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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: TraderAlan who wrote (8596)	5/29/2000 9:46:00 AM
From: Threei	Respond to of 18137

Interesting how traders with fairly different styles come to pretty similar approaches in many extends. I guess there are some fundamental things that apply to any style, time frame etc, huh? :) To illustrate this, here is excerpt from my book, "Job-daytrader". Seems to be pretty corresponding with Alan's thoughts, with some insignificant differencies caused by the fact that it devoted to intraday trading strictly. Tracking of Own Results You say I've got to do 100 trades, with 65% winners and 35% losers. That's my average loss. You have to get that consistency going. If you're consistently losing, then may be it's time you get a different pattern. Linda Bradford Raschke I would like to talk about some statistics a trader can do on his trading and how to use them to help improve his trading performance. I track: Number of trades Number of winners Number of losers Winners/losers ratio Average winner points/fractions wise Average loser Number of points per day Chart of my portfolio equity using EOD number. How can all of this help us look inside of what's going on with our trading? Let's look at number of trades per day. Seems to be pretty simple and not too informative. But try to track it from this point of view: how many trades you do in a winning and a losing day? The rule says: act more aggressively when on winning streak and decrease your activity when on losing streak. Many of us would see that we do exactly opposite. When losing, we try to get it back, to take revenge, and the result is usually not good. In this situation our trades may depend on our wishes more than on real opportunities. Winners/losers ratio. If a trader sees it well below 50%, something is wrong... It tells that he is probably overtrading, trying to squeeze something out of a juiceless trade, or his understanding of market dynamics and patterns is not quite right, and it's time to go back to papertrading. 50% and higher seem OK, as long as winners are bigger than losers. Average winner and average loser. It shows us whether we follow the basic rule: cut your losers quickly and let your profits run. Each trader has his level of comfort, stops wise, depending on his risk tolerance, the kind of stocks he plays, his expectations, etc. When we look at our average loser for a month, we can see if we manage to keep our stops as small as we wanted. If an average winner is too small, it tells us that we do many scalps or have problems with staying in a winning trade. Different combinations of these statistics give us different angles. For example, a big number of trades combined with low winners/losers ratio means that many low percentage trades were picked. Last one is chart. I use it in many different ways. First one: I match the chart of my portfolio equity to the NASDAQ chart. If I see them going together, it means that the bull market works for me, not my brains. And there is a good chance that bear days would take my portfolio down. Next example: Let's suppose a chart of the portfolio looks like a stock on uptrend. Higher lows, higher highs. But it bounces all the time between lower and higher envelope. Maybe it's some kind of cycle a trader's brain works in? As soon as this trend became visible, a trader can do something about it. For instance, stop trading for a couple days at the moment the chart line touched upper envelope, and resume trading with a fresh state of mind. One more frequent situation: Portfolio equity reaches a certain number and drops every time, like a stock that cannot penetrate the resistance level. Most likely it's some kind of psychological barrier. How do you deal with it? There are be many ways, they are described in some of the books devoted to traders' psychology. A solution might turn out to be simple (for instance, taking some amount of money from the trading account when it reaches that upper level again). Be creative when analyzing your trading, try to find out what's hiding behind those cold numbers. This self-learning process is extremely rewarding. Vadym