A Beginner's Mind

Have been learning to day trade ES since last fall, my biggest challenge at this time is not to exit when i feel i should, particularly sometimes widening stops to give more room for the trade to work. On my journey to learn to trade for a living, many people have generously helped me. Please feel free to share your advice. Thank you all.

I have been using candle charts mainly 5m, currently learning to use OHLC chart based on thread if you can draw a straight line.

 

Have you looked at this: http://www.traderslaboratory.com/forums/wyckoff-forum/15535-developing-plan-trading-journal.html

 

DB:

I read it. I am thinking how to modify my trading plan and setups based on those steps in the thread you mentioned, particularly the first and 2nd step. For the third step about developing system, Please help to point out specific aspects i need to correct. I feel there are so much i need to change, i am not sure where i should start in a most efficient way. Thank you.

 

If you've ever (even just once) widened your stop to give the trade room to work and it allowed you to exit break even or with a profit, you're now in possession of a dangerous vial of Hope. I believe it's important to get rid of that, just pour it down the drain the way an alcoholic who's hit bottom goes through the house and pours all the liquor down the drain and prepares to start over, one day at a time.

You want to start over one trade at a time.

The desire to widen a stop has nothing to do with giving a trade room to work. When you placed that initial stop, that was all the room you and your plan allowed, for a reason that's (hopefully) based on probabilities (win rate + risk:reward ratio).

The desire to widen the stop has to do with avoiding a loss. You haven't yet accepted that profitable trading involves wins and losses and the profitability comes from honoring your plan over a series of trades.

Just as the recovering alcoholic has certain steps to take whenever the desire to drink arises, the recovering trader will have a much better chance of long-term success if s/he has an action plan for when the desire to move stops, trade without a signal, hesitate on valid setups, etc. arises.

1. Make a vow to never widen a stop. Your plan depends on discipline and consistency. Messing with the parameters of your plan skews the odds, usually unfavorably over time, despite occasional successes.

2. If price is approaching your stop and your brain starts yearning for that vial of Hope, stop! You placed your initial stop at a level that would invalidate the thesis for your trade. Quickly, look at the price action in front of you and pretend that you're flat, no position on at all. Then ask yourself if you'd want to be long short or flat right now.

Read this as often as possible until it sinks in:

"The methodologies that we have access to, these mathematical formulas, do that for us. But you have to understand that there’s no possible way that these mathematical formulas can predict the outcome of these patterns on a trade by trade basis, only on a series of trades. So when I get a signal from my methodology, at the most fundamental level what this is telling me is that the odds are in my favor that somebody is going to come into the market (this is what the pattern means) and bid it higher than here if I bought or offer it lower than here if I sold.

That’s all that it’s saying.

Now they’re either gonna come or they’re not, and so as a result I don’t look at this as being a ‘right’ or a ‘wrong’; I look at this as ‘How much distance am I going to give the market to move away from my entry point to tell me that they’re either going to come or they’re not, and any further is not worth the cost of finding out.’”

- Mark Douglas

 

The problem appears to be that you rushed to the very end of the third step without taking the time to build a foundation. Therefore you don't know what the problem is or how to fix it.

So, though it may seem like several steps backward, we'll start again. This is, believe it or not, the most efficient way.

Please answer the following questions. Don't hurry. Provide as much detail as you can comfortably post on a public forum. Whatever you are not willing to post ought to be written down in your private journal anyway and used for reference when things begin to go wrong, as they inevitably will.

The first step is to decide what kind of trader you want to be.

• What do you want to accomplish with your trading? Is it recreational? Supplementary income? A part-time job? Do you want to make a living at it? Even the greenest of the green knows whether or not he wants to make a living at it, trade only part time, trade for recreation, trade for the action, trade to have something to talk about with other traders (for whatever reason), trade only long enough to earn money to do or buy X.
  
  Do you have any idea what sort of trading is most comfortable? Long or intermediate-term trading? Short-term trading? Day-trading? Trend-trading? Scalping? (Note here that a short-term trader, for example, does not become a long-term trader just because his stop was hit and he didn't sell; a long-term trader doesn't become a short-term trader because he chickened out and sold too soon. Each of these approaches are selected deliberately and for thoroughly-considered reasons.) How patient are you? How adventurous? Are you a leader or a follower (most people think they're leaders)?

 

NoDoJi:

Thank you for your kind assistance. You are right, i widened the stop because i was not completely accepting the risk when entering a trade, a mindset issue ; and because i was not completely following my trading plan, a discipline issue; and because i was trading based on hope but not based on pure price in front of me --- i choose to ignore what price had been trying to tell me because of i was hoping one of my ideal expectation to become true ignoring the probability getting smaller and smaller as price moving, another mindset issue. I was not focusing on trading process--doing the right thing but focusing on making money. Those are some issues i am trying to resolve by starting a journal.

DB:
thoughts on first step and second step: I aim to day trade ES or NQ at opening hours (9:30 to 11:30) consistently making good profit. While at learning stage, i would also watch the market until 2:30pm EST. I have been focusing 5m candle charts with the help of other time frame charts trading based on price action, learning to use OCHL charts way in thread if you can draw a straight line. I like classic breakout pullback play; BO with smallest and fastest PB in a spike phase, BO with simple PB in strong trend, BO with complex PB in a weak trend (large trade range or large range channel). Thank you very much for your kind help.


Notes: DB: i wrote this post before i read your response. I will think about it again and respond later.

 

Hello, NoDoJi:

Your advice has been well taken. Thank you very much for your kind help.

 

I have printed out Wyckoff Analysis 1930-1931.pdf in http://www.traderslaboratory.com/forums/wyckoff-forum/3876-basics.html#post36469 and read it twice and plan to read it more times. There is description about 3 possible places to enter around anticipated turning points. However Wyckoff uses volume to help to identify possible turning points.

In game's journal page 16 http://www.elitetrader.com/vb/showthread.php?s=&threadid=264682&perpage=6&pagenumber=16
DB talked about reversals and retracements in details without using volume information. Therefore i guess we donot need to use volume for ES or NQ. But to double check, do we need to use volume in trading ES/NQ? Another related question, do we need to use volume when trading stocks or ETFs? Thank you very much!

On question about what sort of trading i think most comfortable: i guess it depends on traders'personality and risk tolerance and possible time available for trading. For me and for the purpose of learning how to trade, i like day-trading which gives me lots of opportunities to observe market behaviors or price movements. However i do feel swing trading is more comfortable since we do not need to watch the screen all the time and less likely to make trading mistakes. I have very limited trading experience so i really do not know for sure which trading style i like the most.

 

So you want to make your living from trading.

A. What evidence do you have to support your supposition that you can make your living from trading?

B. If you have any, what evidence do you have to support your supposition that daytrading will enable you to do so?

C. If you have any of the evidence asked for in (B), what evidence do you have to support your supposition that (1) ES is the proper instrument and (2) RTH are the best time to trade it?

So why are you trading rather than studying?