Manual Trading - Let's Build a System

[Simon]

At the request of two Forum members, Raa and Julianj, this thread is here to discuss ideas and experiences trading manually.

Let's keep to longer term trading on this thread (H1, H4,Daily and Weekly charts) so we can discuss the methods employed in Dean and Marc's trading styles.

We can start another thread for scalping.

Looking forward to this discussion.

[raa]

The first topic I propose to discuss would be how worthy it is to keep looking for a "perfect" system that can "predict" the market? Obviously those of you who also recently read "Trading in the Zone" understand why I am asking this. If the outcome of any particular trade is not predictable, then why keep looking for a way to predict something unpredictable, while delusion yourself that you "can't be wrong" if this system was correct last 10 times, and therefore refusing to accept the risk and loss.

However, we need a system, a formalized way to trade. The question is how far shall we go being on the right path of thinking in probabilities?

[raa]

Another thing is that the system of moving stop-losses I had been explaining to Capsmart earlier in some introduction topic, has finally failed. Little wonder. I have step out of the markets for two weeks now, working instead on building a right mental profile to return as a consistent trader, not boomer-and-booster I used to be. This also to add to the matter, that a "perfect" system makes you overconfident that the trade will work out, therefore you expect it and refuse to acknowledge a loss and move on, instead moving SLs and keep buying into the market "knowing" that it will reverse. But it may not. Simple as that. I lost something like 40% of my balance before this trade, or 15% of my initial deposit I started with at the beginning of March. That was a forth situation when I had a big floating drawdown (up to 50% sometimes) but on previous occasions I managed to pull out of it, even making some pips. No surprise I had learn nothing. But the punishment finally came, so I urge everyone who did not read this book, do yourselves a favor, buy and read it. It might end up to be the best investment in your trading experience. I also had found those principles can be applied to many different aspects of life besides trading.

[julianj]

Thank you, Simon. I don't know enough to respond to Raa's question.

What I have been doing is trying to use Marc's methods by applying them; sometimes I have been taking trades he recommends in the blog but I also have been trying a process of: What Would Marc Do?

I tried to post my Alpari acct demo trades but they won't paste as a table.

Here's one I did today on the USD/CHF: (note I'm using tiny lot sizes in both live and demo trades)


2010.04.13 15:11 buy 0.01 usdchf price: 1.05611 S/L 1.04918
T/P 0.00000 Closed price: 1.05871 (manually closed)

PIPS PROFIT (26-1) = 25 $2.46 S/L risk 69 pips

Great! Sometime soon I might reach minimum wage!


(whoops! Just set free an enormous bumble-bee that was trapped in my office window!!!, but I digress)

Here's the rationale for the trade, I saw the Swissy go through the bottom Bollinger Band so it should then go up so I took a long. I watched it and as it went up and down a lot I decided to exit manually before I lost it all.

I'm quite pleased about the trade, given the erraticness of the markets recently.

But according to the books I have read, the risk reward ratio is wrong (i.e. risked too much for a small profit)

I have been trying to aim for trades which have double the pip values of the stop loss: e.g. if you have a 40 pip S/L then there needs to be at least 80 pips to a resistance line or the top of the day's range.

This sounds good in theory but not so easy to put into practice.

Any comments?

[raa]

after what has happened to me I will not take a countertrend retracement trade in a strong trend even if if looks it should rebound NOW... I would rather look for a consolidation at a support level for a breakout in trend direction, or wait until rebound has happened, stopped at some major level (Fib, Pivot, historic S/R, pschyco level) and either enter there, or look again for a consolidation for a breakout either in a direction of trend continuation or trend reversal (at that timeframe).

Actually I will start to test the sampling method from Trading in the Zone in order to verify this theory. 20 trades to go.

[raa]

PS actually I think it would be interesting to discuss here not just a system, as there are many of them, but rather a trading methodology, trading PLAN

[jdforex]

Hi Guys

For my part, the more I trade, the simpler my approach seems to be getting. I am interested in trend, support and resistance and price. I use Marc's template to give me a long term view on the daily, weekly and monthly charts and possible areas of interest. Atfer that I move down to H4 or even H1 for entries, based around the support and resistance and what the price is actually doing at that time. Price is not predictable but then again it can only go up, down or sideways - so I look to see what it is actually doing and if there is a place for me to get involved. So overall do not have any preconceived ideas of what is going to happen, just watch it to see and then trade what you see. After that it's about money management and accepting that you will lose. Good money management means you can have what can seem hopeless success rates i.e. 30%, but still be very profitable.

[raa]

Before my crash I had been pulling in 80% success rate, but of course that was because for some of the trades I used to move SL's when convinced it should definately reverse. So discounting them, 65-70% success rate seems achievable. I want to mention here an important psychological aspect of not leaving money on the table, i.e. when you look for 100 pips, but price go 30 and reverse only to be a losing trade later, so I like how Trading in the Zone puts it, also a similar approach from Marc: don't bee greedy and scale down your trade when there is some profit. That can turn some losing trades into winners or at least less losing.

[julianj]

@Raa How would you define a methodology and PLAN as opposed to a system?

@jdforex could you give us some actual examples from your trading please?

thanks both.

[raa]

Julian,
basically a trading system is a set of rules how to define an entry, direction, stop loss and exit.
A trading methodology or trading plan I would describe as how do you actually approach a trading process, something like using averaging and scaling up and down, pyramiding, hedging trades. I would also include here a general trading day schedule, setting goals for day, week. Things like that.