Scalpers , daytraders, swingtraders, HODLERS, they have all 1 thing in common: make money and avoid in any case to blow up. The errors made are the same for all kind of traders, the risks and failures too. So my comments are useful for any scalpers , daytraders, swingtraders, HODLERS. All these people have the same objectives. I saw that @sstheo added a few columns to his spreadsheet. These columns give a much better view on what is good, bad, or where the weak points are. For example the 67 points profit were interpreted differently and even wrong by some people. That's a good example why my comments were useful. I am daytrading more than 20 years. Blew up 1 time my account, made a lot of mistakes but learned from them. After I blew up and started again I never had a margin call anymore in my entire life. I was registered as CTA, ran my own fund (till I had enough money to close down the fund and to trade only my own money). I know personally 2 traders that lost each over 10 million $ and both lost all they had. Their starting situation looks to me the same as @sstheo 's situation, I want to protect him for the same disaster. The 2 traders I knew were for some time profitable but the risk reward ratio was not good. But their risk reward was better than sstheo's. One made even for some time over $ 1 million profit a year (like sstheo makes money right now). They both were convinced they would never really lose a lot of money. But they lost not only a lot of money, they lost all they had. I did not follow @sstheo in the past. But from what i read here I understand that the blew up before he started this thread. It is in my nature to help people (till a certain level) to protect them from mistakes. But I can stop posting here if sstheo wants that. For me that's not a problem. I think that I always explained all what I wrote.
I am actually trading all four indices S&P, Nasdaq, DJIA, Russell with micros. I have done the hedging you discuss in the past (taking an opposite position on a different instrument), but not recently. Because these four are often in sync, I am usually just going after the more probable successful trades taking my longs on the two strongest (or least weak) and taking my shorts on the two weakest (or least strong). At the moment of decision, I determine strength or weakness by simply comparing the % up or down on the day. Avoid Taking Big Losses. I did some big thinking last night (always dangerous!) about my catastrophic loss prevention, as it has been discussed so much this week on these pages. I mentioned the funded account combines in my intro post. "Blowout" becomes the middle name of most of the guys and gals who attempt the feat. I personally did more evaluations with TST, OneUp, and Leeloo than I will ever admit to. I know one guy who made over 100 attempts. The deadline and the qualifying goal set these traders up for failure over and over again. But a combine failure is a walk in park compared to a real money blowout. The psychological damage of losing a large amount of real money is serious and poverty-inducing, regardless of whether it is from a lack of knowledge or simply poor rule following. And these losses impact you in ALL parts of your life. Large losses and blowouts must be prevented at all costs. Capital preservation is at least 10x more important that capital appreciation. So... Looking at @virtusa's tale about his friends above... What am I doing to prevent a blowout? 10 things. 1) Take profits off of the table. If they are off the table, I can't lose them! This is so obvious that it is rarely discussed. The market is jittery. I scalp because I don't trust the market momentum and follow-through, and I have been rewarded over and over again for that lack of trust. LOL. I have watched several traders make excellent big 10+ ES point trades. They had their targets with a limit in place. And within 2 or 3 ticks of the goal, the market has fully reversed. Yes, they should have had a trailing stop in place, but they didn't in at least one case and lost the full 10 points. The market is ranging 70% of the time. Prices usually revert to the opposite side of the range, but usually at least to the midline. I think of my trading as a little semi-automatic pellet gun instead of a .357 magnum. Yes, I miss some big breakout moves, but this is okay. I keep a tight stop on my RTM trades, because I know at some point prices will actually explode up or down. But even with my trend trades, I have seen the market sharply reverse out of nowhere. So yes, I take the profits and wait patiently for another high-probability setup. 2) Be realistic with the goal for the day and then STOP when reached. I mentioned the combines. The goal had to be 5% per day of the target amount to reach the goal in one month (20 trading days). No problem! But because of the max drawdown, it also meant a consistent 9% per day gain (see post #1 for the calculations). Now imagine if you have a down day. Now the next day you have to get 15% or 20% gain. What do you do? You force trades, you take extra risks, you get married to bad trades that you just "know" are going to reverse soon. The pressure to perform is debilitating. So I propose that the self-imposed speed bump of 3% per day keeps me from reaching to far too fast and making really stupid decisions like I did on my combines. When you are in a footrace and reach the finish line, you stop. You don't keep running. Stopping when the goal is reached gives you time to breathe, celebrate, and reset things for the next day. 3) Don't add to losers. I am not using a martingale strategy. Averaging down to get a better average cost works great most of the time, especially in big range. But if you are wrong and the market KEEPS GOING against you, then nuclear annihilation results. If I am in a trade, then I will let it prove itself before adding to it. Only add to winners is a hard concept, but I am working on it. Usually with scalping, I am shooting for such small targets (7 to 10 ticks) that adding is a mute point as the trade is usually closed out quickly as a winner. 4) Set a reasonable stop and honor it no matter what. I have been guilty of breaking this rule over and over again over 15 years. (I started in October 2005 my wife reminded me today.) There is no way around it; at some point if a trade is going against you have to admit defeat. Will it be at 10 ticks? 10 points? 10% of your account? 100% of your account? I hate being wrong! But the market doesn't care about me. I have to be humble, admit defeat and move on. Set the stop and take it honorably. Don't be a deer in the headlights who just stands there petrified or saying "Wow, pretty lights!" Get off the road!!! Remember that Ty Cobb, the best hitter in major league baseball had a .366 career batting average. This means he still struck out a lot; as a hitter he failed 63% of the time. Think about that. Remind yourself over and over again. "My stats say I will win long term. This loss is just part of the game. I will take the loss and look for the next trade. I can always get in at a better price and finish the day strong." 5) Trade smaller than you can. As mentioned, my big breakthrough as a trader came with the micros. My success with FX came because I could trade really small sizes. Likewise, the micros allowed me, for the first time, to take a loss and not wince. Until you can say "I don't care!!!" about a small loss you are putting yourself in a bad spot mentally. You need a bigger account or smaller traders, or you will constantly be beat up by your losses. This is one of the reasons scalping works for me. I know I have many more opportunities to make up those losses. Even though the margin permits me at $7k to trade up to 14 ES contracts, it's pretty obvious that it would be a HUGE mistake. What is reasonable? I propose self-imposed $10k per E-mini and $1k per Micro E-mini contract. 6) Eliminate Big Picture Bias. I have been predominantly a short-side trader for 15 years. When a short trade sets up, it moves 5 to 7 times fast than the long trades. And I love keeping my time the market short to reduce potential whipsaw. But I have finally figured out how foolish this is considering the incessant fed stimulus and the overall buy and hold environment of stocks over the decades. Nevertheless, and despite the BTFD crowd, the only appropriate stance is RESPONSIVE trading. I just talked to someone today who is "long only." I include "eliminate bias" on this list, because that bias is what clouds your thinking and puts a mist around what you truly should be seeing each hour and minute of the trading day. See WHAT IT, not what you want to see. On the daily timeframe, I still like to think about where prices "should" go that day, but the moment the momentum changes, I need to give up the bias and change my thinking. 7) Emergency plan in place. Thanks to the poster who reminded me. I know that some platforms and brokers have an auto-stop loss that can be set on a per-day basis. AMP automatically flattens everything at the 80% loss level in one day. Ask me how I discovered that one! I will see how to tighten that up to 10% or tighter. And I know they charge a liquidation fee per contract. That is a sufficient deterrent to stupid trading. At 10%, you can only lose a maximum of 10% of your account in one day, so you can stay alive for a least a few more... 8) Watch the moonshots and falling knives. I love to fade tops and bottoms, but have scaled way back on this dangerous activity. On the upside, sometimes because of a trump-tweet or a lip-flapping fed fool, those "strong resistance levels" are soundly pierced and the price keeps shooting to the moon. On the downside, the knives are sharp and cut anything in their path. YES, reversals are probable at both the top and the bottom. Statistically, you will win. But death is NOT an option any longer. So wait until you are convinced the momentum has truly shifted, whether you use a high volume tick or a reversed moving average. Don't stand in front of the rocket or catch that knife. It's okay, there will be other trades! 9) Trade WITH the trend. After the charts I showed yesterday, with mostly counter-trend trends, this one is comical for sure. I love counter-trend trading, but going in the direction of the dominant movement will make life much easier. I am doing better at this most days. Especially in fast moving markets, either GO WITH the move, or stand out of the way. Don't fight it. 10) Don't swing trade. By swing trading I mean having a trade on while you are sleeping. Not only will a portion of your brain bring less-than-ideal sleep to your bed as it grapples with the probable movements of your position all through the night, but you will probably be WRONG in your position. And you might be VERY wrong. You might have left a stop on or one you thought you had on got cancelled. It's just not worth it. If you are a day trader, then DAY trade. Since the micros came around last year I have left many single trades on overnight. Sometimes I would be ahead in the morning, but usually I was down a bit. Yes, I could make up that little bit in the first few minutes of the new market, but starting from a NEGATIVE position is bad mentally. So thanks to everyone who poked and prodded to get me to articulate this list....
WOW, pretty amazing journey on both the good and bad. Great cautionary accounts of your friends. Your comments are welcome.
May I suggest for point 8, you should grab those trades with the trend, do not only think negatively, chase the momentum!
Well, the problem is.....the momentum changes....and quite often in ES and NQ. It's been proven that for intraday trading, counter-trend approaches are best. Sure, we have some beautiful intraday trending days, but they are rare.
I should really proof read my posts before I hit send. I see so many errors. And to think I got an "A" in English in high school. I need to correct a line from #6 above. It should say "See WHAT IS, not what you want to see." For example, this means if the market is going UP, then think UP. Don't think DOWN. As a SuperContrarian, this one is really hard for me, but I am making progress.
Getting an A in English is not the same as getting an "A" in typing, or anal-retentive post-editing. Don't worry about it, lol! If you never type the word "irregardless", you get an A in my book.
When's the money? Do all session time segments pay the same? You probably have a good feel for this, and you Are sailing right along so can't say whether you want to peel off your own time for this, but, if you can easily export a Week of Trades Report to a file, and hand it off to a supporter who can build a spreadsheet/ chart ... Does your wife know excel? Maybe turn her loose with an exported Week Of Trades Report file that includes Date, Day, Trade Time of entry, Trade P/L. If you can load that Weekly Export File into excel or whatever, and out comes the scatterplot graph, it might give you some ideas to highlight session times when your current methods and efforts offer most bang per buck. When are losses more likely? Are Monday opens as good as Wed noons? [9:45 -10:00] vs [10:15 -11:15] vs ... [3:15 -3:45 -3:59] Patterns might emerge. Just a thought, keep up the good work. You're drawing a hell of a crowd here. Your frequent trade entries could make for some fine Youtube livestream? Break a leg Holmes.