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Two posts arrived on my screen, one after the other and I print the
relevant lines of each below and would like to make some observations and
perhaps stir up a discussion on day trading and the techniques used to
succeed on this form of trading. As most on this list know, I only day
trade and on one intrument only, so I have a vestige interest in the
subject.
Earl Adamy wrote:
Every day which goes by I get closer to trading the raw price patterns and
formations on bar charts (like the triangles I posted this morning).
OatTrader wrote:
If a method only works on wide swinging ranges, when will you know when
that event is over?
Earl, I know, has been a long standing contributor of RT and is an
experienced trader. OatTrader, whoever he or she may be, is I think
fairly new to the group and I have no idea how experienced, as a trader.
Nevertheless, both allude to important aspects of day trading and both,
from my standpoint, are concerned with the leading edge (they, nor you, may
think that or think it only).
The market I day trade is open for 6.66 hours and whatever it is that is
going to tell you what the market is going to do has got to be quick about
it - or, for those who appreciate the number, in devlish short time! RSI,
Stochastics, MACD and whatever can be overbought or oversold for that long,
without the slightest trouble. If the market has gapped at the open
(especially in the opposite direcetion to yesterday's trend), then any
moving average can take an age to catch up - to even a respectable lag.
Since I am a non-believer in little red or green signals from some system
or other, this leaves me with very little choice but to learn to read the
market at the leading edge.
So, for me, Earl Adamy, with his 'raw price patterns' is getting close to
the truth of what's what. The formation of the price pattern is probably
the best way of identifying what the market is likely to do and, if that
price pattern emanates from some aspect of previous support and resistance
at key levels, we will start to get somewhere. How long that 'somewhere'
is going leads us nicely to OatTraders question: "If a method only works
on wide swinging ranges, when will you know when that event is over?"
The answer, as I see it, lies in the instrument being traded. The S&P,
which although I don't trade, I track closely on a 5 min chart against the
T-Bonds, can tell you with amazing speed when it had decided 'somewhere'
is over! It is the sort of volatility, I am unable to even start to trade
(yet it is the sort of volatility some people will only trade!). For me,
preservation of capital comes before profit and I day trade for a living,
so the S&P is out. But then so too is Oats or Corn or other very illiquid
markets because of a mass of factors that are stacked against the off-floor
trader.
The answer lies, as so often is the case, somwhere in the middle. You
don't want a market that can wipe you out in five minutes, nor one that may
not let you in for five minutes... To stand a chance of knowing where a
market is going means having a method of knowing where it has been; being
able to identify what made it turn when it turned and what the difference
is between it turning and retracing. That means having a market which
moves sufficiently to be able to take out chunks of loot that are
worthwhile (i.e. enough $1,000 days, per contract) but moves with a
measured tread - so you can, indeed, get the measure of it. Furthemore,
the market has got to operate all the year round in much the same fashion,
which for me rules out Soyabeans, Coffee, Energy and others.
Obviously, if you are day trading, it almost dictates that it must be for a
living, because you are spending all day at it. To do that successfully,
I have to concentrate and I can only do that on one thing at a time.
Hence I have found my instrument and that is what I play! And the bonds
play a merry old tune, at that!! But it has to be played at the leading
edge. That means relying on price action, 'raw patterns' and knowing
(from the past) what the future - in the very, very short term - is likely
to be. It means - and this is a vital, but quite another story - having
the time (amongst everything else!) to spot the 3:1 trades, to give you the
mathematical edge.
So in summary, Earl, has come to the same conclusion I have - over time, by
the sounds of it. And, Oatrader, will find his questioned answered if
were to trade an instrument that has an average in excess of half a million
contracts going through, within a range and volatility that is sufficient,
rather than deadly. But that may rule out Oats, I am afraid.
Now, bearing in mind that I have not contributed for ages, I hope very much
to have started a thread that may throw up some useful ideas and concepts -
and a few people may have some comments and contributions on day trading
and how it is done.
Best of trading
Bill Eykyn
www.dbceuro.com/bille.htm
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