SESSION 5: Issues, Examples, Solutions HOW TO GET …trade-futures.com/PTT6/PTT6SESSION5/PTT6SESSION5.pdf · SESSION 5: Issues, Examples, Solutions ... • I use nine different indicators

FRIDAY 5 June 2015: Session 5 of 6

SESSION 5: Issues, Examples, Solutions

• Major trading issues: reviewed

• Practical solutions to persistent issues

• HOW TO GET CONFIDENCE

• KNOW your system: change your system - how and why (cont’d)

• Your issues and my suggestions

• Procedures you can implement immediately

jakebernstein.com © 2015 800-678-5253

A letter… • Hi Jake:

I’m writing you today out of desperation. In short – I need help! I’ve been trying to be a profitable trader for almost 4 years with no success – I have NEVER been net profitable on any month but there have been some good weeks and great days! Can you help me? XXX

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Dear XXX:

Tell me more. Please be to the point. Give me details without self hatred or whining. Give me facts. Jake

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Jake:

OK. Here are facts:

• Lost $53,000 + in last 4 years in stocks, futures, forex, options and bitcoin

• Spent $23,000 + on courses, seminars, tutoring, mentoring, webinars, books, and software (not counting travel or time lost)

• I spend 3 to 4 hours daily preparing my trades for the next day and usually 6 to 10 hours studying charts over the weekend


Letter continued • Software: I have Metastock, TC2000, ninja trader, tradestation, Genesis,

Fibonacci trader, and a few other programs I don’t use anymore

• My main focus is trading in currencies, bonds, and S&P futures

• I use nine different indicators and the triple screen method to find my trades

• About 37% of my trades are profitable but my average losing trades are about five times larger than average winning trades

• I do not have a profit maximizing strategy because I have a price target for each trade and when the target is hit I close up my position and go on to the next trade

• I make about 16 trades a day using mostly the three minute chart for my timing

• My main method of timing is the four, nine, and 18 moving averages with Fibonacci retracement’s, and intraday elliott wave analysis confirmed with Gann angles and regression analysis

• Several times a week I take a few hours away from the markets during the day to attend live trading rooms and chat rooms to see what I can learn

• My usual goal is to make $500 a day. Whenever that goal is hit I’m done for the day

• I’m also working with a very experienced broker who gives me input from time to time

• I think I’m paying too much in commission ($24 in futures rallied term plus fees)


Letter continued

• I’m constantly researching better ways to trade

• I love trading it’s my passion

• I know other traders who are making money I just don’t understand why I can’t do it

• I’ve tried just about every game in town and it won’t work for me

• It’s beginning to affect my home life and my job

• You think there’s hope for me?

• What should I do? I’m desperate

• Thanks for all of your help

• XXX


Restating critical elements for success

• Avoid problems before they happen

• How?

• Organization using rule-based procedures is critical you must do your work every day without fail

• Understand and live your trading methodology

• Implement solid risk management based on your account size and risk tolerance

• Avoid markets that scare you

• Do not compare signals from different time frames and different systems


Goals of this series

• Focus on trader behavior

• Importance of identifying weaknesses

• Emphasis on reducing or eliminating weaknesses and/or errors

• Consistency in process and rules

• Getting the big moves: CRITICAL

• Risk management and behavior

• Limit alternatives by focus on choices

• How to maximize strengths

• Organization and success


Preventive care

• Most trading problems can be avoided

before they begin…this is an area that has been ignored for far too long

• HOW?

• Develop and/or personalize your trading strategy or system

• WHY?

• TO DEVELOP CONFIDENCE

• Important: the 10 trade challenge

• Details


10 trade challenge - details

• Use a 100% rule based system

• Make sure the system has been optimized correctly

• Make sure you understand all the rules

• Make certain there is a profit maximizing strategy

• Make 10 consecutive trades strictly according to the rules using at least two but preferably three units

• Keep complete detailed records of every trade

• Do not trade your system in markets that are too risky for your account size

• Why do this?


What if?

• What if you are afraid to take the challenge with real money?

• Here are some alternatives

1) Do simulated trading

2) Do five consecutive trades instead of 10

3) Trade with one or two positions rather than three

4) Use at or in the money options instead of stocks or futures

5) But whatever you do…do something


What could you learn? • That consistency pays off

• That profit maximizing strategy pays off

• That micromanaging trades is not effective

• That your system really works

• That your system doesn’t work

• That you have made errors in application

• That you do not understand the profit maximizing strategy

• That your system doesn’t make sense

• That your system does make sense

• That you can’t cope with the opening losses

• That emotional reactivity doesn’t help but rather hurts

• That the system does not suit your temperament

• That the system works better than you thought

• That you have shortcomings in organization

• That you are inconsistent

• That you are stronger than you think

• That there are changes you can make to improve the system


What information to record?

• Stock or futures contract created

• Buy, sell, or spread

• Number of shares or contracts

• Entry price entry date

• Exit price exit date

• Reason for entry

• Reason for exit

• Initial stop loss

• Initial profit target

• Profit target two

• Profit target three or trailing stop

• Outcome (profit or loss)

• Notes or observations

• What you could have done better

• What you should or should not have done


Why develop and PERSONALIZE a system?

• It will conform to your needs, likes and dislikes

• It will be suited your risk tolerance

• You will understand its logic

• It will be your project and you will treasure it

• You will understand its procedures and its limitations

• You will know how the sausage was made

• You will have made a time and effort investment in it and will be more likely to use it consistently

• It will not be exactly the same as anyone else’s system

• You can develop profit maximizing strategies that fit your risk tolerance

• You will learn how to develop systems correctly


What you sent me…synopsis / simple cures

• I heard from 27 of over 100 people

• Main issues:

• Inconsistent application of rules: GET THEM – write them – most traders don’t have them ….why?

• Not knowing rules thoroughly: same as above

• Micromanaging:: easy – place orders and don’t look…will watching change anything – do something worthwhile

• Trying to do too much: quality always wins over quantity unless you have unlimited time and resources – be a specialist…look at reality…Ichan, etc activist investors

• Following the news: in reality has it helped or hurt you. Exceptions…

• Using small stops: look at the facts. > stops = more $$ - it’s a fact

• Entry and exit using different methods: does it work? Was it programmed? Has it helped you or confused you?

• Entry and exit using different time frames: same as above

• Loss of confidence after a few losers: KNOW YOUR SYSTEM

• Not understanding profit maximizing: LEARN it and SEE it working until you finally believe it

• Getting out too soon getting or in too late: you’re playing with scared money and/or no system


REMEMBER

• The absolute undeniably best way to take

care of trading problems is before they

begin. That much is obvious. But how?

• What if you have already started trading

and did not eliminate or minimize these

problems at the beginning… What to do

now? Is there help? Yes!


Know your system

• What does that mean?

• You must “live” your system BEFORE you trade it…why?

• The system must fit the trader

• How to know?

• I believe that over 85% of trader problems can be avoided my taking the right steps and precautions at the beginning by which I mean before you trade for any reason, and/or before you trade a system

• Priorities in order of importance


My trading checklist • In order of importance I look at the following aspects of any trading

methodology:

1) does it make money? How to know?

2) Percent win greater than or equal to 63%

3) Maximum consecutive losers

4) Maximum consecutive winners

5) Average loss

6) Bars in trade

7) Bars and winners versus bars and losers

8) Latency versus robust

9) Number of trades per year or time frame

10) Mechanical aspects: types of orders, when placed, types of stocks, trailing stops,

11) Profit maximizing strategy

12) Maximum drawdown

13) Percentage of profits from large winning trades

14) Applicability to various markets


What “living” your system will do

• By showing the worst case you will test your limits

• You may see new patterns

• You will see that micromanaging will not help…or will it?

• You may gain confidence or

• You may decide this system is not for you

• You will understand how it works

• You may see ways to improve it

• You will find that the system doesn’t care about you!


Elements of Success: In order of importance

• Trading system or method

• More than sufficient trading capital

• A trading model that should be part the system or method: STF

• A structure or routine, intraday, daily, weekly etc.

• The timeframe or time frames in which you want to trade

• Your market or markets of choice

• A checklist of procedures and methods

• Where do you fit in the above elements?


Trading Rule # 4: Simple is Better

• Trading strategies with simple rules and

fewer rules tend to work better or in other

words more profitably than trading

strategies with many rules.

• INPUTS: 3-4 not counting stops, TS etc

• Do note however that trading strategies

with an extremely large number of rules

can work well in very small time frames by

which I mean fractions of a second as in

high-frequency trading


CRITICAL TRADING RULE #2

Know WHY you are making a trade. • Is there a reason?

• What is it that reason?

• Is it your trade or did it come from somewhere else

• if it came from somewhere else then what is the exit strategy?

• Did the source of credibility?

• Was it a technical trade?

• Is it rule-based?

• Did it come from a gut feel?

• Do you have hope?

• Was it a “looks like” trade?

• What’s your risk?

• Is there a track record?

• Was it based on a mythical or mystical concept?


Trading rule 3: Don’t trade any market

or system that scares you

• Why? What does that mean in $$$ or %

• My 10% rule futures 1-5% stocks

• Fear vs anxiety vs apprehension

• Fear about a trade or market indicates attachment

• Attachment is an emotional response

• Emotional responses promote errors

• Errors degrade performance and confidence

• To make money you need to not care


CRITICAL TRADING RULE #7 • Understand your trading system or method and how it works

• What are the statistics if available?

• Max consecutive wins and losses

• Does the system scare you?

• Is it realistic in terms of how much money you have in your account?

• Are you able to place orders given your time commitments?

• Does the system trade too much or too little for you?

• Is the average profit per trade viable?

• Where did the system come from?

• Have you run through some sample trades?

• Does it trade active markets?

• Does it have face validity?


How I evaluate a system


• Percent winning trades

• Trades in sample

• Out of sample data

• Average profit per trade

• Max consecutive winners and losers

• Number of bars in winners and losers

• Drawdown

• Robust?

• Largest winning trades

• Largest losing trades

• Performance graph

I developed a new system for this webinar:

let’s take a look at the logic and results

• Logic: Williams accumulation distribution

as a trend indicator. Valid or not valid?

• The good news and bad news about

Williams accumulation distribution

• Overcoming the bad news. How?

• And momentum to Williams and generate

triggers based on moving average of

momentum. Why?


Why develop and PERSONALIZE a system?

• It will conform to your needs, likes and dislikes

• It will be suited your risk tolerance

• You will understand its logic

• It will be your project and you will treasure it

• You will understand its procedures and its limitations

• You will know how the sausage was made

• You will have made a time and effort investment in it and will be more likely to use it consistently

• It will not be exactly the same as anyone else’s system

• You can develop profit maximizing strategies that fit your risk tolerance

• You will learn how to develop systems correctly




-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

By Yearby Profit

Profit

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015







• 6ga performance history (next)




0

2 5 K

5 0 K

7 5 K

1 0 0 K

1 2 5 K

1 5 0 K

B y Y e a rb y P r o f it

Pr

of

it

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4

Remove 5 biggest winners


- 5 ,0 0 0

- 0

5 ,0 0 0

1 0 ,0 0 0

1 5 ,0 0 0

2 0 ,0 0 0

2 5 ,0 0 0

3 0 ,0 0 0

3 5 ,0 0 0

4 0 ,0 0 0


Pr

of

it

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4


0

2 5 K

5 0 K

7 5 K

1 0 0 K

1 2 5 K

1 5 0 K


Pr

of

it

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5

Zb



0

2 5 K

5 0 K

7 5 K

1 0 0 K

1 2 5 K

20

04

20

05

20

06

20

07

20

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20

09

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15

E q u i t y C u r v e ( b y D a t e )

M a x D ra w d o w n : - $ 1 2 , 1 2 0 . 0 0 o n 0 1 / 1 2 / 2 0 1 2 L o n g e s t F l a t : 9 3 8 d a y s e n d i n g 0 7 / 0 9 / 2 0 1 2


- 1 0 ,0 0 0

- 5 ,0 0 0

0

5 ,0 0 0

1 0 ,0 0 0

1 5 ,0 0 0

2 0 ,0 0 0

2 5 ,0 0 0

3 0 ,0 0 0

3 5 ,0 0 0

4 0 ,0 0 0


Pr

of

it

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5

Let’s “live” the AD system…how?


You can look at the signals on a chart



• Adapting the system to my needs and

limitations

• My main issues were:

• 1) misses big moves

• 2) gets out too fast

• 3) leaves a lot of $$$ on the table


The inputs: what can I change and why?



Facts and fictions

• As % win increases avg profit/trade decreases

• High frequency trading and the above relationship

• High % win and small $ avg profit: trade larger positions…your comfort level and risk capital

• High $ avg profit and lower % win: longer holding period

• You must decide: % win or $ profit

• Find the “sweet spot”

• HOW?

• Example with current system

• I increased the profit target

• RESULT?



Look at curve


0

5 0 K

1 0 0 K

1 5 0 K

2 0 0 K

2 5 0 K

3 0 0 K

20

04

20

05

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06

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09

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M a x D ra w d o w n : - $ 1 4 , 6 7 4 . 7 5 o n 0 1 / 1 5 / 2 0 1 0 L o n g e s t F l a t : 6 6 1 d a y s e n d i n g 0 7 / 0 8 / 2 0 1 4

Has the objection been resolved?




0

2 5 K

5 0 K

7 5 K

1 0 0 K


Pr

of

it

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5

Back out largest winners



See how it trades and ask ?s


Implement genesis management tool



$ 1 0 0 K

$ 1 0 0 0 K

2 0 0 4

20

04

20

05

20

06

20

07

20

08

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09

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E q u i t y C u r v e

N o M o n e y M a n a g e m e n t W i t h M o n e y M a n a g e m e n t M a x E q u i t y D i p : 3 4 . 4 9 % o n 0 1 /1 5 / 2 0 1 0


Finally…


Another market same system EuroFX



0

5 0 K

1 0 0 K

1 5 0 K

2 0 0 K

2 5 0 K

20

04

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M a x D ra w d o w n : - $ 7 , 4 2 7 . 0 0 o n 0 1 / 2 3 / 2 0 0 6 L o n g e s t F l a t : 3 6 3 d a y s e n d i n g 1 2 / 1 4 / 2 0 0 6

What I didn’t like and why


0

1 0 ,0 0 0

2 0 ,0 0 0

3 0 ,0 0 0

4 0 ,0 0 0

5 0 ,0 0 0

6 0 ,0 0 0

7 0 ,0 0 0

8 0 ,0 0 0


Pr

of

it

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5




Let’s change it…how?



Stocks?





Summarizing today

• The importance of living your system

• What you can learn BEFORE you trade in

order to PREVENT problems

• What to look for

• Personalizing your system to prevent

problems

• What questions need to be answered

• The trader must be right for the system and

the system must be right for the trader


• Mentoring appointment interview

– http://www.comtrade1.com/letter/

• PTT sessions are recorded

• I can be reached at

• 800-678-5253 or

• 831-430-0600

• Email me if you have questions:

– [email protected]

Best of trading,

Jake Bernstein

•


Documents

SESSION 5: Issues, Examples, Solutions HOW TO GET …trade-futures.com/PTT6/PTT6SESSION5/PTT6SESSION5.pdf · SESSION 5: Issues, Examples, Solutions ... • I use nine different indicators