I see from some recent posts that in the early days, it can be a struggle making sense of ACD. It's a slow weekend, and I can share my personal experience with trading in general and what I've found in ACD that changed everything. I don't want to bore you all with personal narratives, so only if you're interested. If not, that's fine, I'm no Mav by any stretch of the imagination.
Do share..everyone is here to learn. Maybe something clicked with you that will help others find their own way.
https://www.peterlbrandt.com/modeling-another-trader/ Looking around I came across Peter Brandt's blog. Among the early entries, this resonated because I've been on quite a journey myself, and I see some here are on a journey too. On ET we have the 'Only One Way Brigade', the lot who'll tell you there's only one way to do anything, the way that works for them. I have always disagreed. When I first started trading, I day traded stocks. My strength is I analyse data to death, and I'm not afraid of hard work. It took 3 weeks for me to realise I made more money swing trading rather than day trading. Later, I started trading the ES (mistake, but what did I know). Dream come true, long or short at the click of a mouse, so I began day trading again. Dream became a nightmare, took a step back, confidence badly shaken. Came across this thread, bought the book and read it, making notes just like a kid, then read all of this thread, making notes. Did about 6 months of work before I trusted ACD enough to put on a trade. Swing trading, mixed results, but I felt here was something. Then at some point Mav talked about derivative NLs, and since I had been trading options, the concept fascinated me. More work. I've always been comfortable putting on a trade in the direction of the trend, or momentum. Fading is something I could never do. Catch a falling knife? Yet Mav said fade the moves, don't pay the market for the entry. Hard that, until my derivative NLs fell into place. Once I had that confidence, that belief, I could have a long bias, wait out a sharp move down, and when the beast died, swoop in like a vulture to feast, making my long entry. The single lesson:- I needed a quantitative basis to put on a trade with confidence. PA is too much like a video game for me. That is why Brandt's piece resonated, because I had spent a long time searching. Many would have said I was searching for the Holy Grail, I wasn't. I needed to find my comfort zone, which I now have, and I'm trying day trading again. It looks far more promising than my previous efforts, though I can't claim success at day trading yet. To be clear, the issue is not ACD, it's managing entries, profit taking and R:R. Every day my data update, analysis, and chart review yields a watchlist. I trade from that, but regardless, after, I identify the ideal entry and exit, and compare what I did, record , then analyse the full watchlist. I'm staggered at the high percentage of ideal trades that yield less than 0.5 20 day ATR. So, it needs work, but I know what to work on. A couple of years back, someone who no longer posts under the same monicker and may no longer be here, started a thread asking pros for advice about his failed attempts at day trading. I'm not a pro, but based on personal experience, I explained my experience to that point and asked if he had considered the possibility that day trading was not for him. He replied that since I wasn't a pro, he wasn't interested in my view. Fine. A senior trader here sent me a PM to say I had asked the right question, but I knew that from my personal lessons learnt. So, find your style. Mine is the advanced ACD that comes from studying this thread and doing loads of research and analysis, yours might be PA video gaming on 1 minute charts. I've posted links to the Bloomberg pieces about the Japanese champion video gamer who is a huge day trader. Maybe that's you, it isn't me. Don't take my word for it, but Brandt does make the same point. Long story short I'm grateful I found my way here. If it's not working for you, your way may be somewhere else, or heaven forbid, not even trading. Before you decide though, you must know exactly why it isn't working. You can know why it isn't working and yet not know what to do next. That is fine. You are half-way to the answer if you know why it isn't working. I still have my core swing trades going, but it doesn't keep me busy, so I want to be able to day trade as well. Thanks to all I've got from this thread, I've never had a more clear eyed view of what I need to do to translate the win rate to positive expectancy. One thing we haven't discussed enough here is what you use for the entry. ACD gives a directional bias, and keeps you out of marginal or poor trades. For swing trading, the months of work I put into refining an indicator works fine. I'm not there yet for day trade entries. For day trades, especially in mean reverting instruments like FX, don't believe this nonsense about amateurs worrying about entries. I spent close to a thousand hours on trade management alone in my first year, and as you see above, I do it as part of my daily work now. If you want to day trade, a perfect entry, the right stop distance, and taking profits at the right time count. It's the closest to perfection you need to be, and that's why it's so hard. Right direction, wrong timing, you're dead. 1. For FX, if you get a confirmed A, more often than not price doesn't even cross the other A, which is why a C is unusual. 2. Unfortunately, until I find a better entry, putting my stop outside the opposite A yields a very poor R:R, too poor to profit given the 1:1 losses. Thus far the best entries I have are entries at support and resistance, the closer to the limit the better. That's where the belief in my NL derivatives comes in. It's like skydiving. You jump trusting your parachute will open, except when it doesn't, I take a controlled loss, I don't die. I do need that trust in my system. I found mine in ACD. Have you found yours?
To Maverick and ACD traders, What is the average typical reward-risk ratio and the winning rate of your ACD system? I am asking this because I want to get a rough idea on when you exit, do you trail stop or take profit, etc.
Yours is a difficult question to answer in absolute, meaningful terms, because it is all about how you structure and manage your trades. Let me give a few examples. When I was swing trading stocks, I would pyramid my positions. Stocks can move 20% - 30% easily, that doesn't happen with currencies unless something earth shaking happens. So, that 1,000 hours I talked about was researching and analysing what to do. I came up with a clear set of rules. If it moved 2 ATR in my direction, I would look for an entry and add a similar size, while moving my original stop to break even. Another 2 ATR, I would add again and move the stop on the second tranche to break even, locking in 2 ATR of profits on the first tranche. I ended the year, my first year trading, with something like 26% profits from a 34% or 35% win rate. My outright losses were the smallest size, my wins were the biggest. Then there is the question of how you take profits. I had a set of rules, +10% I'd give back 66% of profits, >+10% - +20% I'd give back 50% of profits, >20% profit and I'd give back 33%. This works fine in trending markets, doing this in choppy or range bound markets is dumb. With FX, I don't do any of that even if swing trading, because it would be stupid. I'd wipe out my account for sure. I used to enter at the market, then suffer the pain of watching it move against me before it went my way. Then Mav wrote a couple of long pieces on trading FX, and it was a revelation. I now get entries that are 40-60 pips, sometimes 80 pips better than if I had paid the market. I do the opposite of what I did with stocks. Let's say I see momentum is pretty strong. I want to risk 0.5% of my account on that trade. I'll put on a quarter of my position at the market. I'll look at 15 minute, hourly and 4 hourly charts to identify levels it could pull back to. Then I'll place limit orders for the remainder of my position. As price moves against me, I get filled at a better level. Now ET is famous for folks who say that is stupid, never add to a losing position. I'm sorry, but those folks are stupid, because they advocate a one size fits all approach, when it really should depend on the instrument you are trading. Mean reverting or not? Long swings or not? If every order gets filled, my risk is 0.5% of my account. Often only one or two additional orders get filled, meaning I was too greedy. The key point is if my last order gets filled, on the longest duration chart I use, typically daily, the swing must still be valid and not busted. If it needs to be busted to be filled, I'm adding to a losing position, and that's dumb. Now with day trading, everything is much tighter. I enter all in, I've been experimenting with partial profit taking at 1:1, then trailing the stop. That will change in time. The reason I'm collecting data on ideal trades is I want a database that will give a distribution plot on possible profit levels, so I can tailor profit taking to the expected levels, rather than a blunt 1:1. What I find with 1:1 is in many cases I'd be better off closing the entire position, I actually give back profit by not doing so. You need to determine what it should be depending on how you trade. Best wishes.
Good stuff JT. That is exactly the process one has to go through. The "optimization" part. It's hard work, but that is where the payoff is.