Stop predicting

ras72 · Nov 15, 2013

Quote from murrica:

Not sure if this belongs in psychology. If not, my apologies.

After reviewing my trading records from this year, and after thinking about my 'bad beats' this past year, I was hoping to get some input from some of the more experienced traders on the forum.

The two trades that I am hoping to discuss here were attempts at shorting the 30 Year futures in the spring (around 148-149+), and shorting the Nikkei futures around the 16,000 top. Both of these moves were well anticipated in advance, especially the 30 year (what a beautiful topping pattern around 149 if you just sat patiently for the pattern to complete!)

What I did not anticipate was the exact price at which the top would occur. Obviously, if one were to have a crystal ball, they could just go 'all in' using 94% of their capital or what have you, and retire relatively wealthy inside of 18 months. But, through my own follies in times past, I have learned to be prudent with regard to position sizing and stop loss sizing. Even if my trading style sucks currently, at least I have been able to preserve my risk capital (imo, a much more important consideration).

Missing valuable opportunities that were well-anticipated can be demoralizing. And, to me, missing these is not much different than taking a loss.. perhaps even worse in a way (especially when the reward is large relative to risk).

In the case of these two trades from above, I was attempting to get in at or near the turn, which may be the fundamental issue. This is clearly related to the need to be 'perfect', which is not necessarily congruent with being a highly profitable swing trader. What happened, however, was that I got stopped out on both attempts to get in on the trade, and was quite unwilling to hop aboard once it was clear that the price structure broke to the downside.

Especially in the case of the Nikkei, the way it was behaving that day it topped at 16,000 was so wild and volatile, almost purely to the downside, that it was ostensibly a very high probability short trade, even as the price was dropping like a rock (post blow-off). I wanted to hop aboard, knowing that it was a high probability trade, but various factors stopped me:

1) I had already lost a bit more than a typical trade on the losing attempts to 'predict' the turn.
2) The volatility seemed scary once the turn was in progress. "What if the thing does some huge upward spike and puts me heavily under water?" I don't have millions under management (small retail piker) and thus cannot scale into a longer term position. In other words, my account size requires achieving 'separation' into a winning position relative to entry.
3) Getting in at worse prices seemed like a 'loss', even though the point was to make money. This might, on the surface, seem to be related to some psychological need to be 'right', and this might be true in part, but it seems to be related also to a fear of getting in at the lower price only to be shaken out as a weak hand.

Some thoughts to fix this:

1) Stop trying to predict the turn. While there are limited circumstances where getting in at 'resistance' makes sense, particularly with regard to risk:reward, it seems better to think of looking for higher probability scenarios (more likely for trade to work).
2) Do better analysis. My charting analysis on the 30 year was crappy and in hindsight the 149`xx top was very clear and clean. This was one of this limited circumstances if one were patient enough to wait for that super clean sniper shot and would have lead to 1:100+++ risk:reward. While it would be nice to discuss the merits and follies of hindsight analysis, the fact is that researching backwards and/or in real time is all we have as technicians. So in that sense, I would ask to stay on topic.

Anyway, I can embellish more about this topic, but just wanted to get the basic ideas down first and spark some (hopefully useful) conversation on this topic. I am quite sure that this is not a problem unique to me, and hopefully others can benefit. I notice that there are a number of troops on the boards who are clearly not overthinking things, are not looking to short the US indexes, yet. This makes way too much sense to me, and this perhaps goes back to one of the core issues of needing to get in at the extremes and being unwilling to hop aboard mid-trend on pullbacks or breaks from consolidation.

As a general consideration, I seem unable/unwilling to get into a trend that is in progress. This is absolutely a requirement if you are not sitting on standby waiting for the exact break or turn.. so maybe the solution to this dilemma is simple?

All on-topic and constructive input is greatly appreciated. Thanks.
More...

I see nothing wrong with predicting reversals. In fact I consider it the epitome of trading. The thing is it must be done properly.

Alternatively one could simply play mechanically a statistically verified set up. Just concentrate on that. Don't think about anything beyond what's strictly necessary and don't ask yourself the reason for anything.
There's a bunch of people on ET that can help you with that.

- ras72

kid.fx.cross · Nov 15, 2013

might a suggest more of a money management strategy?

first off, you will never read about me because I never commit all my money to one position

but I do, like you said, start off with a 94% commitment

if I'm right, I make a lot of money on that trade

much more and with less risk than if I started small and added

I put it all on with a tight stop on 25% of the position

If the stop gets hit I enter a new stop for what would have been another 25%

I also enter a new stop to enter to bring me back up to 100% at what was my original price

I keep doing this until I have a minimum position on with no stop

so a bad trade will have a minimum position with no stop and 3 orders to enter 25% at a time if it ever finally starts moving my way

a good trade has a full load and a stop for 25% which is way the hell down there

profit is taken when the whole account hits the target. So it is not dependent on any one position. And everything is always spread, so I can survive any fundamental news.

This strategy will allow you to trade really big, way out of what would have been your comfort zone, but keep you from stubbornly hanging on to a position which you feel should be right, and the market is just plain acting irrational.

It doesn't make sense unless you have been burned many times many ways. The drawdowns can be substantial. The daily swings will be much more than you were previously comfortable with. Trades can last weeks or months.

But then again, sometimes on a good day they only last hours, or even just a few minutes.

Nothing special about my particular strategy, it could be one of many, it's just a response to "predicting." In that, I feel time and energy are better spent developing your money management skills rather than your predicting skills.

murrica · Nov 15, 2013

Quote from OddTrader:

Anything is possible!

http://www.dailymail.co.uk/sciencet...ics-proves-IS-afterlife-claims-scientist.html

"
Quantum physics proves that there IS an afterlife, claims scientist

Robert Lanza claims the theory of biocentrism says death is an illusion
He said life creates the universe, and not the other way round
This means space and time don't exist in the linear fashion we think it does
He uses the famous double-split experiment to illustrate his point
And if space and time aren't linear, then death can't exist in 'any real sense' either

Most scientists would probably say that the concept of an afterlife is either nonsense, or at the very least unprovable.

Yet one expert claims he has evidence to confirm an existence beyond the grave - and it lies in quantum physics.

Professor Robert Lanza claims the theory of biocentrism teaches that death as we know it is an illusion created by our consciousness.
"
More...

Would like to ask if you could stay on topic. Thanks.

murrica · Nov 15, 2013

Quote from kid.fx.cross:

might a suggest more of a money management strategy?

first off, you will never read about me because I never commit all my money to one position

but I do, like you said, start off with a 94% commitment

if I'm right, I make a lot of money on that trade

much more and with less risk than if I started small and added

I put it all on with a tight stop on 25% of the position

If the stop gets hit I enter a new stop for what would have been another 25%

I also enter a new stop to enter to bring me back up to 100% at what was my original price

I keep doing this until I have a minimum position on with no stop

so a bad trade will have a minimum position with no stop and 3 orders to enter 25% at a time if it ever finally starts moving my way

a good trade has a full load and a stop for 25% which is way the hell down there

profit is taken when the whole account hits the target. So it is not dependent on any one position. And everything is always spread, so I can survive any fundamental news.

This strategy will allow you to trade really big, way out of what would have been your comfort zone, but keep you from stubbornly hanging on to a position which you feel should be right, and the market is just plain acting irrational.

It doesn't make sense unless you have been burned many times many ways. The drawdowns can be substantial. The daily swings will be much more than you were previously comfortable with. Trades can last weeks or months.

But then again, sometimes on a good day they only last hours, or even just a few minutes.

Nothing special about my particular strategy, it could be one of many, it's just a response to "predicting." In that, I feel time and energy are better spent developing your money management skills rather than your predicting skills.
More...

Sounds good, but I would still be worried about the unforeseen flash crash or flash melt-up. This might render a stop ineffective on a large, risky position size.

murrica · Nov 15, 2013

Quote from djmartin:

Some traders aren't trend trader. If your a counter trend trade learn to embrace it. just because everybody says the trend is your friend doesn't mean it has to be your(as in you) friend. Figure out which instrument fits your trading style. The indices are a good place to start for counter trend trading, even though theres times you want to go with the trend but for the most part you can catch some nice counter trend moves. I absolutely hate trend days. Take the last two days, i didn't do as well as trend trading traders and i'm ok with that. Early in the day today was some pretty good back and forth action but over all the market wasn't very kind to me. Over the last two days i've been slightly positive close to brake even. Some people would say how the market went straight up. Trend days are not my strength, the best thing that happened to me is I learnt to except it. Figure out how your mind works as a trader and go with that. Theres no right or wrong way to trade, if your making money thats all that matters. IMO theres only one thing thats constant in trading, RISK CONTROL. Hope this helps.
More...

Like this answer, but few things:

1) Looking for swing trades

2) Current market environment (US stock indexes) is quite unfavorable for counter-trend (short) swing trades. Things could get much worse for the bears before they get better (max pain scenario).

trader198 · Nov 15, 2013

I shorted the treasure too.

when I shorted it from Zb,ZN, ZF,even zt.

actually I buy future puts, not the future. so I am not afarid of casual spike, though IB still asks margin, but will not get any margin calls. if my puts go up, my margin increase accordingly, my puts's gain can satify this margin increase . if my puts drop to zero, my margin decreases to zero. if the market contines spike, I do not have margin at all.

but for future, it will be harder. suppose if ZB spikes 3point, and my account is just 3k, I am wiped out, if ZB spikes more, I own IB money, and even spike more,... I know it is hard to time correctly.

sometimes I just buy TLT's put, that will be lot easy NO margin at all.

predication is essential in trading success. if I do not predict treasure will go down, I will not buy puts!

if you do not know when to get in and get out, that is part of prediction too!

I execute trade firstly based on the ideas (fundemental predication), then based on technical key level to enter and exit (time my trades), in order to avoid wrong timing, I choose options to execute the trade to avoid using stop loss/margin call issue.

like double top, it is easily predicted. when you see a market peaked, create a high, next time, wait there, when it reaches there, sell. doubel bottom, same strategy.

some time it hit old high, it breakout. smart guys will wait, till a failed breakout, then fade. I think that is prediction too. or more accurately, anticipation.

Quote from murrica:

Not sure if this belongs in psychology. If not, my apologies.

After reviewing my trading records from this year, and after thinking about my 'bad beats' this past year, I was hoping to get some input from some of the more experienced traders on the forum.

The two trades that I am hoping to discuss here were attempts at shorting the 30 Year futures in the spring (around 148-149+), and shorting the Nikkei futures around the 16,000 top. Both of these moves were well anticipated in advance, especially the 30 year (what a beautiful topping pattern around 149 if you just sat patiently for the pattern to complete!)

What I did not anticipate was the exact price at which the top would occur. Obviously, if one were to have a crystal ball, they could just go 'all in' using 94% of their capital or what have you, and retire relatively wealthy inside of 18 months. But, through my own follies in times past, I have learned to be prudent with regard to position sizing and stop loss sizing. Even if my trading style sucks currently, at least I have been able to preserve my risk capital (imo, a much more important consideration).

Missing valuable opportunities that were well-anticipated can be demoralizing. And, to me, missing these is not much different than taking a loss.. perhaps even worse in a way (especially when the reward is large relative to risk).

In the case of these two trades from above, I was attempting to get in at or near the turn, which may be the fundamental issue. This is clearly related to the need to be 'perfect', which is not necessarily congruent with being a highly profitable swing trader. What happened, however, was that I got stopped out on both attempts to get in on the trade, and was quite unwilling to hop aboard once it was clear that the price structure broke to the downside.

Especially in the case of the Nikkei, the way it was behaving that day it topped at 16,000 was so wild and volatile, almost purely to the downside, that it was ostensibly a very high probability short trade, even as the price was dropping like a rock (post blow-off). I wanted to hop aboard, knowing that it was a high probability trade, but various factors stopped me:

1) I had already lost a bit more than a typical trade on the losing attempts to 'predict' the turn.
2) The volatility seemed scary once the turn was in progress. "What if the thing does some huge upward spike and puts me heavily under water?" I don't have millions under management (small retail piker) and thus cannot scale into a longer term position. In other words, my account size requires achieving 'separation' into a winning position relative to entry.
3) Getting in at worse prices seemed like a 'loss', even though the point was to make money. This might, on the surface, seem to be related to some psychological need to be 'right', and this might be true in part, but it seems to be related also to a fear of getting in at the lower price only to be shaken out as a weak hand.

Some thoughts to fix this:

1) Stop trying to predict the turn. While there are limited circumstances where getting in at 'resistance' makes sense, particularly with regard to risk:reward, it seems better to think of looking for higher probability scenarios (more likely for trade to work).
2) Do better analysis. My charting analysis on the 30 year was crappy and in hindsight the 149`xx top was very clear and clean. This was one of this limited circumstances if one were patient enough to wait for that super clean sniper shot and would have lead to 1:100+++ risk:reward. While it would be nice to discuss the merits and follies of hindsight analysis, the fact is that researching backwards and/or in real time is all we have as technicians. So in that sense, I would ask to stay on topic.

Anyway, I can embellish more about this topic, but just wanted to get the basic ideas down first and spark some (hopefully useful) conversation on this topic. I am quite sure that this is not a problem unique to me, and hopefully others can benefit. I notice that there are a number of troops on the boards who are clearly not overthinking things, are not looking to short the US indexes, yet. This makes way too much sense to me, and this perhaps goes back to one of the core issues of needing to get in at the extremes and being unwilling to hop aboard mid-trend on pullbacks or breaks from consolidation.

As a general consideration, I seem unable/unwilling to get into a trend that is in progress. This is absolutely a requirement if you are not sitting on standby waiting for the exact break or turn.. so maybe the solution to this dilemma is simple?

All on-topic and constructive input is greatly appreciated. Thanks.
More...

kid.fx.cross · Nov 15, 2013

Quote from murrica:

Sounds good, but I would still be worried about the unforeseen flash crash or flash melt-up. This might render a stop ineffective on a large, risky position size.
More...

yes, that is why I try to stay spread. I'm willing to give up the big lucky move in my favor in exchange for protection from the bad move.

It really doesn't matter if I get stopped out or not. The stops just gradually reduce position size on losers.

So the market can be going crazy, but I am only trading a small portion of it, namely the spread.

Getting back to predicting, if you trade forex, one way or the other you are going to be affected by the US Dollar. Out of a hundred analysts that I respect, 50 think it will strengthen, 50 think it will weaken, and they all have good arguments.

So all I know is, it will either go up, or it will go down.

My trade is, if it goes up, something else will go down. If it goes down, something else will go up.

So in the big world of gyrating markets, my markets are actually very narrow and subdued.

Stops get traded through all the time, it's no big deal. In most cases I would be better off if they never got executed at all. I always get a bad fill at the worst possible time. But that's the price I had to pay to let my profits run.

trader198 · Nov 15, 2013

the critical is the trading idea,not the timing method.

timimg is hard. when you trade too technically, just like gambling.

follow your trading ideas often finally yiled there sults you expect.

recently I average down NQ using no margin, gained 50% in days, that is pretty good. but to exactly predict where NQ drops to and stop, even I have some clues (I use some old bottoms), but I believe the drop is overdone, so I acted on it. first I am green, then red, doubled up. then green, and then out just as I expected.

I bought some FNMA too. I noticed the HALT, found it did notgo down, so I bought 20k at 2.3~2.5. made very good money on FNMA this week. I thought the market has some thoughts on this OTC stock. I look at FNMA just like my option. I do not have margin on that.

Handle123 · Nov 18, 2013

Quote from murrica:

As a general consideration, I seem unable/unwilling to get into a trend that is in progress. This is absolutely a requirement if you are not sitting on standby waiting for the exact break or turn.. so maybe the solution to this dilemma is simple?

All on-topic and constructive input is greatly appreciated. Thanks.
More...

I have been trading this way since 1994, selling new contract highs/buying new contract lows, but I just don't do any new highs/lows, I look at past 10/20 years of prices for each commodity and have developed "zones" of so much percentages from extreme highs/lows, these are areas I get interested, Then I drop down to weekly charts, I start looking for topping and cupping patterns(lows), am seeking half the cup, meaning, if I want to see when markets turn, they normally do so when the differences from one pivot to another pivot gets smaller, on TA this is called divergences, when new contract highs/lows occur, I go the other way, HOWEVER, I hedge with options, I know that a very healthy amount of my trades I will lose in the futures but will gain back and often with a profit on overall position using options. Some years I have very few trading opportunities and others like last year, very many. I have learned so much in this style of trading, I have to stay with positions for a very long time while making no money or made some and just sitting with them, examples been long Nat Gas and short Copper for over a year, and just keep rolling over. So I have gotten in on every major turn past several years. I take profit on half at certain monetary areas and let the rest ride and never move protective stops unless I see reverse "cupping" patterns on the weeklies, and only then require last day of the week must be above last weeks' high or below last weeks' low to exit. Trailing stops are the worst for me to use as way too often I was stopped out and then watched continuation of trend. AND AND often times watch market come back $10k plus to be stopped out at breakeven, but did take profit on half, but you don't make the homeruns in this method by getting out cause market coming back.

I have done extremely well overall trading this way, and it is extremely boring most of the time. Only 1.5 years ago I have started adding on positions going with the trend, took me only 17.5 years to find a pattern that is very reliable of going with the trend. I have never been a good trend trader. And as a day trader, I had always taken trades going against trend.

Three months ago I have started trading stock/ETF/commodity options for the sake of profiting instead of hedging, and again best time for me to enter is against the intra-trend. Trend trading has never made sense for me, why pay more for something and risk much more, trends are ragged normally, especially going up. I trade with idea of really buying low and selling high. I never recommend to anyone to trade this style, it is very expensive to do so as options are often very expensive at new anything and often times expensive to get out when they are losing money, but it works for me. Plus, I had to learn that most years I will only be making money on the futures side about 15% of the time, and had to learn to take profit in the options enough to cover losses, it is so tough to get out when market is screaming one direction, but hedges are for offsetting risk for my method. And there are times where I lose on both the futures and the options, nothing is perfect.

Almost any method will work so long as one backtests it over many years and you ask ever question you can think of for the "what ifs", It is often times of failure cause some "what if" was never answered.

murrica · Nov 18, 2013

Quote from Handle123:

I have been trading this way since 1994, selling new contract highs/buying new contract lows, but I just don't do any new highs/lows, I look at past 10/20 years of prices for each commodity and have developed "zones" of so much percentages from extreme highs/lows, these are areas I get interested, Then I drop down to weekly charts, I start looking for topping and cupping patterns(lows), am seeking half the cup, meaning, if I want to see when markets turn, they normally do so when the differences from one pivot to another pivot gets smaller, on TA this is called divergences, when new contract highs/lows occur, I go the other way, HOWEVER, I hedge with options, I know that a very healthy amount of my trades I will lose in the futures but will gain back and often with a profit on overall position using options. Some years I have very few trading opportunities and others like last year, very many. I have learned so much in this style of trading, I have to stay with positions for a very long time while making no money or made some and just sitting with them, examples been long Nat Gas and short Copper for over a year, and just keep rolling over. So I have gotten in on every major turn past several years. I take profit on half at certain monetary areas and let the rest ride and never move protective stops unless I see reverse "cupping" patterns on the weeklies, and only then require last day of the week must be above last weeks' high or below last weeks' low to exit. Trailing stops are the worst for me to use as way too often I was stopped out and then watched continuation of trend. AND AND often times watch market come back $10k plus to be stopped out at breakeven, but did take profit on half, but you don't make the homeruns in this method by getting out cause market coming back.

I have done extremely well overall trading this way, and it is extremely boring most of the time. Only 1.5 years ago I have started adding on positions going with the trend, took me only 17.5 years to find a pattern that is very reliable of going with the trend. I have never been a good trend trader. And as a day trader, I had always taken trades going against trend.

Three months ago I have started trading stock/ETF/commodity options for the sake of profiting instead of hedging, and again best time for me to enter is against the intra-trend. Trend trading has never made sense for me, why pay more for something and risk much more, trends are ragged normally, especially going up. I trade with idea of really buying low and selling high. I never recommend to anyone to trade this style, it is very expensive to do so as options are often very expensive at new anything and often times expensive to get out when they are losing money, but it works for me. Plus, I had to learn that most years I will only be making money on the futures side about 15% of the time, and had to learn to take profit in the options enough to cover losses, it is so tough to get out when market is screaming one direction, but hedges are for offsetting risk for my method. And there are times where I lose on both the futures and the options, nothing is perfect.

Almost any method will work so long as one backtests it over many years and you ask ever question you can think of for the "what ifs", It is often times of failure cause some "what if" was never answered.
More...

Very inspiring. Thank you.