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Horrible trading. Please help!


Everyone knows how trading has been of late and it was horrible for me. I just blew out my account for the first time and it is a terrible feeling. I am trying to figure out how to get back from this and I am hoping that I can. This has really been a terrible experience from me and the least I can do is learn from it.

Any advice from you guys would be greatly appreciated as well.

Thank you.
quote:
Originally posted by NewKid

Red,

I am still having trouble understanding your 50% reversion to the mean system. Would it be possible for you to give an example of a trade you took recently on it? i.e provide the entry, exit and stop prices that you used? That would help me understand things better. Thanks a lot.



It will take longer for me to send a chart so mark on yours.
Yesterday 9/29 the 1:45pm 15min. candle is dominate w/lo 1116.25.
The 4:30pm & 4:45pm candles make a last engulf (Nison pattern)
and a new lo. 1112.00
Now we have two strong areas dominate candle & new lo.
(you will need to study candles to reconize patterns)
1116.25 + 1112.00 / 2 = 1114.00 This is 1/2 of our supports.
following three candles intrude into our support area. Its in
this area I take a shot for long. If it goes against me I know
just where to bail. This helps reduce risk. Now after saying that
I must remind you I have tons of prior s/r areas which came from long study and not all trades go down this way as s/r areas are different i.e. gaps vs fibs or MP
The times are est
*note the candle pattern was a key factor here
I hope this helps and my apology Bruce for not posting a chart


quote:
Originally posted by redsixspeed

New: There is one thing I need to add. The market is a taxi in my view. I'am standing at the curb waiting for it to come by and pick me up. If it passes me by I wait for it to come back around the block. Sometimes I doze off waiting. I don't try to out guess it and I don't listen to CNBC.

Mark Douglas has a similar analogy. In his book Trading in the Zone he talks about the market being a bi-directional river and you should think about yourself standing on the bank of the river and getting ready to jump in. You either want to go to the left or the right but you must pick your destination before you jump in. When you jump in, the river might start taking you there but it may also change direction at any point. You always have the option to jump out and wait before re-entering.
quote:
Originally posted by day trading

quote:
Originally posted by redsixspeed

New: There is one thing I need to add. The market is a taxi in my view. I'am standing at the curb waiting for it to come by and pick me up. If it passes me by I wait for it to come back around the block. Sometimes I doze off waiting. I don't try to out guess it and I don't listen to CNBC.

Mark Douglas has a similar analogy. In his book Trading in the Zone he talks about the market being a bi-directional river and you should think about yourself standing on the bank of the river and getting ready to jump in. You either want to go to the left or the right but you must pick your destination before you jump in. When you jump in, the river might start taking you there but it may also change direction at any point. You always have the option to jump out and wait before re-entering.



In the river we have to negotiate the obstacles that are there
and in the market we have to negotiate the obstacles there. As
traders it's our job to find out where these are. I have hear many traders say cut your loss and let your profit run BUT, we have to know how to cut or let run. Knowing the obstacles helps to do this.
Our obstacles are support/resistance, ego, fear, greed.

Thanks DT
Thanks for the analogies DT and Red. They are pretty realistic.
quote:
Originally posted by pt_emini

Welcome to the second level of trading: Risk Management

In trading index futures:

1. always use and honor your stop loss orders
2. never risk more than 2% (5% max) of your trading account
3. stop trading for the day after 3 consecutive losses
4. learn to hedge your risk

The goal with risk management is to survive an inevitable losing streak, or in the case of yesterday, to survive that one big loss (getting caught going the wrong way in an extraordinary price move). One of the weaknesses of paper trading is the rare and random occurance of a day like yesterday that seem to come out of nowhere. It is very hard to simulate this type of 6-sigma event and how you will react in real-time with real money at risk in a live account when everything suddenly goes wrong.

Risk management is a game of asking "what if ?" Where you need to consider each of the possible adverse outcomes. Followed by considering the effect on your trading account of a series of "what if" outcomes. I call this the irrefutable math behind trading.



forgot one...

5. Never add to a losing position.

...was reminded by someone i was speaking with this morning, who made the unfortunate mistake of violating this rule, in combination with violation of rule 1... he didn't take the small "mental stop" then he added to the losing trade....you know the rest of the story...

So I can rewrite this into 4 hard rules and a suggestion for improvement...

1. Always use and honor your stop loss orders.
2. Never add to a losing position.
3. Never risk more than 2% (5% max) of your trading account.
4. Stop trading for the day after 3 consecutive losses.

Suggestion: learn to hedge your risk


anyways, they say better than 95 % of traders fail: I propose that in almost every case, the root cause of a traders eventual failure is a result of their inability to follow rules 1-4 above.... violate these four simple rules on a consistent basis and you will be assured of your untimely fate in this unforgiving business.
Good point pt. I made the same mistakes as well. I surely will not be doing them again. One of the hardest things to do is to walk away from a loss. The human emotion simply does not allow it. It needs a strong conviction to do so.
Is there information out there about a "trading system" adding to trader failure. Don't misunderstand I'am sure some systems are good.

My question is do we as traders depend so much on a system that we don't gain a working knowledge of the markets. For example would a system pick up the move caused by Bufett. If not and we are so dependent on the system would we know what to do until the system is caught up.

I don't trade a system and I'am not trying to be difficult, just asking cause I don't know.
I've been lurking on this forum for quite a while, soaking up everything I can understand and then some. I felt I should chime in with my own story to provide some solidatity.

I started trading in April after I attended an Investools refresher seminar as a guest. I started paper trading and did very well - so well that I only did it for a week or so (long enough for my thinkorswim account to fund). When I began trading real money, I did alright the first two months. June was a 'spectacular' month, netting a little better than 50% of my account. I figured I was a natural born trader and began writing my system down so I could sell it on the new blog I was going to create.

July and August were a different story, erasing 50% of my profits. September started out great (up 30%), but then I lost 25% of my account in a day, followed by a quarter of that the next week. Since then, I've been up and down, more down, and am now slightly lower than where I started, but I did manage to withdraw some before everything went bad. Yay.

Having had plenty of time to ponder why June was great and why everything went downhill after that, I've come to realize that... wait for it... these folks are right. I've seen the rules and tips in this thread repeatedly in my studying and had i adhered to them, I'd be a little less frustrated right now.

Specifically, I have found that rule #1 should be: ALWAYS USE STOPS. This one is hard because my trading platform makes it a whole lot easier to immediately place a market order (just shift-click on BUY/SELL and BAM! Order sent!), whereas you have to right click and navigate a few nested menus to get to the 'BUY/SELL with Stop', which takes you to an order entry page - NOT very fast. Is it possible I should not be so anxious to get into that trade?) I find myself nervously waiting for a trade to come back to me too many times only to watch the market take off and leave me waiting for a bounce off of S/R so I can exit with some of my money. Murphy's Law kicks in and the price barely hesitates at the S/R line, much less bounces. To the ES traders - how do you gauge the size of your stop? I see koolblue's stops tend to range from 2-2.5 to 4 or more. Why? When do you enter your stops - when you place your initial order or after you're in? Is there an easy way to ensure you're always trading with a stop?

Rule #2 is usually phrased as "Plan your trade, trade your plan." I find myself jumping in out of trades due to boredom or because I think that if the market is open, I should be able to make money. When I'm patient and watch for my signals, I typically make money. When I get tired of waiting for signals to appear, I jump from timeframe to timeframe until I see what I think is the signal that matches my gut feeling. Turns out my gut feelings never work out the way I think they will. It's entirely possible this is the source of another popular saying, "Trade what you see, not what you think."

Rule #3 would be 'Don't throw good money after bad'. Too often, a trade has gone against me and I break Rule #1 because I see that the price is approaching a pivot point or strong S/R level and I'm ABSOLUTELY SURE it'll bounce, giving me an opportunity to either exit profitably or at least minimize my losses. When it touches that level, I'll throw some more contracts on so I don't have to wait as long to become profitable again. Needless to say this has caused large losses to my account.

Rule #4 would have to be know when to say when. Today was a perfect example of this: I got bored/had a hunch, went short just before the market went up. I lost about 5 points. Frustrated by my losing streak, I tried for a revenge trade. Long story short, I had 5 losing trades in a row. Tired of losing money, I tightened up my stops on the last two trades to 1 point. Given today's choppiness, I probably could have profited from both of them had I waited and used technical analysis instead of emotion. Acknowledge that the universe doesn't want you to post a profit for that day and quit - preserve your capital for a day when you're not as emotionally charged. pt_emini's rule of quitting for the day after 3 consecutive losers sounds perfect.

My biggest loss was on 9/18 when the market rallied from 1136 to 1240. I shorted at 1150 because I had a gut feeling the market was going back down to its lows. When it got to 1155, I threw two more contracts on for a total of 4. I broke rules #1, 2 and 3 and it cost me $13k+. Then I chased my losses, breaking rule #4 and losing another $2k. Expensive lesson. Given today's trades, I guess I still need to work on a few of them.

Finally, I'm in the process of writing an actual trading plan. I guess I kept my "plan" in my head so there was no need to write it down. With the amount of reading I've been doing and the different setups I've considered (e.g. simple or exponential averages? 20 period or 54 period or a combination of 20, 50 and 200?; tick charts, 1 minute or 5 minute? MACD/Stochastics or RSI/Stochastics or parabolic SAR or...), it would help to actually develop a single method, back/forward test it, and stick to it - the simpler the better. It's possible my strategy in June has become so contaminated by bits and pieces of others' methods that I'm no longer trading a viable strategy.

Anyway, sorry to have rambled on so long. It helps to put all of this down to make myself more aware of where I've been going wrong and hopefully this will help someone else by giving credence to pt_emini's rules.

Thanks to everyone's that's provided tips and support as well as those that are taking the time to teach and explain. Your efforts are greatly appreciated.
Thanks for the great summary and background culsu! Laying it all out like that really helps and will hopefully also help others. It becomes less of a mystery why these rules are repeated time and again once you've had some experience in the market.

I have a question for you: With hindsight, would you have paper traded for longer or do you think that trading real money and coming out slightly ahead (if I understood you correctly) was a better education? That's a bit of an ambiguous question so let me try and rephrase: Do you think that the risk of losing money by trading real money after such a short paper trading stint was worth it? Even though you came out slightly ahead, would you take that risk again?
Very nice writeup Culsu, that helps a lot. I am sure this has saved me a lot of grief.

I have been paper trading for more than a week now and i have made around 5K and i have to be honest i have had the feeling of putting in real money so tempting but controlling my emotions not to jump in as i have a lot to see and learn. Its good i stumbled upon this website, i try to follow these guys - sometimes don't understand the phrases being thrown around have to google it :-)

Hopefully i will be able to learn from the facts/rules you guys put forth.

What do you guys think would be a good time frame to start trading real money? I am thinking maybe 3 months than start with 1 contract till i get a good grip. Let me know your thoughts.

Thanks.
Thank you pt_emini, this is the kind of knowledge i won't get from any books. For now i am also learning not how to make money but how not to loose money :-)


Thanks again.