What do you think about this: A discretionary trader still needs to think about what might happen, so he can be in before it does. (Ambush.) THEN, after entry, he should switch to "not knowing" what will happen as you say, and focus on "what's happening now." This is what is so hard for most traders. To get out when those first signs that it might not happen poke up their little heads.
There is a fine line between thinking about what might happen, and then entering just as it starts happening (Ambush) and thinking about what might happen, and entering BEFORE it starts happening (Anticipation). The difference for me is often when the ambush strategy is employed, I am there stalking an entry and it just doesn't show up. Or I am stalking an entry, I enter then I exit very quickly because after reevaluating the setup - it just hasn't set up (fully). When I anticipate - I see a possible setup, I enter about where the pattern *should* show up (typically fading strength) and then look for the pattern to show up on my chart. When it doesn't my loss is much greater than what it should be if I were using the ambush mentality. I think this is true because there is often not a well-defined support/resistance established because I anticipate a turn rather than letting it happen naturally and then reacting to the turn. This is a fine line of difference (at least to me) but I hope this makes sense. Let's look at a *hypothetical* example of a simple line in the sand type of system. The system buys on bar close when it crosses above the line, and sells on bar close when price crosses below the line (on a closing basis). A chase parameter is set of say, 1 point above/below the line where entries may be taken via limit orders. Now let's assume for the sake of argument that a given line is typically crossed 5 times per day on a closing basis, and that of those crosses, on average only 1 of those crosses makes money - but enough to cover all the other small losses and secure a small profit (on balance). Now after trading this system for some time the trader begins to see unfilled entries (where the bar closed more than 1 point beyond the line and didn't look back) that would have been profitable had they been taken. Now bear in mind that the original system is profitable - just not as profitable as it would be with those missed entries. Can you see where this is heading? So the trader changes his rules - he starts anticipating the fact that the bar is going to close beyond the line - so he takes a preemptive entry. The first thing the trader notices is that the vast majority of these anticipated entries are false signals. He starts noticing just how many bars actually poke through this line on a non-closing basis that never trigger a signal based on his original rules. He finds that his total number of daily trades more than doubles on average, and that almost all of the newly added trades are losses. But these small losses are really adding up now (because there are so many of them). The trader further notices that his method is now losing money because he has taken too many losses to be made up by the 1 or 2 big winners on a given day. The trader also starts to notice that he is hesitating in executing some of the trades now, and that those trades that he is missing are turning out to be overwhelmingly profitable. So the trader starts to work on self-discipline (follow the rules - including the anticipated entries). (I hope you see the irony of wishing to follow the anticipated entries in a disciplined manner). Meanwhile he starts looking at various filters to know when a poke through the line is valid or not, and so gets into various oscillators, moving averages and other technical indicators. Before long the trader has a complex trading system that might make money if he could only follow all the signals, but in the end is only marginally more profitable (or even not as profitable) on paper than his original simple system. Pete, I'm not saying your AMBUSH mentality is invalid or wrong, but I wanted to present a semi-realistic contrast to your view - showing how sometimes when AMBUSH turns into anticipation it can lead to bigger problems than it solves. I think the concept of Ambush is a good one insofar as it tends to make you more alert to the trading opportunities that are occuring (rather than chasing the market). But if you find that your profitable expectancy is eroded by taking too many trades that really don't meet your criteria it may be time to get back to your core method. Also if your results are worse than your method backtests, it may also be possible that instead of Ambushing you are actually Anticipating, but in the proces you may actually be eroding your edge. If this is not the case, just keep this on file for future perusal, since I'm sure you will need this advice, as I have and do from time to time.
Did you dare to say "SIMPLE"? THANK YOU SO MUCH.....Realtime simple stuff that works close to price action with the trend is showing promise...3 years of midnight oil and hundreds of saved charts for backtesting have revealed some simple, yet dependable pictures. I hope my trading proves me correct. My noodle is my worst enemy, not the market....
MaxMin, thanks very much for your valuable reply. I had never considered the difference between anticipation and ambush before. Here's a good way to think about it, methinks: anticipation <-------- AMBUSH ---------> chase The middle is where I want to be. Impatience swings me over to the left, fear of loss and frustration swing me over to the right.
I am working on a method that "anticipates" a Breakout in ES based on the action in $BKX (financials are the heaviest weighted component of the S&P 500 and often lead the market) For instance, today ES was forming a triangle on the 5 min chart and I was wondering which way it would break. $BKX was already rallying higher. Sure enough ES followed. I am thinking that a strategy such as this could provide an edge. Any thoughts.
MaxMin, Thank you for an outstanding thread. Your thoughts quoted above reminded me of a song by Aimee Mann titled "Wise Up." I believe it was the theme song to the Tom Cruise movie "Magnolia" a few years back. It's not a song about trading per se, but the first stanza crystallized in a lyrical way my "bottom point" when I was at an emotional low trading and it presaged my eventual turn-around. Just one of those odd synchronicities that I heard this song at that point in my life. Here's the first verse of it, the one that captured for me the eye opening experience I had from initial grand expectations, down into the pit of wondering WTF was going on and how I possibly got there, and finally to the actual reality of trading for a living: Wise Up by Aimee Mann It's not what you thought When you first began it. You got what you want. Now you can hardly stand it though By now you know It's not going to stop It's not going to stop It's not going to stop Until you wise up. Thank you again for your wonderful posts (and to everyone who has contributed).
And thank you for your valuable reply. You successfully condensed a page of description down to a single line continuum that is easy to immediately comprehend and use.
Thanks MaxMin and peterfigliozzi. I can apply your choice of nuero-linguistics to easily define the abstract of my previous post into trading terms as thus: ''Watch what the market is ACTUALLY DOING, not what we ANTICIPATE.'' i.e. Observe reality so you are not ambushing a ghost.
With all the deception present here, I think you might be rare and honest. Do you believe a system is possible that requires almost no thinking and is correct over 95% of the time? I know, % wins over 50 is tradable, but, when losses occur that often, they damage the winning mindset and weaken one's courage to continue trading...The further removed from the trade my emotions are, the better I like it...My system says yes or no....very plainly...Safe stop is close at hand, if the call is correct...I don't use point targets, although I like them....System says when to exit, and is usually close to reversal point. I based signals on thousands of hours of study and what I've seen in front of me, not what external stuff is doing...For instance, Greenspan days can be goofy, but when the system says buy/sell, I putup or shutup...a move is a move is a move....I never watch other markets...NO Anticipation.....NO Discretionary trading.......Am I wrong???
In reading this journal my goal is that everyone plainly sees that this journal is less about me and more about winning, specifically in the EMinis. Him being a winner or her being a winner and him or her talking about their winning won't necessarily help you or me to win. You being a winner will help you win in the EMinis. You doing what winners do will help you be a winner. Do it consistently and it will help you be a consistent winner. You thinking what winners think will help you do what winners do. I hope that this nuance and progression is clear. Ultimately every person has to answer a single question that determines what they get out of trading. Unfortunately, most people don't answer the question truthfully (at first). The question is something to the effect, "What do you really want out of trading?" I don't think most people knowingly deceive themselves, and that is indeed a whole other topic. But even if people start off deceiving themselves with the answer they give, if they persist and learn and grow they can start wanting different outcomes from their trading activity, and align their wanting with their doing. In other words, even if deep down you really don't want to make trading profits, it is possible that you can at some point in the future start wanting trading profits. The key point is that you have a much better chance of making trading profits if you want to make them, and almost zero chance of making trading profits if deep down you don't want to make them. So to answer your first question, what I believe doesn't really matter. And while what you think is important, what you believe is far more important. The real question then becomes, "Do you believe... _______" and you can fill in the blank yourself. Now let me examine a couple of your statements. You seem to believe that losing trades tend to damage your winning mindset and weaken your courage to continue trading. It sounds like you have experience to back up this belief. It also seems that you think that trading a system with a higher win percentage is less emotionally damaging than trading a system with a lower win percentage. Maybe I would ask the question, "Why must losing trades lead to emotional damage?" If I am reading between the lines correctly, the whole issue comes down to one word: certainty. This seems to be really what you are after by desiring to automate a 95% winning mechanical system. Let me share an analogy.