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Cool Trading Eye-Opener

This is a [email protected] reality check ... good exposure and practice ... welcome to the real world of trading. Very nice exercise I think:

Interested in comments and feedback from any and every ones experience on this site!
I figured it would be not only fun but intersting ... the comments and feedback. It's just a game but it's also an exercise and can be a way of practicing. Of course the idea is not to cheat, peek or tinker with your strategery mid-trade. And of course it does not mimic live trading and all of the psychological/discipline landmines when real money's at stake.

But if approached in a decent way, I do perceive value in uncovering potential gaps or weaknesses in specific areas related to psychology/discipline ... and also to the strategery itself. Don't go off the reservation with things ... stick to your preset rules and have a good time with it. Who knows, it might generate or reveal an additional insight into trading or price action or a strategy.
Originally posted by jimkane

Ah, here's something way cool. If you follow Joe's link you can click on the individual trades and go to the charts showing where he got in and out for each trade. This goes to what I was just saying. Look at INTC, for example. BOT at about 82, held through heat of under 68 (!), and closed out at 84, for a profit. That's basically what I was doing. But, would I ever buy a stock at 82 and hold to 68? Never, ever, under any circumstances, and I'm sure Joe wouldn't either. Or TIF, bought at over 43 and held to that low of 29 and change. All it takes is for one of those to keep going down and that's it, or to catch a streak of those. I'd be curious to hear form you, Joe, on your strategy and thinking as far as holding those with that much heat. I know you've made boatloads of real money in actual trading, but surely you haven't figured out a way to take that kind of heat in the real world, have you? If you have, please fill us in because that would be something I'd like to know. You just 'gamed the game' like I did, right?

First of all please bear with me I have taken my spell check off as I have become lazy in my spelling....but its just a game. I just played for a few on rules no stops just for fun. For the most part I don't use stops, I loath stops. I have a few methods that I use stops in but for the most part I hate them, as the only thing I have found them to do is take your money. Its hard enough to be right about direction then add to that if it hits xxxx.xx I was wrong and I'll take a loss...?? That kind of trading is not for me. I would rather put on a trade in the ES without a SL take a jog, shower... 3 hour break Its just the way I trade. 99% of the time I am in the market ES, TF, YM, CL, eurusd, stocks, options. If I am bearish, I am short, if I am bullish I am long might go against me 160 pips or 15 ES points but I'll let the guru's and master traders place stops. This works for me and has for a long time, just don't put all your eggs in one basket. I don't do that. Currently at this moment I am in 13 different trades, some winners some lossers, and its on Sunday evening.
Then only time I experince "major burn" is at major market turns. I am not saying normal losses I have those all the time. The kind of trades that burns the account and take's 2-3 days to re-coop.
Wow, Joe, that's amazing. I've never really known anyone to trade without stops like that. I'm the exact opposite, I go pretty much strictly with the xxxx.xx type stop, and although technically placed, it's usually quite tight. As you mention, it then requires not only the direction, but the exact 'when' so as to stay within that tight stop. I couldn't consider trading any other way, though. Goes to show everyone how each person has to find what works for them.

The aspect I really wish I could understand from what you do is this. In the ES, for example, you have no uncle point at all? Or do you just say uncle when you feel if, say, you are bullish, that the market is no longer bullish. I ask because what if you happened to be bullish in Oct '07, like all of us, and you got long right on the high tick of the bull market. Would you still be long now, waiting it out, or would you stop out when you felt the market had turned bearish?

You see, what you outline sounds like it makes sense, but as I explored this approach in the past, every time I ran the numbers (or tried it in sim) I didn't get the results you did, it just drew down fast. The problem was not what most would think, it was the correlation between plays. I couldn't break the high correlation. If I had a call play on and a put play on, I would find those two stocks moved inverse to each other, not that one was strong and one was weak. So, the two plays were highly correlated. If I chose two stocks that didn't move inverse, then one was not a good play, in that if the market was strong I had no business shorting a stock in a market uptrend.

The point is, if I hit it wrong at the wrong time everything would go against me, and without stops, the account would draw down so fast it was crazy. I could never make that up in a few days, it would take maybe six months to bring it back. After all, a 2/3 drawdown required a tripling of the account to get back to the starting point. I can't expect to do that even in six months without undo risk taking. So, I'm guessing that even without stops you still bail pretty quickly when you sense the tide has changed.

I once tried out a common technique, in sim, that many try, and I actually know one guy who was taught this and did it with real money, with the usual outcome. Try this in sim some time. Keep adding to a losing position. Usually like 99% of the time you can walk away with a profit. The problem is, that 1% makes the overall plan net losing. But it sure looks great until then. The one guy really built his account up incredibly, real money, until the market just didn't stop one day and in a few hours he lost it all and was deep in a hole.

I only mention this because I was never able to find a way to do what Joe does and not fall into a similar trap in that most of the time it would 'work', but then I'd hit the wrong thing at the wrong time, and all my positions would correlate, and I'd 'wait it out' and that would be that, as they say. The drawdown would be huge. I guess if I would just not let it go back that much, but how much is the amount? If you have an amount, then you do have stops, they are just mental stops, or wide stops compared to daytraders, but they are stops.

No stops means you ride it to zero. Or, perhaps Joe has stops not based on a specific price level, but on overall action, and when that action changes from bullish to bearish or the other way around. I really wish I could get a mathematical handle on this... Joe? PT? Anyone? I'm not planning to change what I have now, as I find it suits me quite well, but I wish I understood more about how to make this approach workable.
My stops are my bias. If the charts are turning bearish and I am long I cut the long and go the other way. If I rode out every losser until it got back green...1) I would run out of money about every 5 trades and 2) I would miss many other trades. I never said ride it to zero, I never have (except in options) I think its insane to use the same size stops in a summer bull market as you would on unemployment day. Its insane (imho to each his own, I am not calling anyone names) to use the same size stop at 9:35 as you would at 12:45 I just don't see how anyone can pull up a chart and say when the ES hits 61.8% I am going to buy at that level and TP xxxx.xx and SL @ xxxx.xx there is way too many factors to consider just because it has worked 65% of the time in the past, today is different its a breakout of a NR7 and every one was waiting on some key numbers this A.M. they wern't as bad as expected. No 2 days are every the same, so I could never be able to pick a particulare point in time and say buy here, sell there, stop there....I just took a hard game and made it 3x harder.

I stink on entries 7/10 of my trades are at a bad entry, so if I have lets say the popular 8 tick SL and I made a bad entry trade I slipped 3ticks on the way in after I waited to long to pull the trigger. I might as well go ahead and take the 3tick slip because its like 90% that I'll see -2.00 before I see 3 point + I am not saying just get in and make it work, I am saying every tick is different. In the same ex. lets say its a chop day after a trend day and the market made a new high late in the morning after chopping around for 2 1/2's obvious that all the big guys were in yesterday and this break is from retail...I'll give it a little extra just to watch PA around these new highs.

I dump most of my losers fast, but I have got smoked bad...Feb 27 2007 pull up a chart you can tell what happened. But I didn't go broke even though I was trading to large and made most money back the same day, took a few weeks to make the rest back. Its a bit fuzzy but I still remember the -15k on my DOM, and another time recently in the NQ -6k The important thing is that winners are more often and larger in any method or system, and I keep that most of the time. Any way I am rambling I guess were in the same boat Jim because I wish I understood how traders like you can not only be correct in the entries before hand but also the exit(s) because I might get in and ride it for 3 points or 23points up to the market cause I am not planning to change as well....Good night <edit> good morning I am going to sleep.
Originally posted by jimkane

Wow, Joe, that's amazing. I've never really known anyone to trade without stops like that.

George Soros, Richard Dennise, Buzzy Shwartz, Jeff Nichols, Patrick Mikual, Victor Niederhoffer, Robert Prechter . These are a few super traders I know didn't use nor belive in stops. But every newbie and guru would never trade without them, there taught in every how too book, and the brofers love them, I bet you couldn't find a trading platform with out some kind of sophisticated OCO system. Cause the brokers love them. And I have no real proof but I bet you that most losses are stop loss orders being triggered.

Here is a real life ex. of what happened week before last....I was trading the Pound 3 fridays ago, they had been going up on the daily and became very overbought. I was bearish I had a major reason on my chart and the country was fundamentaly weak so I started shorting and by the end of the day friday had a nice profit, so I thought the short looked sooo good I was going to try and hold it all the next weeks trading. I did some charting over the weekend and was so convinced I was on the right side I added more sunday afternoon. And just like I thought they kept going down because the reason they went up +1600 pips was because they were hoping on good numbers, and the charts were crumbling. At 6:30 that evening BP started moving up after a thrust down over the next 48 hours they went up nearly 15 pips. The reason I got in was no longer there, I closed the position and joined the longs and made over 350pips. The reason I bring this up is bot to brag but in my trading I am more worried about missed opportunity in other markets or the other side of the trade I am in than I am a lossing trade.
My credo is:
1. The first stop is always the best stop.
2. Small stops are better than big losses.

With that said, there is a style of trading that I do employ at times which I think shares some similarities to Joe's style. The setup for this trade comes a day or two after the stock indices (ES, NQ, YM...) have a signficant directional price move. What we find is a day or two after a large range trend day the market will tend to fall into a listless narrowing range on falling volume, what we call building value in MP terminology. During this value area development phase, If I am looking to enter a swing or position type of trade, I will slowly average into the new position as price drifts around in value. I will use a wider stop, well outside of the developing value area. As long as the developing value holds, I hold the trade open and build the position carefully at appropriate entry price levels. This technique helps me to get into a desired position without having to be exactly perfect on the entry price level or with precise timing. I have to be realistic and understand that the probability of me entering withing a few ticks of the exact tick (of the eventual high or low tick of the pattern), or even within a couple ES points of the exact tick, within a big 30 to 60 ES point price pattern is not very likely on average. My entry will usually be off a little bit, I tend to be right on the overall setup but early on my first entry in this situation. I give the new trade some room to breath in terms of time and price. If the pattern blows up in my face and the market breaks out of value in the opposite direction against my position, then I take my stop and move to the next trade setup. If the trade works in my favor, then I tighten up my stop after price breaks free of the value area. I have to admit there is a lot of experience based discretion and feel involved in the exact details of where and when I add or do not add to the position. For example, if on second or third examination of the setup it for some reason or other doesn't feel right to me, I will exit the trade while it is still developing.

I want to be clear, if the trade blows up on me, I get out. I never hold and hope. Also, I know where that point is before I enter the trade. I try to make it a rule of habit to always clearly identify exactly where my stop loss point is before entering any new trade.

A big goal of mine is to dampen the variance of my equity curve. I am not interested in techniques that allow random 6-sigma catastrophes to inconveniently show up on my equity curve.
I spent about 3 hours trying out the trading simulator yesterday.

I actually surprised myself with reasonably decent account performance. I ended up somewhere around +175% net. I posted significant gains (above 50%) on several stocks.

I managed to quickly break every rule in my trading book however. It's amazing how freeing it is to trade in a simulated account !

On one trade, I did not exit when it went against me. I held on and waited to exit on the next bounce. The trade went straight down until the time ran out on it, and it wiped out 75% of my trading account in one trade ! I fought back however and reclaimed almost all the loss, bringing the account back to a little over $8K (down 20% net). I was proud of my single minded recovery effort. Amazing how well a 75% single loss will focus your attention on your trading !

With my new found freedom, I also managed to consistently overtrade. After the first 10 or so stocks I got this out of my system and settled down enough to actually wait for a valid trade setup to form.

Thankfully the simulator did not allow me to add to a losing position, the thought did enter my mind more than once.

Overall, a reasonably good example of how not to trade ...