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This is a long post, and may be boring to persons not interested in S&P
daytrading. I consists mostly of my personal experience.
I received lots of supportive mail (many thanks to those who replied),
and lots of questions. I'm answering the questions here because if one
person has a question, probably others do, too.
someone wrote:
> Would you be willing to say what you're trading? Futures?, Options?,
> Stocks? -- What Entities, S&P, Bonds, Currencies, etc.
I started trading 1-lots of the S&P 500 futures contract. When the split
happened about a month later, I started trading 2-lots. It was a good
thing for me. My earlier testing with fixed fractional trading led me to
conclude my account would grow faster this way.
Before I got into daytrading I traded equities (long term), equity
options (2-6 weeks), currency futures (2-5 days). I developed my own
method of trading equity options by creating balanced baskets of
puts/calls and putting them on the shelf until expiration. I usually had
five baskets running simultaneously. This was a lot of work for the
return.
Then I used Joe Ross methods for the currencies. They were successful,
but I wanted something less ad hoc and more systematic. I also did some
scale trading through a managed account my broker was running. This was
very profitable for me, but too risky while I was trying to accumulate
capital to start my daytrading business. I may return to scale trading
again because I think some of Joe Ross' ideas can be applied to make it
less risky.
someone wrote:
> How did you learn from John Stenberg and Joe Ross? Was it from books
> written by them, seminars presented by them or personal trading
> experience with them?
I took John Stenberg's six month course. His training manual was very
difficult to understand since it was mostly short notes on 3-minute bar
charts. I think I spent a full week just trying to understand the first
page. But it was time well spent and eventually his methods began to
make sense to me. I spent weeks on conference calls with other students,
listening as he analyzed the market action in real time. In addition,
every morning he sent a fax of the prior day's activity, showing where
all the trades were, and why. I knew I had "gotten it" when my analysis
pretty much matched his. (I'm not sure, but I think he's teaching a
different methodology now.)
The most valuable thing I learned from Joe Ross was the mindset of
approaching trading as a business. This means keeping good records,
setting objectives, reviewing performance and managing my "employees". I
don't use any of his indicators, though someday I would like to finish
developing my system that merges his "Optures and Futions" with Wiest's
scale trading. Perhaps after I get bored with the S&P!
The second most valuable things I learned from Joe Ross was about
backtesting. I was well aware that backtesting never included whether it
was in a "fast market", or if the bid/ask spread was 10 points or 200
points. But Joe's insight was: My order wasn't in the market. In other
words, my order (not) being in the market may have affected what the
market actually did.
I failed to mention in my original post the value I got from taking Bill
Greenspan's "Commodity Boot Camp" seminar. For me, there was no
substitute for seeing the pit in action and hearing Bill describe what
its like to trade there. Mostly I learned that pit traders aren't "out
to get me". They are just doing their job of making price discovery. It
was nice to shed the paranoid delusions I'd accumulated from talking to
other traders.
> You said you went from part-time to full-time futures trading. I would
> think that your full-time approach had its genesis in your part-time
> experience. Any advice for one wanting to trade full-time without the
> part-time experience other than what you have given.
I had successfully traded equity options in a systematic fashion for a
while. I put in about one hour each night and then faxed my orders to my
broker. Eventually I concluded it was much simpler just to daytrade the
S&P, so I set about learning how to do it. I started by reviewing the
intraday market activity each day when I got home from work. Once my
analysis began to resemble Stenberg's on a consistent basis, I left my
day job and began studying market action in real time.
What a difference! I made mistakes all over the place. I had estimated
it would take three to six months before I could begin trading real
money. Man, was I wrong about that! It took about four months before my
paper trading began to break even, and longer before I started being
regularly profitable.
Finally I was ready to start paper trading with my broker so I could get
realistic fills. What a difference! I was instantly losing money. It
took a while to get back to breaking even, and even longer to get back
to being profitable on a regular basis. Finally, I was ready to start
trading real money. And then what a difference! But after breaking even
for a while, I finally began to be profitable.
Sure, each of these adjustments was mostly psychological. I had to
adjust to trading two-lots when the contract split. Then trading
three-lots became a barrier that took a couple of months to work
through. Then the same problem with four-lots. Now I'm facing the same
problem now with five-lots. Yet I know I'll get past it.
Handling losers was very difficult for me. When I started trading real
money if I had a loss, I couldn't trade the rest of the day. And if I
had a big loss, I couldn't trade for several days. Now if I have a
loss, I jump back in at the next sensible opportunity. And I try not to
let any day end with a net loss at all.
I also found out about the importance of "cutting your losers short." I
used to let the market stop me out, thinking "Its ok, I've already moved
my stop to breakeven, or at least a close swing point." As a result I
had lots of little losses. Now when I realize I'm likely to be stopped
out I call my broker immediately and exit at market. Generally I make a
small proft. What a difference! A 20-30 point gain instead of a 20-30
point loss. It really affects the bottom line. For me, it feels like the
difference between passively letting the market victimize me with a
loss, and actively taking personal control over the result. An
interesting side-effect of this is that because I trust myself more to
exit at an appropriate time I don't have to move my stop so close. This
lets me stay in a trade longer.
Someone wrote:
> What two time frames do you use ?-( you mentioned a 1 tick chart )-
> what is the other?
I used to put my indicators on 12-tick and 36-tick charts, which roughly
correspond to 1 and 3-minute charts, and displayed some on 1-tick
charts. It got hard for me to quickly see which bumps corresponded to
each other on the different charts, so I re-wrote the indicators so they
each displayed on a 1-tick chart, but retained the shape of the 12 and
36-tick charts.
So I guess the answer is that I display 12 and 36-tick indicators on a
1-tick chart. It makes it easier for me to see the pullbacks.
Someone wrote:
> You mentioned also that out of the 12+ setups you get each day your
> only taking 6 of them - so what other type of criteria do you use?
Well, I would like to take _all_ of them! But it doesn't work out that
way. Sometimes I decide there isn't enough opportunity in the trade to
take the risk, like when I show divergence around support/resistance on
a higher timeframe I conclude the trend isn't going much further.
Sometimes I recognize the setup too late and the market moves away from
me before I can take action. Sometimes price action is a "V" formation,
which I cannot trade since I choose not to chase a trade. Sometimes
price action is too sideways for my taste. And sometimes I find out
through my broker that the market is thin. Or its too volatile and I'm
getting 100 point ticks. I remember the sinking feeling I had on a day
I'd been aggressively trading only to find out that the market was so
thin, that I was the "size"!
Someone wrote:
> With regard to your 400 point stop. Is that static? It also appears
> too large compared to your expected profit
My broker has standing orders to enter a 400 point stop when the fill
comes back. This is my disaster stop, which shouldn't be hit unless I'm
paralyzed with incredulity. Ordinarily I move my stop to breakeven or so
as soon as a swing point is taken out. I take profits proactively, as
soon as I see divergence in my short term trend indicator (unless my
long term trend indicator is showing increasing strength). I don't wait
to get stopped out - I leave too much money on the table that way.
Someone wrote:
> Seems to me your greatest asset is a unique ability to assess yourself
> and your performance without a shred of ego to muck things up.
Thanks for the kind words, but my ego gets in the way *alot*. I have
what I call "the trade of incredulity," which I recognize to be an
ego-based trade: "I can't believe" the trade is going to continue to go
against me. "I know I'm right!" Even though my indicators show the trend
has already reversed, I perversely stay in the trade. My indicators are
wrong this time, and I'm right. Uh huh.
My deer-in-the-headlights stop has saved me from myself many times. A
400 point loss is an expensive lesson, so it shows how powerful my ego
is! So I'm training my ego to say, "I'd rather be profitable than
right."
Someone wrote:
> If I may I ask you, what broker do you use? How important has the
> speed of your executions been to your performance? Do you go to
> directly to a floor broker or through a desk outside of the pit?
> What data feed do you recommend?
I go through Scott Wiens at Riefler Trading (1-800-829-5070). I have no
complaints about his service, executions, or anything else. Since I'm
scalping, speed is critical. Scott's value to me is that he uses
different floor brokers depending on the type of order I'm placing (long
or short, market or limit or stop) Remarkably, I sometimes get positive
slippage. I use BMI/cable and I'm happy with it, but I have nothing to
compare it with.
By the way, I consider bad ticks, missing data, etc. just to be part of
the business. Those problems are part of the real world and I adapt to
them.
Someone wrote:
> Congratulations! Bravo! Bravo!
>
> You're the best programmer I've every seen with
> EasyLanguage, but I'm kinda glad to hear you gave up on
> trying to automate your method... discretionary is better!
> :) I imagine you might describe your rules as "usually",
> "sometimes" and "rarely"!
Sad but true.
My trading and my understanding of indicators made a big leap forward
when I realized that "the number" from an indicator isn't as precise as
my mathematics background wanted it to be. The market rarely reverses
at "the number". It reverses "in the vicinity" of "the number."
For a while I programmed EL systems for other traders. It was often
difficult for me to identify the precise rules my client used for taking
trades. And frustrating for him to clearing articulate what was an
intuitive process.
And now I understand. Despite my programming background, I am unable to
automate what I do.
=====================================
Some comments on the public postings.
1. We are all scalpers whether we hold trades for 5 minutes or 5 days.
Its only a difference of timeframe. I decided I could learn more about
trading by taking three trades a day than taking two a week. And at the
same time I could manage my risk better. Remember, when I started this
there was no e-mini, and the S&P was $500 per point. Holding a trade
overnight was more than I felt my $25,000 account could handle, given my
inexperience. I am aware that I will trade less frequently and increase
my bottom line by trading on a higher timeframe. It's a transition I'm
working on.
2. I am self-taught. Except for this list and people I've met at
seminars, I don't personally know anybody else who daytrades. I've never
worked in an institutional environment or had access to gurus or special
training. I have occasional e-mail contact with other traders who are
trying to slog it out as I am. I agree with the author who called my
results "mediocre" because I know so much more is possible. (Although
I'm a little confused about why he considers a 25% return per month to
be mediocre.)
3. Who cares how much money my broker makes? What's important to me is
my bottom line. And I don't care how many trades a day it takes to reach
my after-commission objective. Sure, I'd prefer to make my objective
with a single trade. Lots of times I do. But if it takes more, then it
takes more.
4. I work six hours a day now instead of the ten hours a day I used to
work as a software consultant. In many ways this is the least stressful
job I've ever had. I like what I'm doing, but I don't expect to be doing
it for the rest of my life. I give myself lots of rewards for success. I
quit trading and go the beach whenever (for example), I have a new
highest number of points from a single trade; a new highest net dollars
on a single trade; a new highest net dollars on a single day; a new
quota level; doubling the high range of my daily objective; new equity
highs after a significant drawdown. The big one I'm looking forward to
now is reaching 100% of quota since inception - a major milestone.
Finally, I want to thank all the members who responded to me privately.
I appreciate your support very much.
/Greg
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