Why am I wrong?

I am fairly new to trading in general (under a year). But have received some good basic instruction in charting and strategy. Just started looking at the e-mini s&p. Using the IB broker demo platform to learn. There is something I am seeing that I feel must not really be correct.
I looking at following a simple stochastic strategy; buy when coming above 20 and sell when moving below 80. Then confirm by watching the macd, and watch out for false signals. This strategy seems to find most of the big moves. I also make all orders bracket to protect downside. (it is a little hard for me to figure out where the stops should be in this market yet)

Anyway, in the short time that I have looked it seems to me that the chart hits this pattern at least once in 24 hours. Usually 2 or three times. Sometimes early or overnight, but it does seem to occur on a regular basis.
So it looks to me that I should be able to watch for a simple stochastic signal( perhaps walking me up if needed), and this should be like milking a cow.

So before I go order my Rolls, I thought I would ask what it is that I am missing, or not understanding. Because I seriously doubt it could be as easy as it appears to be. And I do know that I am a newbie. Thanks

Thanks for all the replies. I am really learning a lot here.

Originally posted by cairpre

Thanks for all the replies. I am really learning a lot here.

ROFL that's funny

I do have a question for you on your strategy. What do you so if the Stoch comes down below 80 but then goes back up?

Will you try another short when it goes below 80 again or will you wait until it completes a cycle (meaning it goes down below 20)

The reason I ask is I've seen the market stay above (or below) for extended periods of time.

Hi.

First the disclaimer. I am just a beginner. So don't trust anything I say. But I do know professional trader who is teaching me a few things.

You're right, I also see that stoc stays above or below for a long time. Or sometimes breaks and then returns. Theoretically I am supposed to wait for a macd confirmation. But I do not always.
Still there are other ways to protect yourself.

Lets say the es is at 1410 and the stochastic breaks above 20. If you put in a buy limit at 1411; you will be buying with momentum. (numbers for example only. maybe 1410.75 is better.) But the point is I don't want to buy at market. I let the market come to me.

I do not try to ride the stochastic all the way across. Despite what Gordon Gecko says greed is not always good. It does not always run across. I'd rather take a little of something than a lot of nothing. Of course if I catch a nice trending move I am happy.

I also put everything in as a bracket order to protect myself. usually with a 2-1 profit margin. I can adjust it later. True I might miss a big move sometimes. But on the other hand I am not terrified to go take a crap because I might loose my shirt.

I am just trying to pick the surest setups and not be to greedy.
But as I said, I am just learning and have not really tested this fully.
Cheers

Originally posted by cairpre
I am just learning and have not really tested this fully.
Cheers

It isn't possible to test it "fully" (as it would require all price data in the future), but *one* of the keys is to test thoroughly with quality historical data.

If it doesn't work in the past, it is very unlikely to work in the future. If it does work in the past, over a period of minimum 3 years & 500 trades, then you have some possibilities it might work in the future.

Note that you *must* account for transaction costs & slippage in your backtests, else you are fooling yourself.

cairpre, "why are you wrong"

It's a process of elimination. Most start out with 20 lines on the chart and 5 or 6 indicators join a forum, a chat room, and skype.
When you start to get rid of all the noise things become much more clear..
jmho

Funny thing is, the basic system you described is not far from what I use myself.

In simple terms, MACD gives trend direction or directional bias. Stochastic gives timing signals within the trend. The good news here is you have 2/3 of the trading equation solved. The third corner of the traders triangle of success is position management. To answer your question directly: what you are missing is a 100% rock solid trade management strategy and the discipline to follow it consistently.

Originally posted by cairpre


Lets say the es is at 1410 If you put in a buy limit at 1411; you will be buying with momentum.

err, I think you need to get your basics sorted out first.
That type of Buy Entry would be a Stop not a Limit

Here's what you're missing:

When we look at a market from the perspective that anything can happen at any time (and that's the proper way to look at it), it's easy to see that every potential trader who is willing to express his or her belief about the future becomes a market variable. On a more personal level, this means that it takes only one other trader, anywhere in the world, to negate the positive potential of your trade. Put another way, it takes only one other trader to negate what you believe about what is high or what is low. That's all, only one!