Steps to learning a setup to trade profitably

January 20, 2004

Welcome to all of you to our discussion on how to use Simbroker to your best advantage.

There are two things I would like to discuss before we get to that topic though.

The first one is goal setting. I know many of you have as a goal so many points or dollars for a goal for the day, week and month. Let's stop and think about this a bit. Mark Douglas and many other authors of books on the psychology behind trading write that when you are in a trade, you should not be thinking about anything but what the market is trying to tell you. Isn't that hard to do if you only need 2 pts to meet your goal for the day, week or month? Many traders will focus on their goal and not on the market. I myself have the rule that if I find myself thinking about anything other than the market, I exit the trade. For me this can be the money earned on a trade, a phone call I should make, or just the fact that I want a break. Basically, any distracting thoughts you are having that you can't quickly get rid of and refocus justifies exiting a trade.

Here is a link to a graphic Scorp did for the "Steps to Success" Disciplined Trader discussion, Part 2 under Trading Discussion at the rooms website.

http://www.dacharts.org/archives/discussion_topics/disciplined_trader_classes/scorp_douglas_step6


You are probably asking - Well, if I can't set my goals for the day on points or money, then what should they be set on? Let me suggest two alternatives although I am sure there are more.

One is to use feedback on discipline suggested by Google (Pam) in the forum held on "Making a Trading Plan" also under Discussions at the rooms website. www.dacharts.com

This is done by looking at the EOD chart and counting all the setups that meet your rules, and subtracting the ones you were not at the machine to take.

Now go over your trades for the day. Give yourself one point for every trade you took that met your rules, subtract a point for each one you didn't take that you should have, or that didn't follow your rules. It doesn't matter if the trades were winners or losers. You are going to have losers following your rules - avoid looking at them as failures.

Take the result and subtract it from the result from EOD chart. The lower the result the better the job you did on discipline. A goal might be to keep lowering this number or keep it under a set number for the day.

If you get a negative number for the second part, it is then added to the first number. (A negative number also implies you need to back up a step and go back to just watching the setup unfold bar by bar.)

The second way is to look at an EOD chart and the trades that follow your rules and figure an approximate point value available for the day. Then set your goal as a certain percentage of the points available for the day. Now you might be asking, isn't this what you said not to do? The difference is this. If you have just a goal of so many pts, maybe the type of market for the day isn't giving that many points away to your setup. By figuring your goal on points available for the day, the goal is figured on the type of market it was that day and how it fit your setup rules for a trade. This can also give you an idea of what to expect for each trade you do take with your setup on that time frame.

Ok, now lets answer the question of how to use Simbroker to become a profitable trader.

First, mark up your charts at EOD or during the day with the setup you are focusing on to learn like the back of your hand. When you can see the setups in hindsight and have setup up your first set of rules, it is time to use Simbroker.

Either by looking at an EOD chart or by running a playback file using the start time of 15:15 to see an EOD chart, write down the times the setup you are currently working on mastering is triggered.

Restart playback - remembering to close all DEMO charts and to blank out the time in the sync window - using a start time about ten minutes before the first setup in triggered. Use actual for speed. Remember all times in playback are CST.

Study how the setup unfolds on your charts bar by bar. This is the time to adjust your rules to real time. I do not recommend trying to trade it at the same time at this point.

When you can anticipate what is going to unfold, it is time to use simbroker to track your trades on the chart, improve entries and exits and gain confidence in your knowledge of the setup you are focusing on. Because the fills on simbroker are instantaneous, it is recommended that you set the commissions at least double what you pay and many use $20 for commissions.

Tonkadad: that is a great idea

When you are consistently profitable in various types of markets and trust your system, it is time to try trading real money. Is it going to be as great as simbroker was when you start with real money? Not always, although many expect it to be. You are now dealing with the emotions of having real money on the line. So expect a few days to a week adjustment period. I suggest going back to simbroker if you totally violate your rules or have two losers in a row. Once you have two winners in a row following your rules, try real money again. By doing this, it helps to avoid any further psychological damage that you will have to overcome. If you do not see yourself improving over a period of time, you will have to dig deeper into yourself to find the answer why. What is stopping you from going to the ATM? Do you believe "Money is the root of all evil" or "I should have to work harder to be paid like this" etc. Trading is one of the hardest things you will ever learn to do because you have to know yourself.....something many people never figure out in their lifetime.

Sharon: Do you mean to use Simbroker on the same playbacks you've already watched?

Tonkadad: yes Sharon

One last thought. Treat Simbroker like it was your real account will obtain the best results. Don't add to losers. Stick to your rules. Don't click the reset button if you make a non rule following trade. Trade the same number of contracts you expect to trade with real money. Be honest with yourself. By doing this, you will have the information to go over your trades, learn from them and get a true evaluation of how you are doing.

Tonkadad: But if we are following the rules then a loss is just part of the game, right? DO you mean a loss as in not following the rules or just a trade that goes against you?

@Buffy2: yes a loss is just part of the game of trading. Keep your losses small. Some other number of losses can be decided upon. If it bothers you that you had a loss even though you followed your rules, I would switch back to Simbroker still.

Tonkadad: understood

@Buffy2: can also ask yourself on those losers - was I quick to admit market wasn't going to do what I thought.

Tonkadad: right

clayidus: Buffy how can you learn to accept losses? esp. for people like me who trade only one trade a day

Tonkadad: so what about stops?

Tonkadad: I thought it was best to have a stop and not mess with it

Buffy2: Usually that is true Tonkadad. I think what they mean is if it is under price for a long, don't lower it - if it is over price for a short, don't raise it. There is nothing wrong with exiting and then cancelling your stop rather than sitting and waiting for it to be hit.

midge: Any suggestions, Buffy, on the best setups to begin with?....MOFs & Slings perhaps?

Buffy2: Midge, what has been "talking" to you?

midge: MOF's

Buffy2: Then why change, use that setup and slings as they are basically the same to get to know like the back of your hand. :-)

bill: No set up I have ever seen works 100% of the time. . .. if you find one please feel free to share : - )

midge: thanks

@Buffy2: when you are learning a particular setup this way, and you can see the other setups, think to yourself - I will focus on you next time. Then you don't have to deal with the "look what I missed" thinking.

Keller: For Clay, if you can't accept the loss, then maybe you may be trading with more money then you can afford to lose. I started trading Options, so I know always how much I can lose at a given point. I always assume I lose it all and if I was ok with that, then I stop getting nervous.

clayidus: Keller you are bang on target

midge: Gotcha

GBT: Buffy I am learning the MOF Sling trades..should I use 343 tick or 3 min, or 5 min chart.?.thx

Buffy2: What TFs are you used to?

GBT: 5 and 3

@Buffy2: stick to what you are used to

GBT: Thks

@Buffy2: might watch a tick chart for a while to see if you would like it

clayidus: Ok Buffy how about leverage- I am used to 4:1 leverage -though I am allowed 10:1 leverage,and even if I change my leverage to day trading stocks to 6:1, I get real nervous and can't follow my rules

@Buffy2: off topic clay and something each trader has to decide for themselves

Keller: 1 lot, if you are starting, 1 lot only. Leverage will kill you.

Sharon: any plans for scheduled playbacks?

@Buffy2: Sharon would of been a few this weekend if it wasn't for echat and dacharts problems

clayidus: ok

clayidus: thanks for pointing it out to me

Richard: adjust your leverage so it suits your risk exposure

Richard: Leverage will set you free.

clayidus: ok Richard thanks

Tonkadad: going over playbacks would be awesome

clayidus: Buffy how about the Trader Affirmation CD

clayidus: Does it help?

Buffy2: Clay, again that is up to you to determine. Has it helped some yes it has? It has also not helped others. I think it depends on where you are in the learning curve.

bill: That would be great

clayidus: How about discussing the trading set up- Should one isolate himself/herself and don't answer phone calls -this is not applicable to you Buffy-i am talking about new traders

@Buffy2: again Clay, up to the individual trader. I tend to get bored and lose focus if not multitasking.

clayidus: ok

bill: Whatever it takes to focus

@Buffy2: and that can change daily

clayidus: Jimmer felt overwhelmed by newbie questions

@Buffy2: eventually, yes

Keller: I listen to 70's oldies instead of cnbc or bloomberg. it relaxes me so much more =)

clayidus: oh wow

clayidus: yes Buffy should one watch CNBC?

Richard: :-)

@Buffy2: that again is up to the individual trader Clay. Trade a day or two without it and a day or two with it. Results should speak for themselves. I don't watch it.

clayidus: true

Richard: anything that's calming and relaxing

@Buffy2: thanks for coming and hope everyone learned something

Sharon: thank you Buffy!

midge: ....and you said this would be archived somewhere, Buffy?

@Buffy2: we will be doing this next week also

KW24: thank you

Tonkadad: thank you so much Buffy

LT: thank you, B

Buffy2: welcome guys

GBT: Thanks for the class Buffy