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

    • re racISM Seek the truth. Confront the lies.   Any white people who are racist are racist out of fear ... any 'supremacy' beliefs are compensatory.  Same with blacks... Seek the truth. Confront the lies.   Contrary to what you've been taught in school and now in culture, white people did not invent slavery.  Nor have they applied the most consistently horrific practices of slave owners, historically or currently.   Contrary to what you've been taught in school and now in culture, in fact, white people have done more to eradicate slavery / humans as property from the face of the earth than any other race - ever.   Seek the truth.  Confront the lies.  If you're white, don’t allow yourself to be guilted.   That just compounds the issues and divisions.   You are not individually or collectively responsible for the exploitation of minorities by a small percentage of psychopaths who happen to also be the same ‘race’ as you are ...  just because black people’s ‘self esteem’  generally needs to rise - especially those ‘trapped’ on the concrete plantations - is no reason your’s needs to fall ... don’t play into ivory tower false dialectic psyops designed to enslave EVERYBODY!   “A man’s rights rest in three boxes: the ballot box, the jury box, and the cartridge box.”  Frederick Douglass, 1867  civil rights leader in response to post-Civil War segregation laws... my god was that boy and this boy unwoke or what 
    • The intent of this post is to divert your attn. from the lie campaign about the appearance of improprieties by Hunter and Joe Biden...“The emails are Russian” is going to be the official dominant narrative in mainstream political discourse, and there’s nothing you can do to stop it. Resistance is futile. It will likely be too deep for most ‘millennials’  racISM https://www.realclearpolitics.com/articles/2020/10/12/the_civil_rights_legend_who_opposed_critical_race_theory_144423.html marxISM https://ammo.com/articles/cultural-marxism-gramsci-how-disciples-of-gramscian-marxism-subverted-america
    • EURJPY UPSIDE TRACTION OVERPOWERS BEARS, EYES 124.00 LEVEL   EURJPY Price Analysis – October 16 EURJPY is accelerating from a low of around 123.00 as upside potential prevails over sellers for another session on Friday. The cross has so far managed to hold above the 123.00 level. Given the uncertainty, it would be a mistake to set an end date for the response to the pandemic, European Central Bank (ECB) governing board member said on Friday. Key Levels Resistance Levels: 127.07, 126.46, 125.00 Support Levels: 123.00, 122.37, 119.31 EURJPY Long term Trend: Ranging As noted on the daily chart, if selling momentum picks up additional pace, then the pair is expected to continue to the next relevant area around 123.00, where it sits low in October. Further south, there is critical horizontal support just above the 122.37 level. While the RSI recovery from the near oversold area suggests a further recovery in the pair, a clear break of the 124.00 marks becomes necessary for the EURJPY bulls ahead of the 124.43 level and the weekly high near the 125.00 level. EURJPY Short term Trend: Bearish EURJPY intraday bias remains bearish, with 38.2% retracement from 114.39 to 127.07 at 122.37. A solid break there would confirm a resumption of the entire corrective fall from 127.07 and aim a 61.8% correction at 119.25, close to the pivotal support at 119.31. On the other hand, however, a break of the 125.00 level will bring the upward trend back to retest the 127.07 level. Conversely, a clear dip below the 123.00 level could plummet towards the 120.00 psychological magnets.   Source: https://learn2.trade                   
    • When emotions get in the way of trading success – Part 2 Veterans of the markets generally agree that trading is largely psychological. That is one of the reasons why a trader with suboptimal strategy will trade profitably and another trader with a good strategy will be making losses. The method one trader uses to trader their way to financial freedom is what another trader uses and experiences pecuniary ruin. Why are some people, who have access to excellent trading tools and strategies still struggle with the markets? It boils down to the mindset of the trader. To throw more light on this issue, you can read below a section from an article by Dr. Van K. Tharp, titled “Mental Strategies Versus Trading Systems.” “One of the best traders in the world told me once that he traded a simple trend-following system. He taught other traders how to trade that way and in the process, he claimed that often they developed systems that were more profitable than his! Yet he feels comfortable following his system so he sticks with it. What about the traders he has trained? Most never completed his training but a few found some success — yet none of his students has ever achieved the many years of consistent profits that he has. Why not? Great trading systems do not produce success; great traders produce success! Years ago, I visited the office of another well-known trader to profile him and his colleagues. What struck me was that several of the people in his office were not very successful — even though they were trading the same exact methods that he had used to make hundreds of millions of dollars. Why? In part, his mental strategy was quite different from those of his colleagues. How you trade relates more to your mental strategies than to your trading system. Would you disagree? Then how do you explain the lack of success of some of the people in his office trading the same great system as that top trader… Another well-known trader actually wants to teach people to be as successful as he has been. Thousands of traders have gone through his training yet he claims that only about 10% of his trainees will actually be successful using his methods. And the record seems to support his claim — people go through the training, but few come close to his level of success. Again, we have examples of people who know the rules of a winning system yet aren’t that successful. The reason that these top traders make money while others who use the same systems do not is — systems don’t make money, traders do. Then Do You Need a Trading System? Since the trader, not the system, is responsible for success, do you need a trading system? Top traders use systems so yes, you still need to use a trading system. What then is the purpose of a trading system? My research indicates that trading systems are an essential shortcut for human decision making. You have probably discovered that most human decision-making strategies are complex and slow. For example, think about the last time you bought a car and had to decide on the make, model, color, dealer, price, etc. You probably took several days at minimum to decide. Traders cannot afford that kind of time to make a decision. They need a shortcut or system in order to make quick decisions. Ideally, your trading system should signal an action and you should go through a quick “see/recognize/feel/act” strategy and take the trade. That is, you see the signal, recognize that it is familiar, and because it matches what you are looking for, you feel good about it and act on it. This is the simple mental strategy for action mentioned in the tasks of trading — but most traders cannot do that! They were successful in some domain (engineering, business, medicine, etc.) using a particular decision strategy and they want to continue to use that strategy in the market. As a result, when they see a signal to trade, they use their well learned decision-making strategy to decide if signal is valid and whether or not to act on the signal. Their “normal” strategy that worked well for them for so long does not work well at all in the markets. They end up feeling some emotions when they trade and they lose money…. ….I believe that any trader or investor can win in the markets if he or she uses his or her mind properly. Nothing in my experience to date has given me any reasonable counter examples. Some people just operate at a level that requires a much greater degree of change in their mental strategies than other people. Mental strategies are not the kind of things most traders are interested in normally. They’d much rather learn a new indicator or system. Understanding that mental strategies are a huge edge, however, directs your attention away from external factors and leads you to explore your internal processes. Understanding and leveraging those processes can help you turn any good system into trading success…. Source: Vantharp.com Note: What are the solution? You need to work on your trading mindset and mental strategies. We will explore how to do this in the coming articles. Source: https://learn2.trade 
    • Gann was ahead of his time . Good stuff I hear he's trading with TRO now! LOL Tunneling for pips  Grab that Tro Tunneling radar screen indicator and start tunneling for Bitcoin!
×
×
  • Create New...

Important Information

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