Trading WITH versus WITHOUT a system

Hi Dustin, thanks for the good tips...

Here is my problem. I just learned the basics of technical analysis (i.e. what this indicator does, what that one does, a few candlestick patterns, etc). Now what would be the next logical move, if I wanted to focus on an intraday strategy?

Do I sign up a demo and just start looking at the live charts, having the indicators on and begin observing the behavior of the price?

The problem is the books give you all the technical background, the psychological principles, and some even outline a few strategies, but they never actually go through the process of how you go from book wisdom to your first paper trade. I could start paper trading right now of course, but it'd be not much different from someone throwing darts blindfolded.

I would go take a class, but they are expensive and I am wary of people who make a living teaching other traders - it often seems that is their way of making money when they lose their winning streak and need supplemental income.

Thanks again for any and all advice.

 

A discretionary trader, hopefully not a discretionary gambler, will have a system that they operate. However, for them it will usually be a framework of operation rather than a rigid mechanical system.

 

This is good advice. Reread it. I think the volatility paragraph is something I wish I took under consideration at day one, as per it would have saved me a year of groping in the dark...................

 

The next step is to take what you've learned and try to apply it to the charts of the stocks that are the most volatile each day. You can get the top gainers/losers free from many sites like Y! Finance. After each day take a look over those stocks and see if you can find tradeable patterns. Ten good traders will find ten different ways to trade them, you just have to find what you are comfortable with. For example you could trade them as continuations in the morning, then range trade them midday, then reversions late day...or any mixture you like. There are many good strategies out there, just a lot a of bad traders trading them.

Don't pay for any classes.

 

godamit, this statement is just about spot on !
I would add, you'll never get 'em all right - ie trades - but the better the system, the higher the probability and that's what you trade, probabilities.
Never fall in love with a position, believe nothing you hear from the [slanted] media.

 

further, discretionary trading will overload your sensory perceptions.

If / when you build a mechanical trading system, the concepts should be quite simple and the range of choices should be limited to avoid information overload.

Information overload will seize the trader up.
The brain can't cope with too much changing new information repeatedly imo.

 

Generally that’s the concept.

Theoretical yes, but in reality there comes a time when you get a string of losing trades resulting in a larger drawdown. Then the question is whether you blindly decide to continue trading the tested system on the assumption that in the past it was giving you a statistical edge, or do you stop using the system because the market conditions have changed and the system is no longer appropriate for different market conditions? There are many nuances like this that need to be emphasized, because generally systems are overrated, there are many hidden traps in system trading and consequently the most money made by systems are by those who sell them to new traders who believe they can buy success. Obviously there are exceptions, but most of the so called profitable systems don’t work in the real world of trading, and when they do, they are definitely no match for discretionary trading, because discretionary trading is superior in more than one aspect.

Defining a process of trading style is one aspect, but I believe you should also look at what are the actual outcomes of each style, it’s strengths and weaknesses, such as smoothness of equity curve, expectancy, returns not only on money but also return on time for spending time in front of the monitor, etc.

The problem with system traders is that they are removed from the actual market by number of abstract levels, and so in a sense they’re like robots. Another problem with system trading is when developing the system, you need some knowledge of how the market works, how the elements of the system should be adjusted, because if you don’t you’ll just be purely relying on some nice optimized statistics that the computer spits out and the system will lack trading logic behind those numbers and it will be a disaster waiting to happen.

Discretionary traders have rules, they know exactly what they’re looking for, and they can even write it down in pseudo code, but unfortunately in most cases those rules are not possible to program and therefore human decisions must be made in rder to apply the method to the market. Discretionary traders do have trading plans. Don’t confuse them with gamblers who ‘create’ trades out of thin air without having any statistical edges. Discretionary trading will not overload your perceptions, because as discretionary trader you will have to adjust your thinking in a way that will filter out most information that has no value to you, and you’ll let your mind focus on only those things that are relevant to your trading methodology.

You always politely ask, and politely thank to others, if you want I can help you to get started to put together some basic framework to get you started in the right direction. I won’t be back to trading till about September so meantime I have some spare time. But you’d have to keep a blog so that you start developing some kind of a structure based on trading logic which you could later on utilize as a framework for any kind of trading based on your personal beliefs and preferences.

 

ALL of the previous posters and anyone else reading this will agree that preservation of capital is the single most important part of any winning system

suggested hints:

1. be on the right side of the trade
2. use a sell stop
3. dump losing positions before they hit the sell stop and hopefully before any money is lost.

I might suggest a system with charts that has the following and nothing else: price, volume, hand drawn trend lines and channels and your ability to recognize chart patterns. look at charts in many time frames intraday, days, months, years. a one day chart is useless without a bigger picture.

use a virtual account or paper trade for a year before spending any real money.

if you had a system you would understand, the market goes up you make money the market goes down you make money there is always another opportunity.

if you trade now without a system you would have more enjoyment if you lit your hundred dollar bills on fire and watched them go up in smoke

keep your money in a nice safe bank account.

 

Only achievable using tea leaves or a Ouija board...

Sort of like saying, in order to win at sports, you must outscore your opponent...