Hi, I have been working on a trading approach which is largely mechanical and based on price action and volume, i.e. I run a screener which returns stocks where x, y and z conditions are met and I then take positions in those stocks. Sometimes I may override the screener if something really looks wrong but largely I let the screener pick the trades and I enter the orders. I have a fixed rule on when to exit too. I have a colleague who I recently discovered trades futures, and this morning we had a water cooler moment discussing the over-extendedness of the S&P and how he was looking to go short, I said that I thought a correction was long over due but my system keeps on throwing up long signals so I have no choice but to be long as I don't second the guess the system. If I think back to all the times I have thought "this market can't go any lower/higher" most times I have been wrong. He looked at me like I was being extremely naive, and said "It's really more of an art than a science", and that ended the conversation as I contemplated what he meant. Now I am not making money, but I am not losing big time either, my account is just slowly decreasing overtime but I am concerned that there is something fundamentally wrong in my approach and maybe my colleague is on to something. He has been in this game way longer than me and uses a discretionary approach, he talks the talk but I have no idea if he actually makes money over the long term. I can see how mechanical systems can be seen as naive, if it were as easy as "if x do y" everyone would be making their living running a trade bot while they sun themselves on a Caribbean island, which is unfortunate for me because I think my mindset is very much geared towards mechanical systems. Anybody have any thoughts on this? Any long term traders out there successfully using mechanical systems? Or to have an edge in trading do you need to bring something extra to the table?
Your friend is the naive one. Lots of things that started out as arts (medicine, engineering) have turned into sciences. But not everyone in a field that is still primarily art has what it takes to make the transition, so they tend to denigrate those who are trying. They are "aided" by the fact that the process of discovery isn't neat, linear and error-free. It is full of blind alleys, obstacles and few Eureka! moments when you do discover something new. It takes real dedication and perseverance, but IMO it has been worth all the time and struggle to get to the point I'm at now. Good luck with your journey to enlightenment.
Jim, you name sounds like IBD CAN Slim SPY is very extended on 3 year candlecharts; sure,, plenty of money has been made on extended UP trends, getting MORE extended .And sure UPtrend is a friend, to those who study much. Medical science is just that; its a science. A 100 year old Upright man or SPY old UPtrend is near an expiry date. That does not mean either dies this year; but scientific study shows the risk is great for both of them falling/death..SPY has weaker buy volume on 3 year charts; NOT a prediction. Yes I AM aware of miracles --unlike some in medical science community. But that does not change the risk, [both to a n older man, + older uptrend, [Thanks trader Vic Interview] I AM generally speaking. Some traders dont like UPtrends because they DONT know the diffrence between an OLD uptrend OR young uptrend. Wisdom is profitable to direct %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
As to whether or not there are any traders, long-term or not, who are successfully using mechanical systems, there's really no way of knowing since you can't know whether or not they are being honest with you. This is not necessarily intentional. Traders are often dishonest with themselves. Even so, the phrase "successfully using mechanical systems" is problematic unless you also ask how many mechanical systems they trade or have traded and how often they have to alternate among them and/or find new ones. What intrigues me is why you'd be using or attempting to use a mechanical system to trade price and volume since those who trade price usually do so because they enjoy trading. If you don't enjoy trading, why bother, particularly since you're losing? Perhaps the "something extra" to which you refer is engaging price directly rather than leaving it up to a screener. I also suggest you set a time limit for yourself. If you haven't been able to make a mechanical system work in a year, you really ought to find some other way of occupying your time.
I know there is no way of knowing really, I guess I should have worded my question differently. And I suppose I have already decided mechanical systems are not working for me or I would not have made this post in the first place so perhaps I am among those being dishonest with myself. I do enjoy trading my mechanical approach, although in all honestly the longer I am not profitable the less fun it becomes. I keep telling myself it will take time for something to click, and that the time taken to become profitable is a necessary barrier to entry or else everybody would be making money trading and who would drive the buses. Those are thought provoking question though. Does engaging price directly require trading live, I work long hours and this is not an option for me. If not, how do I go about learning to engage price directly? I have set a limit, it's not far off.
Engaging price doesn't mean one needs to see price often or sit in front of a computer for hours. You could see price once a day and trade comfortably. Only when an entry or exit is required one would need to engage a bit more to get the order through. You can learn to follow price by downloading a trading software like Ninja Trader and use the replay function. You get free data for the previous one year. You can also increase the speed of replay two or three times. Gringo
First, your friend is correct about the few discretionary traders that are profitable...they don't rely only on trade signals as if nothing else matters. Thus, they are using other tools with their trade signals. Yet, its not worth your time as a mechanical trader or automated trader to be comparing yourself to a discretionary trader that you have no proof that he's been profitably trading long term. Oddly, you said you were talking to your colleague as if you're implying it was a face to face conversation. What's preventing you from watching him trade in front of you Regardless, it doesn't matter if a profitable trader is such via automation system or discretionary system...you need to have something above and beyond the average Joe Bob trader considering the average Joe Bob trader is not profitable. My recommendation is that you spend more time with mechanical traders that have their stuff together and then try to determine what they're doing that you're NOT doing instead of worrying about discretionary traders. Other than that, if your colleague verifies he's profitable and you want to try something else instead of mechanical trading...ask him for help getting started with discretionary trading.
Thanks, I just don't see how this is different from what I am currently doing. I basically 'buy the dips' in a trending stock. So I look for a retracement where the candles are making lower lows, narrowing in width, and volume is decreasing. So I can choose to go through 100 charts "engaging directly with price" manually or I can cut out the tediousness but letting a screener do it for me. Am I missing something? I am not trying to be cocky here it's a genuine question and I appreciate the replies.