"Borrowing" trade signals

[NihabaAshi]

	Quote:	GCB
	This is a considerations that has occurred to me lately. Sometimes, usually later in the day, if I am up, I will start taking half positions on my trades so as to not blow away my existing profits on stop outs. Seems prudent at first glance. But wait! I've noticed that it tends to be an excuse to get into a half-assed setups because nothing else is going on, or is just a reflection of chickenheartedness, and neither is a good habit to foster. If the latter and if the trade works out I kick myself for not taking a full position. A trade is either worth a full position or it's probably not worth the trouble. In or out, black or white. Another way to look at it is to ask: Would I take this trade with double my usual position (assuming your account could tolerate such a trade)? That tends to clarify things.

I think this is a different situation and not uncommon with many traders.

If your profitable early in the trading day and fear losing those profits later in the trading day...

It's a discipline problem if your decreasing a position size is also encouraging you to take trades you normally don't take just because the market is boring as in nothing else is going on.

Not taking these types of trades is the proper thing to do.

In contrast, taking these trades with a partial size and seeing the position become profitable...

That's a bad trading habit to get into because your enforcing the concept that taking trades outside your trading plan is OK TO DO and when doing such you should go with a FULL POSITION SIZE.

Here's an analogy, lets say you have a very reliable signal when your signal appears at a s/r level.

You also know your signal is not reliable when you trade it in price action that's no where near a s/r level.

However, on some occasions a few of those trades are profitable even though overall its a losing situation.

Your suggesting that its worth the risk to put on a full size position on taking trades not near a s/r level in hopes of catching those few times when the trade will be profitable.

In my opinion, this will instill poor trading habits.

Simply, if the price action is not part of your signal...

Don't take the trade along with squashing any thoughts via hindsight analysis that had you taken that particular trade when it would have work...

You would have made money even though its not part of the price action you should be trading.

Another way to look at it...if its not a valid pattern signal...it does not merit a lower position size nor a full position size.

Instead, it merits no position and you should be on the sidelines.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

"Volatility Analysis opens the door to consistent profits."

[brownsfan019]

	Quote:	GCB
	This is a considerations that has occurred to me lately. Sometimes, usually later in the day, if I am up, I will start taking half positions on my trades so as to not blow away my existing profits on stop outs. Seems prudent at first glance. But wait! I've noticed that it tends to be an excuse to get into a half-assed setups because nothing else is going on, or is just a reflection of chickenheartedness, and neither is a good habit to foster. If the latter and if the trade works out I kick myself for not taking a full position. A trade is either worth a full position or it's probably not worth the trouble. In or out, black or white. Another way to look at it is to ask: Would I take this trade with double my usual position (assuming your account could tolerate such a trade)? That tends to clarify things.

A possible solution - stop trading after the AM session. That's what I do and it's worked nicely b/c of the above mentioned issues. It's very easy to want to find something when nothing is going on.

Once again, another psyche issue at work here. Amazing how the mind will react to different situations.

[Anonymous]

Sensei

You are wise in much and I for one thank you for your participation, both in forums in general and here in particular.

I must humbly disagree here.

If signal type A has such an advantage over signal type B, why trade signal type B?

If signal type A decreases in reliability when volatility decreases, why trade signal type A in a decreasing volatility environment?

I think the more prudent approach is to trade A all the time, with the ability to ADD to the position in those times when volatility is both high, and the position is in profit.

Simply, the original position is constant, but the actual size can be increased as the MARKET allows via movement in one's "desired" direction.

Now, suppose signal type B is better than signal type A when Volatility decreases. Here one could trade B rather than A, but the initial position size of B should be the same as the initial position size of A under A's optimal condition-increased volatility.

As I see it, if one is not willing to put the same amount of contracts on B, he is saying that he believes less in B than A. But if one believes less in B, why take the signal in the first place? Again, if the desire is to make more trades, trading more markets, via sister trades or not, or trading more timeframes seems the better course of action.

When test out a new signal type C, yes one could start out with fewer contracts. But once the test period ends, either the value of C merits a full position or no position at all.

I believe in UNDER trading is size and frequency. Too many traders need action and thus look for multiple ways to get in. Yet, if there is a wide disparity among signal types the edge is lessened due to overtrading.

Again if one starts out with x amount of contracts and then adds on as the market proves the trader to be in tune with it, then the best signal type under the best conditions ends up being the one with the most contracts in total. But this is at the end, not the beginning. And the beginning is of course when nothing is truly known about the eventual outcome........

It is not the mutiple signal types I question, rather the variation of size associated with each. Either they are all 5 contract worthy, or some are not while some are. And if some are not, why trade them?

[NihabaAshi]

	Quote:	PivotProfiler
	Sensei You are wise in much and I for one thank you for your participation, both in forums in general and here in particular. I must humbly disagree here. If signal type A has such an advantage over signal type B, why trade signal type B? If signal type A decreases in reliability when volatility decreases, why trade signal type A in a decreasing volatility environment? I think the more prudent approach is to trade A all the time, with the ability to ADD to the position in those times when volatility is both high, and the position is in profit. Simply, the original position is constant, but the actual size can be increased as the MARKET allows via movement in one's "desired" direction. Now, suppose signal type B is better than signal type A when Volatility decreases. Here one could trade B rather than A, but the initial position size of B should be the same as the initial position size of A under A's optimal condition-increased volatility. As I see it, if one is not willing to put the same amount of contracts on B, he is saying that he believes less in B than A. But if one believes less in B, why take the signal in the first place? Again, if the desire is to make more trades, trading more markets, via sister trades or not, or trading more timeframes seems the better course of action. When test out a new signal type C, yes one could start out with fewer contracts. But once the test period ends, either the value of C merits a full position or no position at all. I believe in UNDER trading is size and frequency. Too many traders need action and thus look for multiple ways to get in. Yet, if there is a wide disparity among signal types the edge is lessened due to overtrading. Again if one starts out with x amount of contracts and then adds on as the market proves the trader to be in tune with it, then the best signal type under the best conditions ends up being the one with the most contracts in total. But this is at the end, not the beginning. And the beginning is of course when nothing is truly known about the eventual outcome........ It is not the mutiple signal types I question, rather the variation of size associated with each. Either they are all 5 contract worthy, or some are not while some are. And if some are not, why trade them?

Hi PivotProfiler,

It's all about opportunities.

Lets say signal A gave pattern signals at the following times with results -

0940am = $60, 1042am = $125 and 1535pm = $95 for a total of $280 profits

On the same trading day, signal B gave pattern signals at the following times and results -

1002am = $48 and 1118am =$175 for a total of $223 profits

Now, lets say signal A has a reliablilty of 85% while signal B has a reliability of 72%.

If I only trade signal A because its more reliable while ignoring a profitable signal B that's less reliable in comparison to signal A...

I just lost the opportunity to make an additional $223 dollars.

A few days of lost opportunities adds up quickly by the end of each trading month.

Thus, instead of having 5 trade opportunities...I only had 3 trade opportunities on that particular trading day.

Lets change the story to changing volatility conditions for one pattern signal.

Signal A is reliable 78% of the time in normal to high volatility conditions and gave 2 trade signals during these conditions on a particular trading day.

Signal A is reliable 69% of the time in low volatility conditions and gave 5 trade signals during these conditions on the same trading day.

If I ignore Signal A during the low volatility condition when the risk is greater...

I only have 2 trades for the day instead of 7 trade opportunities.

Further, because where trading a profitable strategy when the risk is higher...to reduce that risk to equal the same/similar risk level when volatility is high...

We need to reduce our position size when the risk is higher but the strategy still has a positive expectancy.

The above story will change if we stop comparing a Profitable situation versus Profitable situation into a Profitable situation versus Losing situation.

Thus, if comparing a profitable strategy versus a strategy that's not profitable...

Then I would strongly agree with you why bother with the other strategy that's not profitable.

By the way, I have multiple strategies for different types of price action.

For example, if have a pattern signal that only appears a few times per year in a particular type of price action involving market seasonal cycle.

I have another strategy that appears every trading day at least twice involving market breadth indexes.

I have another strategy that appears twice each day involving Japanese Candlestick patterns.

I have another strategy that appears twice per day involving intermarket analysis.

I have another strategy that is only used during the U.S. presidential elections via a market seasonal cycle.

All have different reliabilities and all are profitable.

Your suggesting someone shouldn't use multiple strateiges and only trade the strategy that's the most reliable...

I'm going to lose a lot of money because of the lost trade opportunities due to the fact I don't have one strategy that appears all the time.

Therefore, when you suggest to trade the most reliable method all the time...

In my particular situation and I'm assuming its the same for any other trader that uses more than one strategy...

The pattern signals just don't appear all the time.

By the way, my most reliable profitable method only appears during U.S. presidential elections and if I tweak it so that it appears every day, every week or whatever...anytime or all the time...

It's a losing method.

The key here is that the market is not the same all the time and we should be thankful this is true every trading day.

I also think one of the reasons why some traders (not all traders) overtrade is because they want to be active in the markets but they are using a strategy that doesn't produce many trade opportunities.

Thus, they easily get impatient and fear missing something that results in them taking additional trades that's not part of the trading plan (overtrading).

Therefore, it can be debated that having only one strategy, it can encourage overtrading if that one strategy isn't active enough for you in producing opportunties to make money.

-----------------

Look at it this way, lets pretend your only using one strategy and its very reliable with a reliability factor of 89% when the markets is trending.

Then the market changes from trending to a tight trading range and you stay on the sidelines because you know your strategy is not reliable in tight trading ranges (it's not profitable).

Now lets say you have the opportunity to develop a new method via something you've read on the internet at some discussion forum about tight trading ranges.

Your able to develop a method that's 75% reliable during tight trading ranges and not reliable in trend like market conditions.

My questions to you are the following?

* What are you going to do if the market is range bound for the next two trading days?

Yep, this is a trick question. :rolleyes:

* Are you going to trade the same position size if you decide to trade in the trend price action and the range bound price action?

* What if you tweaked (made an adjustment) to your trend strategy so that you get trades when the market is range bound but the tweaking (strategy variation) is not as profitable but still profitable...

What are you going to do as in your position size managment...less contracts or no trade (0 contract)?

-----------------

With all that said above, its possible your talking about strategies that appear all the time as in giving multiple signals each and every trading day.

Only type of trader I know that uses one strategy that gives him multiple pattern signals as in all the time are scalpers.

I'm not a scalper even though I will exit a position fast if profit levels are reach soon than expected, price conditions change dramatically after my entry or my stop is hit (stopped out).

I day trade (a few signals per day), swing trade (a few signals per month) and I position trade (a few signals per year).

However, I do take more than a few trades per day as a day trader but only because I'm the type that's constantly testing something new in an effort to improve my performance.

Also, you can overtrade as a position trader too if you only get 5 trade signals per year and one year you overtrade and do 12 trades in which 7 were not part of the trading plan.

Thus, overtrading to me is taking trades that are not part of the trading plan and has nothing to do with frequency.

A pattern signal is a pattern signal. Therefore, if on Monday your pattern signal appears 3x...than you should take at least 3 trades.

If on Tuesday your pattern signal appeared 15x...than you should take 15 trades and its not overtrading unless you add in one trade that's not part of the trading plan to make it 16 trades on Tuesday.

To conclude my discussion on this...

Had I stopped learning new things many years ago when I had my first profitable strategy and only stayed with that one strategy (ignoring the stuff that's less reliable even though they are profitable)...

I don't think I would be where I'm at today and I hope I learn more things that either improves what I'm using or gives me additional profitable opportunities.

In fact, many of the world's top athletes or top business owners are doing multiple things to help them stay at the top sort'uv speak.

Yet, if you can reach your goals with one strategy that appears all the time...

More power to you and keep using that approach.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

"Volatility Analysis opens the doorway to consistent profits."

[Anonymous]

Sensei;

* I did not say the use of multiple strategies is wrong, only the use of various contract sizes with the various signals is something I do not understand.

* I have been talking about multiple strategies as they pertain to the same trade length. In other words, a daytrade signal vs. another daytrade signal. If one trades 10 lots on a daytrade, it is reasonable to trade fewer contracts on a different signal type if that signal type is a swing trade. Obviously the issue of margin comes into play here. Another issue is psychology. Which brings me to my main point.

* If signal type A is more reliable than signal type B and you trade fewer contracts on signal type B, you are telling yourself on some level to trust signal type B less than signal type A.

This is if fine WHEN THINGS ARE GOING WELL.

Now suppose we have two different situations:

1. Signal B has been incorrect 3-5 times out of 3-5. Can you pull the trigger on the next Signal B ? The very fact that it is traded with fewer lots implies that you trust it less. If that was not the case, than either you would trade it with the same amount as signal A or more. So from a trading mind set point of view, it is more added baggage to deal with from my point of view. The lesser quality trade has been a loser, but it is known to be a lesser trade by the very fact that fewer contracts are traded. Now one is asked to pull the trigger like all things are equal.

2. With two weeks left in the month a trader is experiencing his worst draw-down in 6 months. A signal B type trade appears. Now he must trust in that signal and take it. But since he has placed a lower lot level on the trade, based on his confidence in it, how can he now trust it? This can possibly create more demons to fight in a field replete with them.

Now suppose the trader has lowered all signal types to 1 lot due to the draw-down. Still here, the trader knows that all signal are NOT created equal. If they were, then he would already by using similar lot sizes for all. So the very fact that he is now using equal lot sizes reinforces the lack of recent profitability. Yet he still has to deal with taking a less quality trade, at the time when what he needs most is a profitable trade. While the outcome can not be known in advance, why take a lesser quality trade if you do not have too. What makes is less quality? Don't know. But if it were of equal quality then the lot size trade when things are going well should be the same as all other trade signal types.

* On some level, different position sizes put the signal types on a "trust scale". This may work out good when everything clicks. But at the first sign of trouble (long period of drawdowns, or continuous losses on the lower sized signal) it effects HOW a trader trades. How can it not?

* Again, I am not saying I know more than anyone on this subject. I am simply saying that I believe there is a sub-conscious value weighted system put in place when size varies with signal quality. Trading is simple, but not easy. Having to overcome that weighted value system when things are not going well only adds to the difficulty inherent in trading.

* Playing the "money I could of made" game is surely a road to ruin. Not every profitable move will be captured. It is erroneous to say that profit is missed because only the high quality trades are used. Yet, there is a way to improve your profitability by trading more markets and more timeframes. If one doesn't mind high quality and less quality trade set-ups, that is fine. The contracts used, however, should not reflect the variance in quality. A trader needs to trust every signal equally and that should be born out in equal lot sizes used.

* As this is my last post on the subject:

1. Multiple signals are fine, but one should keep the size traded equal for the psychological advantage incurred.

2. If various types of trades are made, daytrade, swing, scalp, clearly size will vary. This variance, however, is based on trade type, not signal type.

3. Profitable traders trade the same when things are going bad as when they are going well. Note I am not talking about not reducing size during drawdowns. I am talking about willingness to take a trade. If your position sizes reflect how confident you are in a trade, can you continue to trade it when things are bad? A 5 lot quality trade when things are good, may be turned into a 1 lot trade during such a period. A 3 lot also turns into a 1 lot. However, the quality of the 5 lotter is still higher than the 3 lot signal type. And on some level the trader knows this.

4. If you want more money, trade more contracts (on the best signal only). Or trade more markets. Or more timeframes. This makes more sense in terms of the trader's mind (to me at least) than trading various quality of trades AND trading them at varying sizes.

5. You will always leave money on the table. There will be other opportunities to make money.

* Thank you Mark for your posts.

[brownsfan019]

I'm with Pivot on this one - I'm only interested in my best setups. I also know that the setups that I trade will be there daily, so I'm not concerned with if/when they show.

I can see the concern however if your 'best' setup only appears a few times a week or month. That could be difficult to stick to and be the only thing you trade, even though it's the 'best'. But in a pure daytrading setup, I would think that signals would/should appear daily. Of those, I am only interested in the best of the best and willing to go heavier on those trades vs. trading less contracts on a setup that *might* work.

[cooter]

A lot of talk to rationalize something so simple. Occam's Razor, perhaps?

[NihabaAshi]

	Quote:	cooter
	A lot of talk to rationalize something so simple. Occam's Razor, perhaps?

Simply, keep doing whatever is working especially if its proven in backtesting and real money trading.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

[brownsfan019]

I'm sorry guys, I really did not expect this thread to get so complex and such. I was just curious how/if other traders use charts of highly correlated markets to trade.

My apologies that it dragged out.

[NihabaAshi]

	Quote:	brownsfan019
	I'm sorry guys, I really did not expect this thread to get so complex and such. I was just curious how/if other traders use charts of highly correlated markets to trade. My apologies that it dragged out.

Hi brownsfan019,

My apologies for getting off topic and the other discussion has concluded.

Getting back to your question when you asked the following...

For those that trade multiple markets, do you exclusively look for your setups on each respective market or do you initiate a position if one of your correlated markets shows a trade?

As I mention before, I've traded this way in the past and backtested it.

It's a very profitable way to trade but requires a lot more work.

In fact, it was more profitable than when I was only trading just one trading instrument.

The backtesting showed such and the real money trading showed such.

What turned me off from it was that it was too stressful and overwhelming at times.

I remember telling other traders at the time that by 11am est I was done trading for the day because I was mentally exhausted from this type of trading.

However, here's the key, I was doing it all manually without any fancy order system.

That's the reason why I eventually settle on sister trading.

It's much easier for me to watch multiple markets to help with trades in the particular one trading instrument I'm trading in comparison to actually placing trades in multiple correlated markets.

Yet, maybe trading multiple markets at the same time via the same trading stle (ex. daytrading) it wouldn't have been as stressful nor overwhelming if such can be more automated via something like when a trade is initiated in ES for example...

It automatically opens a position in the other trading instruments that has been checked for such.

It'll be interesting to know if anybody knows a trading platform or add-on that allows for such a trade execution and I admit that at the time when I was trading multiple markets at the same time...I didn't look for such a trading platform.

Also, getting back to sister trading...I mainly due it now when I'm concentrating on one pattern signal for whatever reason and if that pattern signal has a low frequency for appearance.

For example, you know a lot about the Bullish White Hammer pattern from the Trading Hammer's (revisited) thread.

I know some traders that exclusively trades that and nothing else.

However, their trading instrument only produces 1-3 daytrading pattern signals per week.

Well, that's ok if that's the type of trading you want to do.

Yet, if your looking to be more active in trading Bullish White Hammer patterns...you need to do one or several of the following:

• Follow more than one chart interval and this requires having more than one monitor.
  
  
• I've documented over a dozen different types (sub-groups) of Bullish White Hammer patterns and only a few of them are reliable.
  
  Therefore, trade more than one type of Bullish White Hammer pattern.
  
  
• Your fortunate to be trading with other traders that uses the same pattern signal...
  
  Each trader has the task of monitoring a specific correlated trading instrument via a different chart interval in comparison to the other traders in the office.
  
  A lot of trust is involved here and this solution works because I did such for three years very profitably when I lived in Seattle, WA.
  
  Yet, we weren't trading Hammer patterns and we were trading a different pattern signal that appeared a little more frequently.
  
  
• Follow other markets that are highly correlated with your trading instrument.
  
  You can either follow other futures, indexes, inverted price actions et cetera.
  
  For example, I know one trader that only trades Bullish White Hammers in NQ Emini Futures.
  
  He monitors closely the NDX.X Index, Nasdaq Composite Index and Nasdaq Advance Decline Lines.
  
  In comparoson, another trader that trades only NQ Emini Futures and that exclusively trades Bullish White Hammer patterns...
  
  She monitors, ES/YM/DAX/QQQQ and NDX.X Index
  

This increases the frequency of the Bullish White Hammer pattern appearences so that a day trader can be getting 1-3 trade signals per day in comparison to only following your trading instrument to get 1-3 trade signals per week.

Therefore, sister trading, has many advantages if when trading a pattern signal that doesn't appear as often as you want it to.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

"Volatility Analysis opens the door to consistent profits."