Building a day trading system

Discussion in 'Trading' started by liltrdr, Sep 30, 2001.

  1. vinigar

    vinigar

    LILTRDR,
    First if you read the many different threads at this site you will find a great amount of information as regards technical analysis...some pro...some con...and some argumentive. If I had to judge overall what everyone is doing, I would come up with this conclusion: Most of the experienced traders have weened themselves away from technical indicators...why?...mainly because they consider them a lagging indicator and not timely enough for intraday trading. However, as you read the many posts, you will find that the vast majority of them began their trading using technical indicators. Over time the use of technical indicators helps you learn when conditions MIGHT be right to jump in or out of the market...as time goes on and your experience grows you begin to learn some of the things that the technical indicators DON'T do for you....sometimes costing you money...as your experience grows even more you begin to find out which ones work better for YOU and which one do not...you start weeding them out under different market conditions...some work good in a bear market...some work good in a bull market...and in a wild and crazy market some do not work at all!!!
    Finally, you reach a point where you find out what works and what does not work....FOR YOU.....!!!!!! Should you use them?...I think so ...when your first starting out....learn all you can....and grow....but along the way I suggest having a critical, mistrusting eye towards TA...find out what each ones weakness is...then you will know...Paper trade them for months under varying conditions...twist em inside and out....find out if they are reliable and where their weaknesses are...knowing a particular indicators weakness allows you to work around it when needed and puts you in tune with the flow of the market....if your that new, do you have a trading plan?...How about risk management?...I suggest the following: Read all the past threads at our site...try to digest what you can...then ask questions for clarification...develope a trading plan...paper trade...paper trade...and paper trade until your are sure what you have will work and then do it some more...and of course ask questions...we are all here to help each other and improve trading freinds.:)
     
    #11     Oct 1, 2001
  2. If you want to develop a trading system, you need to get some testing s/w and run your system through different market environments and get a feel for what it produces in terms of %winners, profits per trade, drawdowns,etc. Most system trading is done in the futures world and futures data is easier to test with because you don;t get stock splits, takeovers etc.

    With respect, I think your intended approach will not be successful. Most likely you will be whipsawed to death using triple MA intraday. My advice is to step back a bit and get a feel for the trend of the market, using daily data. Trade only in the direction of the trend. Not as exciting as monitoring the blue line and red line during the day but it puts the odds in your favor. Next, if you plan to trade stocks, develop a watch list every morning and learn to trade off intraday patterns in the direction of the market trend. A better approach might be to open a futures account with IB and trade the ES until you learn how to trade.
     
    #12     Oct 1, 2001
  3. tntneo

    tntneo Moderator

    I agree technical analysis, the stuff publicly available, is always lagging. However, you need to understand it.. it helps in order to filter systems..
    the usual error is to use these things (TA) for entry.
    price patterns, support and resistance and far better ways to trade imo. I would tend to believe most successful traders, with time, get away from basic TA.
    the better ways (SR, patterns) are said to be forecasting indicators as opposed to lagging indicators.

    (well, as far as I know, price patterns are considered TA too anyway.. as opposed to fundamental analysis).

    remember, please, that all the entry stuff is not the most important aspect of trading. I experimented with random systems (read rtharp comments too) and they show how the other aspect of trading are important. Actually, because I am on self enforced tradingless mode, I am letting my machines test 9 hyperactive intraday systems with mostly different risk control paramaters. the funny thing is how drastically different the results are while the same methods are used, on the same market, in realtime (tick per tick) with all systems active at the same time.

    so, do not concentrate too much on the entry. keep it simple, very simple. concentrate on exits, capital protection, risk level, stop loss, drawdown and regularity of the system.

    neo
     
    #13     Oct 1, 2001
  4. vikana

    vikana Moderator

    I recommend that you pick a stock or two (QQQ's would be a good candiate) and then simply trade your methodology 100 shares at a time.

    Development of a system takes deep understanding of the markets and experience, and there imho is no substitute for having money on the line. You should not expect to be able to create a system and then just trade it profitably (maybe you can, but it's unlikely).

    As an example: you would never think you could learn to play the piano by reading a few books, buying the "magic piano computer program", "simulate playing on your PC" and then play the piano without hours of actual piano practice - would you? The markets are just the same. Start "playing" small and you will slowly learn your market, your reactions and what works for you.

    Hope this helps!
     
    #14     Oct 1, 2001
  5. sallyboy

    sallyboy Guest

    Excellent input Vikana!

    Book knowledge is valuable, but not without experience.
     
    #15     Oct 1, 2001