Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

daytrade999

Consistently Losing

Recommended Posts

BlueHorseshoe, I'm sorry, if you were offended by my post as this was not my intention. It was a hint for daytrade999 to think about the logic for a trading approach before applying it as you just gave an outline of an idea. Maybe I should have directly gave my ideas on this and not just ask a question… my bad. The question was meant to stimulate to think about the logic...

 

If stocks A and B are part of SPX and SPX trended up, didn't A and B participate in the trend if we see a long signal in those stocks? If so, that would mean that we would buy stocks that are not considered very attractive as the market clearly favored other stocks (those that made SPX move up). Hence, the potential for A and B are probably limited (low beta).

 

If A and B participated in the trend of SPX, do we wait for a retracement of A and B (and SPX)? If we see a retracement, how are we "sure" it's a retracement and not a reversal of SPX? etc. etc. etc.

 

Although, I'm a big fan of simple approaches, the logic of any approach has to be understood before applying it. That's what you, daytrade999, have to think about when putting together a trading approach.

 

Hi Karoshiman,

 

I wasn't offended, and the first sentence of my post was sincere, not sarcastic. By "getting smart" I actually meant it - to set all this up within a trading platform takes more than a little effort.

 

I very much agree - I think that daytrade999 needs to work out some concrete answers before taking up any idea that has been introduced in this thread.

 

Cheers,

 

BlueHorseshoe

Share this post


Link to post
Share on other sites
BlueHorseshoe, you have misunderstood the "2% rule". It relates to the losses that can be incurred by one trade and NOT the capital or margin "invested". It's the same for futures as it is for stocks or the GLD example you give.

 

I haven't misunderstood the 2% rule.

 

You have introduced another (non-linear) element - the notion of a stop-loss.

 

Removing that (complicating) addition to what we are discussing, then the maximum loss you can occur is entryprice*bigpointvalue.

 

If I have 10k in my account today and GLD trades at 100, then I can buy 100 shares of GLD. My 'risk' on the trade is 100% (crazy) . . . or is it? Say that my holding time is restricted to one day, and I know that the average one day decline in GLD is far less than 1%, and with low deviation from this mean. Is the risk to my account really 10k?

 

In actual, literal terms it is. But in reality, a 100% single day price decline would be required to realise this 10k loss.

 

As soon as you introduce leverage, the situation obviously changes.

 

If you introduce a hard stop to limit losses, then the situation becomes as you describe, but this is because (a) you have restricted the loss that can be incurred, rather than the market restricting it, (b) the level of leverage is incorporated into the calculation you make.

 

On a slightly different but related note, if you take two strategies with identical single contract dollar outcomes over a period, but with different %win rate profiles, then the application of the 2% rule can significantly alter dollar outcomes when applied alongside a fixed fractional type position sizing formula.

 

Consider the following with fixed-fractional:

 

- 2%

+ 2%

- 2%

+ 2%

- 2%

+ 15%

 

Versus:

 

+ 2%

+ 2%

- 2%

- 2%

- 2%

+ 15%

 

Happy to talk about this further, but maybe it should all be moved across to a MM thread as it's diverging from the topic of this thread?

 

BlueHorseshoe

Share this post


Link to post
Share on other sites

 

I want to know and understand how fund managers do their job and how they use other people's money to invest .

.

 

DayTrade999.

This is a very open ended question, and there is no one size fits all answer.

Sticking to the aspect of leverage and fund managers (and not just how they invest).....

First ...

you have to understand that fund managers have an investment strategy or mandate that they follow. Its ideally their expertise, and is simply a product offered to investors. They are limited in what they can do by this mandate.

Second.....

Most fund managers dont use leverage. The vast volume/amount/size/number of fund and fund managers dont use leverage.

Those that do sometimes disguise it - because either they or their clients dont really understand it. Plus its often easier to sell something that seems less risky than it is.

(While examples such as gold will not go down to zero are valid and hence people justify that its less risky etc. Think about leverage in these simple terms - anytime you can loose more than you have available.....you are leveraged)

Third....

When it is used it can be used by borrowing from others and servicing a loan, investing in instruments that require an exchange margin, investing via other derivative products (OTC), (these do not necessarily mean the manager is leveraged), or simply investing in products that themselves are leveraged. eg; some, REITS, ETFs or other funds.

 

For really in depth info, there is only one answer as every fund is different. Research their investment styles and mandates.

For generic answers.....research the internet.

eg; http://en.wikipedia.org/wiki/Leverage_(finance)

Hedge funds wary of high leverage - FT.com

http://aima-canada.org/doc_bin/AIMA_Canada_StrategyPaper_06_Leverage.pdf

Share this post


Link to post
Share on other sites
I haven't misunderstood the 2% rule.

 

...

 

 

I'm not sure whether I've understood you correctly. I have now understood that the 2% you mention are supposed to be the margin of a futures contract in % of your trading equity.

 

This seems to be VERY conservative. That would mean that you would need $192k per 1 ES contract traded as the initial margin is currently $3,850. This would be a "leverage" (if this is the right word in this case) of clearly below 1 (ca. 0.4). The notional value of ES is currently ca. $83k per contract (I'm using the e-mini S&P as an example as many futures traders trade this contract).

 

I've often read that people suggest having $10k equity per ES contract traded as a minimum (or ca. 39% margin/equity). However, as far as I understand, this assumes no overnight positions. For instance, my strategy includes holding positions overnight. Hence, I try to keep a minimum of $15k per ES contract in my trading account (or ca. 26% margin/equity). Only in rare occasions do I trade 2 ES contracts with this amount of equity.

 

Anyway, beginning futures traders should keep in mind that the notional value of a futures contract is fluctuating.

 

The applied leverage can only depend on the risk appetite of the trader and his trading strategy, which has defined risk characteristics, in order to be able to work. That means that certain stop loss levels are required per trade in order for the strategy to work, i.e., at the end such "%-rule" of margin/equity can only be a function of the %-loss on trading equity one is willing or able to risk per trade.

Share this post


Link to post
Share on other sites

 

...

 

I very much agree - I think that daytrade999 needs to work out some concrete answers before taking up any idea that has been introduced in this thread.

 

 

 

True… the advice so far in this thread covered many different aspects. daytrade999, I hope you can still "see the woods" albeit all the "trees" thrown at you at once :)

Share this post


Link to post
Share on other sites
I'm not sure whether I've understood you correctly. I have now understood that the 2% you mention are supposed to be the margin of a futures contract in % of your trading equity.

 

This seems to be VERY conservative. That would mean that you would need $192k per 1 ES contract traded as the initial margin is currently $3,850. This would be a "leverage" (if this is the right word in this case) of clearly below 1 (ca. 0.4). The notional value of ES is currently ca. $83k per contract (I'm using the e-mini S&P as an example as many futures traders trade this contract).

 

I've often read that people suggest having $10k equity per ES contract traded as a minimum (or ca. 39% margin/equity). However, as far as I understand, this assumes no overnight positions. For instance, my strategy includes holding positions overnight. Hence, I try to keep a minimum of $15k per ES contract in my trading account (or ca. 26% margin/equity). Only in rare occasions do I trade 2 ES contracts with this amount of equity.

 

Anyway, beginning futures traders should keep in mind that the notional value of a futures contract is fluctuating.

 

The applied leverage can only depend on the risk appetite of the trader and his trading strategy, which has defined risk characteristics, in order to be able to work. That means that certain stop loss levels are required per trade in order for the strategy to work, i.e., at the end such "%-rule" of margin/equity can only be a function of the %-loss on trading equity one is willing or able to risk per trade.

 

My argument is probably pretty unclear from the start, as everything you say above is obviously correct.

 

My point is that, depending on the trading style the 2% rule is open to debate, and that it is more open to debate where no leverage is used, as a 100% price decline is necessary before a position is unavoidably closed out, whereas when leverage is used there is less ability to quantify risk one a trader's own terms and greater likelihood that this will be determined by exchange/broker and margin requirements.

 

If you're unleveraged, you can trade without a stop with little chance of losing all your equity. If you're leveraged you can't.

 

None of this is anything that won't already be obvious to yourself, but might help a newer trader in thinking about risk and how/who defines it.

 

BlueHorseshoe

Share this post


Link to post
Share on other sites
My argument is probably pretty unclear from the start, as everything you say above is obviously correct.

 

My point is that, depending on the trading style the 2% rule is open to debate, and that it is more open to debate where no leverage is used, as a 100% price decline is necessary before a position is unavoidably closed out, whereas when leverage is used there is less ability to quantify risk one a trader's own terms and greater likelihood that this will be determined by exchange/broker and margin requirements.

 

If you're unleveraged, you can trade without a stop with little chance of losing all your equity. If you're leveraged you can't.

 

None of this is anything that won't already be obvious to yourself, but might help a newer trader in thinking about risk and how/who defines it.

 

BlueHorseshoe

 

 

Ah… I see! Now I understand… and agree! :)

Share this post


Link to post
Share on other sites
True… the advice so far in this thread covered many different aspects. daytrade999, I hope you can still "see the woods" albeit all the "trees" thrown at you at once :)

 

 

Thank you for the caring thoughts . I'm keeping up with all these helpful tips and they are really indeed improving my knowledge on trading and I'm learning something new everyday. But I am kind or getting lost on the topic of leverage though haha. But it's ok I'm learning nonetheless .

 

Thank you!

Share this post


Link to post
Share on other sites
DayTrade999.

This is a very open ended question, and there is no one size fits all answer.

Sticking to the aspect of leverage and fund managers (and not just how they invest).....

First ...

you have to understand that fund managers have an investment strategy or mandate that they follow. Its ideally their expertise, and is simply a product offered to investors. They are limited in what they can do by this mandate.

Second.....

Most fund managers dont use leverage. The vast volume/amount/size/number of fund and fund managers dont use leverage.

Those that do sometimes disguise it - because either they or their clients dont really understand it. Plus its often easier to sell something that seems less risky than it is.

(While examples such as gold will not go down to zero are valid and hence people justify that its less risky etc. Think about leverage in these simple terms - anytime you can loose more than you have available.....you are leveraged)

Third....

When it is used it can be used by borrowing from others and servicing a loan, investing in instruments that require an exchange margin, investing via other derivative products (OTC), (these do not necessarily mean the manager is leveraged), or simply investing in products that themselves are leveraged. eg; some, REITS, ETFs or other funds.

 

For really in depth info, there is only one answer as every fund is different. Research their investment styles and mandates.

For generic answers.....research the internet.

eg; http://en.wikipedia.org/wiki/Leverage_(finance)

Hedge funds wary of high leverage - FT.com

http://aima-canada.org/doc_bin/AIMA_Canada_StrategyPaper_06_Leverage.pdf

 

Whoa!! Thanks for all those links it really helps me cut down time to find them so now I will be reading up on them. All thanks to you though.

 

I do have one question about leverage if you or anyone can answer it. If I was to trade full time with 25k would a 4:1 leverage from the broker be able to make a living? Or do I need 100k plus of my own money to trade without using brokers money? How much does everyone here started with if you don't mind answering?

 

Thank you all!!

 

Cheers !

Share this post


Link to post
Share on other sites

 

 

I do have one question about leverage if you or anyone can answer it. If I was to trade full time with 25k would a 4:1 leverage from the broker be able to make a living? Or do I need 100k plus of my own money to trade without using brokers money? How much does everyone here started with if you don't mind answering?

 

Thank you all!!

 

Cheers !

 

This depends also on your expenses and living standard. And if you are still young, you can expect your living standards to rise over time, probably considerably. So, you have to factor that in as well.

 

Plus, trading income is very irregular and fluctuates month by month depending on how many opportunities the market provides. You cannot force the market to provide you X$ each month. So, IF you have a certain track record in trading already it would be wise to be more conservative with your income estimates going forward.

 

However, your first goal should be to become profitable on a consistent basis (!), e.g. a year or so at least or with a minimum of a few 100 trades in order to have a large enough sample size before drawing any conclusions. That is your first challenge and believe me, it's a difficult one! If you can master this with a live account (and that only after you have traded sim profitably for a while) you can think about making a living with trading.

 

Don't get the wrong impression here, most traders on these forums don't make a living with trading (myself included). Most are even not profitable (I am).

 

In terms of leverage, be aware that it is a two-sided sword (increases volatility in your equity). And it depends also on your trading strategy. A good start is to not lose more then 1-2% of YOUR equity per trade, i.e. IF you have your strategy developed and sim traded it with an amount realistic for your situation (e.g. if you want to trade with $5k live don't sim trade with $1 million) you can move backwards from there.

 

As every beginning trader you focus on how much you can make… I've been there as well… but it's about how much you are ABLE and WILLING to lose in order to make a profit. There will inevitably be periods of drawdowns with every strategy. So, you must be able to withstand these with your equity, financially AND psychologically.

 

Anyway, be prepared to have a VERY long journey ahead of yourself.

Share this post


Link to post
Share on other sites

 

I do have one question about leverage if you or anyone can answer it. If I was to trade full time with 25k would a 4:1 leverage from the broker be able to make a living? Or do I need 100k plus of my own money to trade without using brokers money? How much does everyone here started with if you don't mind answering?

 

Thank you all!!

 

Cheers !

 

It all depends on your expected returns.

Walk first then run......

 

If you can get a return on 25k that is reasonable and you have minimal drawdowns, understand how and why it works etc etc etc.....only then you should leverage it to reasonable levels - depending on the instrument.

eg; stocks - unless you are running a long short book or a hedged portfolio, at 4:1, any black swan event - those that occur about every 4 years not 1 in 100 :) will wipe you out.

 

alternatively you may as well go all in and try and make a killing or fail quickly then move on....

 

 

 

If you can live off X% return based on $X then asking 1000 people their opinions is a pointless exercise.

As Zdo rightly says - its system specific.

 

Just remember when you leverage - the broker will spend/loose/take your money first (your initial stake/equity) and is not in the business of providing you with risk capital. They are in the business to provide you with capital that they dont want to have at risk. For this there is a charge.... so you have to get a return over an above the interest charge first.

...and as your equity decreases so does the leverage capital....its often something people forget.

.................................

 

but there was an old saying that went something like this. 'There are lots of bold traders, there are lots of old traders. There are very few old bold traders' - they do exist but they are rare for a reason.

Walk then run and occasionally run hard when the opportunity allows it......

Share this post


Link to post
Share on other sites
It all depends on your expected returns.

Walk first then run......

 

If you can get a return on 25k that is reasonable and you have minimal drawdowns, understand how and why it works etc etc etc.....only then you should leverage it to reasonable levels - depending on the instrument.

eg; stocks - unless you are running a long short book or a hedged portfolio, at 4:1, any black swan event - those that occur about every 4 years not 1 in 100 :) will wipe you out.

 

alternatively you may as well go all in and try and make a killing or fail quickly then move on....

 

 

 

If you can live off X% return based on $X then asking 1000 people their opinions is a pointless exercise.

As Zdo rightly says - its system specific.

 

Just remember when you leverage - the broker will spend/loose/take your money first (your initial stake/equity) and is not in the business of providing you with risk capital. They are in the business to provide you with capital that they dont want to have at risk. For this there is a charge.... so you have to get a return over an above the interest charge first.

...and as your equity decreases so does the leverage capital....its often something people forget.

.................................

 

but there was an old saying that went something like this. 'There are lots of bold traders, there are lots of old traders. There are very few old bold traders' - they do exist but they are rare for a reason.

Walk then run and occasionally run hard when the opportunity allows it......

 

 

Can you explain to me how brokers can make money from me if I use leverage money? Is it the interst incurred while I use their money.?

Share this post


Link to post
Share on other sites
Can you explain to me how brokers can make money from me if I use leverage money? Is it the interst incurred while I use their money.?

 

Hi daytrade999 & everyone that has been helping,

 

I am a very infrequent visitor and noticed this thread only becuz it was at the top of the recent list. But that won't (and never does) stop me from blabbing.

 

1. The other folks have already given excellent advice. I will probably repeat many of their suggestions. Apologies dt999 if you've already begun their/my suggestions.

 

2. You MUST make the suggested ideas and methods your own. That is, if you think they have enough merit to pursue based on a respected source or your own common sense.

 

That means doing your own homework and research to prove or disprove. It is essential practice and discipline if nothing else.

 

Make it your habit to be objective, rational and eager to confirm/deny/teach yourself. If your favorite idea is a flop, dump it!

 

3. Stop trading real money if you are losing real money. Demo is fine to practice, learn, and gain confidence in a method you believe in.

 

4. Losses are a fact of life. Learn to lose or learn to fail. Learn "market mechanics" and you will understand why most trades will initially go against you.

 

Consider this: Everyone knows what the trend is relative to their time horizon. Your counter-party (broker, market maker, bank) also knows but they fill your order to do their job and make the spread or commish. HOWEVER, they also trade their own account because it is even better than spreads & commish. So they punish you for making them sell when the trend is up (and vice versa). They also trade much larger, a huge advantage.

 

5. Number 4 means "smart money beats dumb money" and "big fish eat little fish". Remember, every buyer needs a seller (and vice versa). Therefore, a big fish that wants to buy 1,000 lots first needs 1,000 folks to sell 1,000 lots. They know where dumb, little fish place their stop losses. They will sell 500 lots to dip a market so they can take 1,000+ positions away from guys like us before the market continues up. You are stopped out only to see the market go in the direction you traded.

 

 

6. Numbers 4 & 5 explain why retraces exist. There is nothing mystical about fib levels, gan levels, elliot waves and the rest of the mumbo jumbo. Maybe fibo spotted that the human eye evolved to favor certain ratios just as nature does. Regardless, retraces occur until the big fish have exhausted all of the "too close" stops that little fish set. Maybe .3, .5, .6, or .7. You won't know "the golden ratio" for sure until it's done.

 

7. That is why it is essential to TRADE SMALL & NOT ABUSE LEVERAGE!!!! If you can't ride out the inevitable, adverse moves, you are screwed, blued and tattooed! Big fish count on it and so must you!

 

8. You can use these "market mechanics" to your advantage. Buy dips in an up trend and sell rallies in a down trend just like the smart money does. It happens in every time horizon (holding period).

 

9. Trade small so you can hang in if the market goes to the next s or r level. If the market proves you right, then ramp up. If it continues against you, GET OUT. There is always another market and another trade. If you have the discipline and skill you can SAR (stop and reverse).

 

10. DO YOUR HOMEWORK!!!! Everything you need to know is on your charts. Train your mind and your eye to see what happens over and over. It is all about significant price levels, failures or breaks at those levels, and retraces, because the smart money makes it so.

 

11. I appreciate your passion but asking more questions is lazy. There is no such thing as a stupid question ONLY AFTER you have done your homework.

 

GOOD LUCK!

Share this post


Link to post
Share on other sites
Can you explain to me how brokers can make money from me if I use leverage money? Is it the interst incurred while I use their money.?

 

This will depend on the instrument and the broker. There are various methods of doing it it different countries. From spreadbetting, CFDs and swaps (essentially similar)

To requiring margins for futures, and then also co mingling accounts within non segregated pools of money and offsetting client accounts.....even with segregated accounts this occurs (bastards!)

 

But in keeping it simple.....

 

yes. They collect interest and while it will be likely to be competitive and less than you actually physically borrowing the cash from a bank and paying the full amount yourself. It is still a charge, and it will deplete your account in the same way as any fees and charges.

 

There are often spreads between the long and the shorts, the cash balances especially in various currencies etc; - but it seems if you are asking these questions you have a lot of research to do :)

also these questions should be asked to your broker - if they dont answer them, cant answer them, or the evidence of your statements is different to what they tell you, then that should be a red flag for the broker.

Share this post


Link to post
Share on other sites
Hi daytrade999 & everyone that has been helping,

 

I am a very infrequent visitor and noticed this thread only becuz it was at the top of the recent list. But that won't (and never does) stop me from blabbing.

 

1. The other folks have already given excellent advice. I will probably repeat many of their suggestions. Apologies dt999 if you've already begun their/my suggestions.

 

2. You MUST make the suggested ideas and methods your own. That is, if you think they have enough merit to pursue based on a respected source or your own common sense.

 

That means doing your own homework and research to prove or disprove. It is essential practice and discipline if nothing else.

 

Make it your habit to be objective, rational and eager to confirm/deny/teach yourself. If your favorite idea is a flop, dump it!

 

3. Stop trading real money if you are losing real money. Demo is fine to practice, learn, and gain confidence in a method you believe in.

 

4. Losses are a fact of life. Learn to lose or learn to fail. Learn "market mechanics" and you will understand why most trades will initially go against you.

 

Consider this: Everyone knows what the trend is relative to their time horizon. Your counter-party (broker, market maker, bank) also knows but they fill your order to do their job and make the spread or commish. HOWEVER, they also trade their own account because it is even better than spreads & commish. So they punish you for making them sell when the trend is up (and vice versa). They also trade much larger, a huge advantage.

 

5. Number 4 means "smart money beats dumb money" and "big fish eat little fish". Remember, every buyer needs a seller (and vice versa). Therefore, a big fish that wants to buy 1,000 lots first needs 1,000 folks to sell 1,000 lots. They know where dumb, little fish place their stop losses. They will sell 500 lots to dip a market so they can take 1,000+ positions away from guys like us before the market continues up. You are stopped out only to see the market go in the direction you traded.

 

 

6. Numbers 4 & 5 explain why retraces exist. There is nothing mystical about fib levels, gan levels, elliot waves and the rest of the mumbo jumbo. Maybe fibo spotted that the human eye evolved to favor certain ratios just as nature does. Regardless, retraces occur until the big fish have exhausted all of the "too close" stops that little fish set. Maybe .3, .5, .6, or .7. You won't know "the golden ratio" for sure until it's done.

 

7. That is why it is essential to TRADE SMALL & NOT ABUSE LEVERAGE!!!! If you can't ride out the inevitable, adverse moves, you are screwed, blued and tattooed! Big fish count on it and so must you!

 

8. You can use these "market mechanics" to your advantage. Buy dips in an up trend and sell rallies in a down trend just like the smart money does. It happens in every time horizon (holding period).

 

9. Trade small so you can hang in if the market goes to the next s or r level. If the market proves you right, then ramp up. If it continues against you, GET OUT. There is always another market and another trade. If you have the discipline and skill you can SAR (stop and reverse).

 

10. DO YOUR HOMEWORK!!!! Everything you need to know is on your charts. Train your mind and your eye to see what happens over and over. It is all about significant price levels, failures or breaks at those levels, and retraces, because the smart money makes it so.

 

11. I appreciate your passion but asking more questions is lazy. There is no such thing as a stupid question ONLY AFTER you have done your homework.

 

GOOD LUCK!

 

nice post, especially the 11 point you make there......you should give advices more often.....:) a big like from me

Share this post


Link to post
Share on other sites

8. You can use these "market mechanics" to your advantage. Buy dips in an up trend and sell rallies in a down trend just like the smart money does. It happens in every time horizon (holding period).

 

I don't subscribe to the notion of "big fish" substantially manipulating liquid markets as Leecifer seems to suggest . . . but as far as trading approaches go point 8 seems to me to be just about the best advice that anyone could give you.

 

BlueHorseshoe

Share this post


Link to post
Share on other sites

 

…Everyone knows what the trend is relative to their time horizon. Your counter-party (broker, market maker, bank) also knows but they fill your order to do their job and make the spread or commish. HOWEVER, they also trade their own account because it is even better than spreads & commish. So they punish you for making them sell when the trend is up (and vice versa). They also trade much larger, a huge advantage.

 

 

 

Excellent post!

 

The only thing is, it's usually not the broker or bank that hunts stops (with the exception of some CFD and spot forex brokers). In former times the locals did that, but nowadays it's specialized funds that do that.

Share this post


Link to post
Share on other sites
Excellent post!

 

The only thing is, it's usually not the broker or bank that hunts stops (with the exception of some CFD and spot forex brokers). In former times the locals did that, but nowadays it's specialized funds that do that.

 

Good point but this is the name of the game. Can markets operate in more "user friendly terms"?

Share this post


Link to post
Share on other sites

Has anyone done any investigative work around this as a specific entry concept - i.e. "this is where I predict a large number of sell stops must lie based on other participants having established a long position due to the preceding price action, therefore if price moves to this area I will try to scalp around it" . . . ?

 

I suppose the first thing to do would be to identify the entry methodologies most often used by losing traders, and then to look for a failure of these that would result in the stop being hit.

 

Volume at bid/ask would perhaps give an indication of uptake on any particular instance of a signal and how many contracts were "trapped".

 

All this being said, we're essentially talking about retail traders here, and they're such a minority of market volume you have to wonder whether where they place their stops is entirely diluted by commercial volume . . .

 

:offtopic:

 

BlueHorseshoe

Share this post


Link to post
Share on other sites
Good point but this is the name of the game. Can markets operate in more "user friendly terms"?

 

That's a good question and almost philosophical… I guess, the 'taking advantage' can only go so far as long as a market exists, i.e. people/institutions continue to participate in it, although they are being screwed from time to time.

 

Btw, it is not only the retail trader's stops that get hunted but also those of professional funds… there are many different participants in this big shark tank and everybody tries to "eat the other" :) … sometimes one party "wins", sometimes the other… that's what keeps participants in the game… the conviction that overall they come out as a winner… naturally this can only be true for some of them over a certain period of time… and for less and less participants the more this time period is extended...

Share this post


Link to post
Share on other sites

 

Has anyone done any investigative work around this as a specific entry concept - i.e. "this is where I predict a large number of sell stops must lie based on other participants having established a long position due to the preceding price action, therefore if price moves to this area I will try to scalp around it" . . . ?

 

...

 

 

As a discretionary and technical trader you can view this quite often, as there are certain price levels where a stop "makes sense", i.e. makes your trade idea invalid. If too many are on the same trade, it's more probable for price to move in the opposite direction, as too many stops are at the same level.

 

But without access to order data at the exchange you can never know in advance with 100% certainty whether a move is only a stop hunt… only in hindsight, when price continues to move sharply in the original direction (opposite to the stop hunt).

 

 

 

All this being said, we're essentially talking about retail traders here, and they're such a minority of market volume you have to wonder whether where they place their stops is entirely diluted by commercial volume . . .

 

 

Exactly. You read often in these forums that professionals take advantage of retail traders… well, they are in a sense as most retail traders lose money trading. But this is mostly due to their own behavior and not the professionals purposely trying to trick the retail trader. The volumes of retail traders are just too small in order to be of interest for a professional participant. Professionals make mainly money from other professionals.

 

We are basically just a microorganism in this huge "shark tank"… we can just hope to stick on the right shark and move along with him (with the direction he is betting on) :)

Share this post


Link to post
Share on other sites

 

All this being said, we're essentially talking about retail traders here, and they're such a minority of market volume you have to wonder whether where they place their stops is entirely diluted by commercial volume . . .

 

:offtopic:

 

BlueHorseshoe

 

don't think retail or commercial or institutional. Think long term or short term and highly capitalized or under-capitalized.

 

A grandma who does not have a computer and buys 10 shares of Coke every month has more staying power in coke than Warren Buffet. She doesn't even know what a stop is and you will therefore never trigger her stop.

 

An institutional trader who needs to liquidate by the end of the day or end of the hour, etc will mimic the behavior and characteristics of a common (bad) retail trader

Share this post


Link to post
Share on other sites
Hi everyone,

 

I'm having problem with my trading and I want some help . I consider myself a swing trader and my method is following the trend and watching price action as confirmation for entry. My problem is I'm always losing . There are times when ny positions are in profit but I'm just not so sure when to move ny stops and then I get stopped out even when the trade was right. I try to cut losses by closing out positions that are not working the next day and Minot even sure if this is what people say cutting your losses short means. I need help people . Thanks .

Jest wander on over to the beyond taylor thread and watch me lose. It will make you feel better....

Share this post


Link to post
Share on other sites

Thank you all for your kind words. Having just left my rock for the sunshine I appreciate it.

 

More apologies to dt999. The last point (11) came out more harsh than I intended. I certainly don't want to thwart anyone's pursuit of profits.

 

Also, very all good comments from everyone. I was gonna quote & reply but realized that would be another War & Peace.

 

I think the short version is that everything we mentioned is probably correct in various degrees at various times.

 

I have done some research and the retrace is the most frequent and predictable pattern of all, and by far.

 

I really believe stop hunting is SOP for brokers and other entry counter parties. Maybe they can do it because most of them play the same game and most of us retail folks follow the herd? It takes balls, money, and discipline to do the other correct things, to catch a falling knife or step in front of a bus.

 

Squiggly, lagging lines and channel breakouts are what most noobs do. They are always late, buy tops and sell bottoms. One can be profitable with lines and channels if the other ducks are in a row.

 

My studies indicate that range breakouts win about 33% of the time but still can make a ton of money.

 

Not many can handle that ratio emotionally. The emotions, chop and over leverage are a perfect storm to break their hearts and their accounts. I hate to see it.

 

The "profit taking" rationale used to be the primary explanation for retraces. And that is still valid. Yup, I am that old.

 

Then those pesky brokers and banks have every advantage. Their back rooms have their books and they lay off risk in a nano second for a fraction of the spread. They also track the A list traders and B list traders. I've known a few of those "bucketeers" over the years.

 

I overlay cme volume on my fx charts to help mitigate the "no fx volume data" dilemma. The mass of volume, or lack thereof, at certain prices and often at the end of a retrace is one of my magic beans. It keeps me from jumping in mid stream and buying tops and selling bottoms.

 

The biggest sin I still struggle with is entering too early. Fading the dip/rally is such a strong method I can't help myself. I quit dying a thousand deaths when I came to expect the adverse move and initiated the trade with a tiny.

 

Well, you didn't get War & Peace. Instead you got The Satanic Verses.

I guess I'm just lonely.

 

The level of discourse in this thread is outstanding. One can learn a lot here.

 

Hereafter I resolve to ramble less.

 

Bye for now.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Brexit Aftermath: The Market Reaction Of Bitcoin, Gold And Pound Sterling To Headline News In The EURO Zone   After the UK made it public to exit from the EURO bloc, the market cap for Bitcoin and Gold has increased almost by $133 billion and $1 trillion. Is this the Brexit aftermath?   As it is, the end may be near for Brexit. In the recent declaration an accord is reached between the British government and the EU, everyone is on the lookout for the final date Brexit will conclude. And based on this scenario, an analysis is drawn on the aftermath of this separation in the politics of the EURO bloc and the effect on the price of Bitcoin, Gold and pound sterling.   Bitcoin: Since the start of Brexit, Bitcoin’s market cap had spiked higher and recovered about $10 billion worth. Before Brexit, the cryptocurrency of the first choice had been stable in price after crashing to a market cap of about $2.9 billion low around January 2015. However, after the crash, the cryptocurrency had spiked to about 300% within 18 months while the next super halving of the project is expected on the network from 25 to 12.5 fresh Bitcoin’s per 10 minutes.   As of mid-2016, the most liquid GBP market was the London based Coinfloor exchange. The exchange did around 772 Bitcoins’ worth of volume that day, valued back then at around $4.9 million, with data from the technical back end at the Trading view.   The Pound Sterling: The British national currency had crashed by almost 20% on the night of the vote after hitting a momentary high of about $1.5 versus the USD for about 8 months. Since crashing to a low of about $1.2 as at March 2017, the Pound sterling had rallied 6% within a 4-week time frame, after the UK parliament decided to vote and activate the Article 50 while then the Brexit journey began for the UK taking it two years to discuss its planned exit from the EURO bloc.     Gold: The safe-haven asset also spiked higher around the same time frame from mid-March to mid-April 2017 with its price rising about 7% versus the USD. Nevertheless, this scenario didn’t play out on Bitcoin as in March 2017, beginning with its price at $1000, Bitcoin had surged to hit an all-time value of about $1300, as a result of markets expectation for a Bitcoin ETF being endorsed. However, after its nullification was declared on 10th March 2017, the cryptocurrency fell to a low of about $888 which occurred concurrently with the UK’s law passage for its exit from EURO bloc. Ever since then as the UK’s Brexit discussions with the EU raged on, so did the Pound against the US-dollar and Bitcoin gained more to its price.   Bitcoin, Gold, and Pound Sterling Reactions to Brexit During this timeframe transversing Brexit discussion and its process, the Pound lost the majority of its 15% gains recovered, to tumble from a high of $1.43 to hit $1.20 on 3 September. In a similar multi-day timeframe, gold broke out of its basic $1400 resistance level to rally 15% versus the US-dollar. While Bitcoin gained higher, then again, stayed on the level around $8,000—yet the genuine story of those 17 months incorporates the cryptocurrency crashing towards $3,000 (December 2018) preceding the move spiking to a high of almost $14,000 in June this year.   Source: https://learn2.trade     
    • Despite Running To The Highest Close In Six Months, GBPUSD May Fail To Reverse   GBPUSD Price Analysis – October 20 The GBPUSD had closed on Friday above its opening price after recovering from early selling pressure and trending higher for the 4th day consecutively in a row. After failing to reverse from its highs, the FX pair is unstable and due to weekend UK parliament vote on Brexit, with this scenario, the pair is likely to gap while it reopens on Monday morning in Asia (Sunday evening in the US).   Key Levels Resistance Levels: 1.3301, 1.3185, 1.2988   Support Levels: 1.2582, 1.2204, 1.1958   GBPUSD Long term Trend: Bullish On the daily picture, the bulls took charge in the previous session and exited the day above its opening price, however, the pair failed to move past the prior’s day’s trading range and the price likewise failed to reverse below the previous day’s range.   The GBPUSD had rallied upwards to as high as the level at 1.2988 last week, before forming a temporary top there. In the case of a reverse, the fall may be contained by the level at 1.2582 resistance turned support to bring rise resumption.     GBPUSD Short term Trend: Bullish An impermanent top is structured on the level at 1.2988 and intraday bias in GBPUSD stays on the upside. A few consolidations may be seen. Be that as it may, any pullback ought to be contained above the level at 1.2582 support to bring rise resumption.   Meanwhile, on the upside, a break of the level at 1.2988 will stretch out the recovery from the level at 1.1958 to 1.2582 from 1.2204 at 1.3185 next. Without bias analysis, the outlook is bullish and displaying an intact uptrend in the short and long-term.   Source: https://learn2.trade 
    • Date : 21st October 2019. MACRO EVENTS & NEWS OF 21st October 2019.The week ahead will definitely not be a quite one, with high anxiety on Brexit, the last ECB policy meeting before Mario draghi hand over the ECB presidency to Christine Lagarde and few significant US data prior FED on October 30.Monday – 21 October 2019   Producer Price Index (EUR, GMT 06:00) – The German PPI is expected to drop to -0.2% for September. As expected readings would result in a y/y loss of 0.3% for headline PPI, versus a 0.3% pace for August. Tuesday – 22 October 2019   Retail Sales (CAD, GMT 12:30) – Canadian sales are expected to have increased by 0.6% m/m in August compared to 0.4% m/m in July, with the ex-autos component down -0.3%. Existing Home Sales (USD, GMT 14:00) – Home sales have regained their status as an important indicator after the financial crisis and can have a strong effect on the markets. The release is expected to record a slight -0.2% pull-back in September to a 5.480 mln pace, after a bounce to 5.490 mln in August. In Q2, we saw an average sales pace of 5.287 mln, and we expect a better 5.463 mln pace in Q3. Thursday – 24 October 2019   Services and Manufacturing PMI (EUR, GMT 08:30-09:00) – September PMIs showed a marked contraction in manufacturing activity and a sharp slowdown in services sector growth. This picture is likely to be seen again in the preliminary readings for October, as German Manufacturing PMI has been forecast at 40 and composite at 49.2, which it is still below neutral. Meanwhile, Services PMI is expected to fall to 51.2. The overall Markit for Eurozone is seen at 49.4, signalling stagnation and highlighting the risk that the weakness in manufacturing sectors is spreading. Interest Rate Decision, Monetary Policy Statement and Press Conference (EUR, GMT 11:45 & 12:30) – The ECB is widely expected to keep policy settings on hold after Draghi’s parting shot at the last meeting. The outgoing president pushed through another deposit rate cut and an open ended asset purchase program against the opposition of some of the more senior national central bank heads and incoming president Lagarde will face the task of uniting the board and dealing with growing demands for a comprehensive revision of the ECB’s policy setting framework and in particular the inflation target. Draghi’s last press conference meanwhile will likely focus heavily on calls for fiscal measures to boost the economy in a challenging international environment. Durable Goods (USD, GMT 12:30) – Durable goods orders are expected to fall -1.8% in September, after gains of 0.2% in August, thanks to an expected transportation orders drop. Boeing orders rose to a still-lean 25 from 18 in August. Services and Manufacturing PMI (USD, GMT 13:45) – Preliminary Manufacturing are expected to slip in October, to 50.1 from 51.1, while Services PMIs are likely to rise to 51.3 from 50.9, indicating a slowdown in the sector that has been hit by global trade tensions. Friday – 25 October 2019   German IFO (EUR, GMT 08:00) – In September, the German IFO business confidence came in slightly higher than expected at 94.6. In October, however, the overall business climate reading is seen slightly lower at 94.4. The more forward looking expectations reading is anticipated at 91.8 from 90.8. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Andria Pichidi Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Perfect Trend Lines, PTL, is a short-term trend trading indicator. The lines showing the trend in this indicator is not straight lines like normal trend lines. PTL indicator calculation is simple. First take the 7 bar high and low, then the 3 bar high and low. If the close price is above the 7 bar high and 3 bar high, then an uptrend is identified. When the close price is below the 7 bar low and 3 bar low then a downtrend is identified. These bars are considered as strong trend bars. The magenta line is the 7 bar high or low depending on the trend. The cyan line is the 3 bar high or low depending on trend direction. When price is trading between these 2 lines trend strength is weak.   A magenta diamond shape appears when sell signal is generated. Cyan diamond shape appears for a buy signal. The magenta line can be used as stop loss. The cyan line provides a tighter stop loss level. Strong downtrend bars are marked by a magenta dot at the bar high and strong uptrend bars are marked by a cyan dot at the bottom of the bar.   PTL.zip
    • Qualitative Quantitative Estimation (QQE) is based on a combination of smoothed Moving Average of RSI along with the average true range ATR. Volatile assets such as forex, futures, stocks etc. can be monitored using the Qualitative Quantitative Estimation (QQE) indicator. The indicator displays two lines; a fast and a slow-moving trailing stop line.  The level 50 is important in QQE indicator. When the fast line (green line) is above 50, trend is considered bullish, if it is below 50, downtrend is assumed.   The original QQE indicator trading strategy is to buy when the green line is above 50 and it cross above dotted red line. For a sell trade the green line is below 50 and green line cross below dotted red line. Some traders open Buy position when the green line is below 50 and it cross above red line. Another method is divergence between price and QQE indicator. When price makes new lows and QQE indicator’s green line fails to make new lows, buy position can be opened. When price makes New highs and QQE green line fails to make new highs, sell position can be opened. QQE.zip
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.