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I should mention here that simplicity is only useful if in the end, its actually useful. Albert Einstein said to make it as simple as possible but no more.
I've learned some valuable lessons this last week. Simple is better and whatever helps you keep it simple is good.
I'm not an indicator fan. But one thing I've learned this last couple of week is I am not good enough to trade without something to lean on. Without them, I have struggled to maintain confidence in my ability. Continuously second guessing myself and consequently over trading, taking trades off to early, etc...
Then I was goofing off with something and it clicked for me at least in terms of providing rule based entry methods. But even that wasn't enough. I needed to nail the exits. I've been killing myself these last two years trying to decide on where to exit. A runner? fixed targets? scalp? What was I to do?
I watched a video about exits and its like the light went on for me and a bit later on, another light turned on in terms of risk control after a conversation with one of my trading buddies.
Three components of successful trading gelled on Friday afternoon.
1. Rule based entries.....keep it simple and sustainable
2. Rule based exits....make it simple but also dynamic in that they expand and contract with risk and market conditions
3. Risk control. Position sizing in relation to risk is the key here.
I've had all three drilled into my head over the last couple of years but stubborn me, I couldn't package all three together in something that made sense to me....
But now it does.
I am taking the next week or two to sim trade my ability to work with the three R's as detailed above. After that, I have a plan but I need to demonstrate my ability to do what I now have a lot of mental and emotional clarity about.
There will be no charts during the next couple of weeks...but I am going to post my sim pnl during this time. Daily average target is $1600.00. I may sim one week or perhaps two depending on how I feel about my progress.
At the end of the a successful sim trial period, I will be rewriting my business plan, making some adjustments to my spreadsheets as well as embarking what I think will be a new and improved chapter of my trading journey.
Here's to aha moments...
Cheers
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
Great post! Seems like another step forward. When trading, we all need 'something to lean on'. Until we develop competence, we look for crutches like indicators. Once competence starts to emerge, we just feel like we 'have to' put on certain trades, and accept whatever happens because we instinctively recognize good opportunities through our experience.
If you get a chance, check out De Bono's "Simplicity" book:
There's some insights in that direction (his other books can be helpful too).
You are never in the wrong place... but sometimes you are in the right place looking at things in the wrong way.
1. I tried to anticipate a signal and went early. No dice. Costliest mistake of the day. Throw this out and my day is profitable. This trade had multiple problems. I also had left the size on from the previous trade and entered with that when the risk demanded half that size.
2. I let a winner two ticks from my target turn into a loser. Should have been BE
3. I had a signal I didn't like. I took it because I am still working on a couple of simple filters to decide when NOT to take a trade.
4. I took a 5 min break for lunch. The trade I had been looking for showed up and I missed it.
However, over all I am very satisfied with the days results in terms of simple entry and exit rules. Only think I want to do is add a slight filter to not take certain trades and another one on when to cut losers short. both of these a I have as working theories now. Will validate them the rest of the week.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
Charts have all indicators removed for ease of viewing price and location of trades. I am using an indicator but not really ready to post it here yet. Its pretty darn simple indicator. Its one I borrowed from a well known futures.io (formerly BMT) member. I am testing it and finding that each day it is providing clear entries and my exit method is providing logical and easily identifiable exits. Whats missing is better although vastly improved sizing as well as potential scale in methods. I scaled in today on a trade and it made the difference between being profitable and not.
One area I am really dialing in on is when to exercise discretion as NOT take a trade. With no signal, there is no trade but with a signal, I am looking for reasons NOT to take a trade. In other words, to quote @researcher247 I trade by exception only. There are a couple of things I am looking at to filter those trades that are in fact legit signals but offer smaller reward potential and smaller likelihood of payoff. This filter is price action only, no further indicators.
One last thing I am looking at is something I have heard over and over again. Let price action determine when you should exit a bad trade prior to stop being hit. I've never figured out how that is possible. I mean after all, the stop means you are wrong. Not so. Today I saw two trades....the -1000 and the -700 trades turn in to losers but as I watched price action, I knew several bars before they stopped out they were going to be bad trades. But for the purposes of this weeks exercise, I let them play out.
Both trades could have been exited with a much smaller loss and the last one could have been exited at BE at one point long after I knew it was a loser.
I am beginning after all this time to understand chop as a good thing. It needs to be avoided yes if possible but at the same time, all directional moves originate in chop. I prefer the term non directional momentum or NDM. Basically price is coiling up like a spring storing energy in preparation for a directional move. After a while, it explodes in a directional move that we all dream about. So no more dreading NDM. It is to be desired and looked forward to as it preceedes a money making opportunity or an MMO. We make our money waiting through the NDM while anticipating the arrival of an MMO. Once the opportunity presents it self, it must be taken maximum advantage of.
In recognition of this, I am wondering about the concept of risk in light of these MMO's. If one recognizes a very good MMO, should one go at the maximum number of contracts one has available given the account balance and margin requirements? Or should one stick to a specific percentage of the account as risk...ie...1-2-5% of the account as risked on each trade.
As this week has progressed, i am not that concerned about the actual PnL. But next week, I will and will be trying to maximize the PnL every day. Right now I am simply concerned about following signals, learning to filter certain trades out and when to cut the losers short. i think i have a decent handle on this and will be looking to improve the pnl tomorrow while at the same time continuing to tweak the nuances.
I am learning to listen to that part of me called intuition. Listening to that voice that tells you things your head may have ignored or forgotten. Coupling the head and heart together could yield very nice results....
Anyway, cheers....
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
