matters but WR is king . Understand and implement systems to capitalize on this and your ordinary system might become a cornerstone of a profitable trading experience . the secret is in this quote below

“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”

Another thing i will add to this Learning to trade is most are trying to learn to trade everything at once and thats a huge mistake in my eyes . Find a small universe to trade ( less than 10 ) , know it well , research it thouroughly , become good at this before ever trying to trade the entire universe

Also steer clear of shitcos with charts that are random AF in the beginning of your journey . Look for charts that have a heartbeat , have a cycle to them .

Know your expectancy , test and validate ideas , nothing will improve confidence more than actual hard data indicating an edge . Use spreadsheets then maybe learn to code . Do technicals and balance sheets if you trade stocks . Trust no-one elses opinions unless you have validated THEY have a crazy good edge

Become an independent practicing critical thinker

Be a Stoic and hustle , nothing good is easy

“Believe nothing, no matter where you read it, no matter if I have said it, unless it agrees with your own reason and common sense.”​

To take the emotion out of trading you need to know what to do before it happens , work on that . All the people ive ever mentored ive impressed that upon them , that and dont be lazy .

Good luck to all

Quick edit , to beome an elite trader you need to change the way you think . #1 book to read Thinking, Fast and Slow and get the Phark of generic social media full of generic BS and no offence many threads in ASF are full of this generic BS , i will not name names

 

[DaveTrade]

Bit of addendum to the price/time thing . This is a bit of gold to be honest and once again i am planting a seed not handing out keys . The average systematic approach thats barely profitable with many signals suffering from whip , generally in a quiet period , can be dramatically improved by adding a volatility filter . A volatility filter can keep you out of false signals and improve win rates and contrary to what many may profess out there Win Rate is #1 in system trading , of course RR matters but WR is king . Understand and implement systems to capitalize on this and your ordinary system might become a cornerstone of a profitable trading experience . the secret is in this quote below

“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”

Another thing i will add to this Learning to trade is most are trying to learn to trade everything at once and thats a huge mistake in my eyes . Find a small universe to trade ( less than 10 ) , know it well , research it thouroughly , become good at this before ever trying to trade the entire universe

Also steer clear of shitcos with charts that are random AF in the beginning of your journey . Look for charts that have a heartbeat , have a cycle to them .

Know your expectancy , test and validate ideas , nothing will improve confidence more than actual hard data indicating an edge . Use spreadsheets then maybe learn to code . Do technicals and balance sheets if you trade stocks . Trust no-one elses opinions unless you have validated THEY have a crazy good edge

Become an independent practicing critical thinker

Be a Stoic and hustle , nothing good is easy

“Believe nothing, no matter where you read it, no matter if I have said it, unless it agrees with your own reason and common sense.”​

To take the emotion out of trading you need to know what to do before it happens , work on that . All the people ive ever mentored ive impressed that upon them , that and dont be lazy .

Good luck to all

Quick edit , to beome an elite trader you need to change the way you think . #1 book to read Thinking, Fast and Slow and get the Phark of generic social media full of generic BS and no offence many threads in ASF are full of this generic BS , i will not name names

Thanks @Chipp for giving people some good advice here, you really came through this time. I advise that people who are early in there learning come back to this post a few times during their journey, it touches on many important things to follow up on.

 

[Chipp]

Bit of addendum to the price/time thing

This is a long/short algo i wrote over weekend that has signals based on nothing but time , no indicators based of price , no price involved at all . I am not going to say what its based of so dont ask . This is unleveraged , actually beats the index with a risk adjusted return miles in front of actual index .

 

[tech/a]

Based on time you said.

I like it outside of the square.

 

[Chipp]

Based on time you said.

I like it outside of the square.

The 'y' axis is analyzed to death but the 'x' axis is largely ignored . As a trader you only want to be in a postion during the 'time' it moves . Time is risk so getting the momentum while it lasts and sleeping on cash when there is no momentum seems a logical thing . Thinking outside the box means you actually think a bit . This hivemind thing of todays world suppresses independent thought . We need to ask questions of the data no-one else asks to seek edge that is rare .

 

[tech/a]

The 'y' axis is analyzed to death but the 'x' axis is largely ignored . As a trader you only want to be in a postion during the 'time' it moves . Time is risk so getting the momentum while it lasts and sleeping on cash when there is no momentum seems a logical thing . Thinking outside the box means you actually think a bit . This hivemind thing of todays world suppresses independent thought . We need to ask questions of the data no-one else asks to seek edge that is rare .

No arguement here.

 

[Garpal Gumnut]

gg

 

[DaveTrade]

I got the following email from Larry Benedict and knew that it contained a message that was worth repeating. The fact that this is coming from someone that is well known and respected should help to drive the message home to new traders.

The Smart Way to Tackle Volatility​

By Larry Benedict, editor, Trading With Larry Benedict​

Most folks don’t like uncertainty.

We’re much more comfortable when we know what’s going on. Then we can set our sights and plan accordingly.

That trait can become a massive hurdle in the financial markets, though…

Shocks come along all the time. And many are unpredictable.

We saw that on August 5. The unwinding of the Japanese yen “carry trade” set off a wave of selling around the world.

And I’ve seen plenty of other shocks throughout my 40-year career…

At the beginning of my career, there was the 1987 crash. Then I saw the bursting of the dot-com bubble and the financial crisis of 2008. And in 2020, we were hit with COVID.

All of these downturns caused huge damage to investors and threw global markets off-balance.

But by understanding one simple premise, I’ve been able to successfully navigate these shocks and countless others that have come my way…


Futile Predictions

Over my decades of trading (including my time running a multimillion-dollar hedge fund), I learned you can’t avoid market shocks.

You need to accept that they’re going to come.

And no two shocks start the same way. So trying to predict the next shock is a futile exercise.

There are too many moving parts. The crosscurrents across global markets and the major economies are too complex.

And most of the dire warnings of imminent collapse vanish into thin air.

With that all in mind, the best way to navigate shocks is based on what we can actually control.

It’s simple: Manage your risk.

By fastidiously controlling risk, it doesn’t matter how big a shock might be. It won’t be able to put you out of the game…


Trade Size Matters

The first rule I applied to my own trading was to only allocate a small portion of my account to any one trade.

It’s a case of mathematics.

If you only allocate 2–3% of your trading capital to any one position, then no trade can break you. That’s true even if the market crashes.

Even if that trade goes all the way to zero, you’ve still got 97–98% of your account intact.

I learned this the hard way after blowing up my trading account several times early in my career.

But from those harsh lessons, I took this another step further…

If I was down 2–2.5% in any month across my entire portfolio, I’d liquidate all of my trades and start over fresh the next day.

And I’d reduce the size of my positions. I’d cut my trading size in half. If that didn’t work, I’d cut it in half again.

Only when I started making money consistently would I start to increase my trade size again.

Doing this enabled me to rack up 20 years without a losing year during my hedge fund days.

And ultimately, it led to Jack Schwager featuring me in his book Hedge Fund Market Wizards in the chapter just after Ray Dalio – the billionaire founder of Bridgewater Associates. Schwager noticed how critical my risk management skills were to my success.

Rather than trying to predict the future, I learned to manage the one thing I could control: my risk.

That enabled me to withstand all the inevitable market shocks that came.

Like we saw on August 5, shocks can come out of nowhere.

But if you have strong risk management principles and steadfastly stick to them, it will ensure you come out swinging on the other end.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict