Did You Begin Day Trading As An Indicator Only Trader?
Did you
start day trading after buying a book on technical analysis, and
getting a charting program - probably a free one that you found online
- in order to save money? While reading your book you learned about
trading indicators which could 'predict' price movement, and what do
you know, the 'best' indicators were actually included in your free
charting program - let the games begin.
Now that you have all the
day trading tools that are necessary, the book for education AND the
free charting program with those 'best' day trading indicators, you now
need a day trading plan so you can decide which ones of those 'magic'
day trading indicators you are supposed to use. This really is a great
book, besides telling you how to day trade using indicators to
'predict' price - it also said that you need a trading plan to day
trade.
So what should this plan be? The book told you about trend
following using an indicator called macd, and it also told you how it
was possible to pick the top or bottoms using an indicator called
stochastic; my guess is that you picked the stochastic indicator to
start your day trading - this must be the 'best of the best' since this
indicator was going to ensure you of entering your trades with the
'best' price. Amazing, simply amazing how easy this day trading stuff
really is. In fact, why even bother taking the trades, each time your
indicators give a signal - just call up your broker and tell him to
stick $100 in your account.
My book was Technical Analysis of the
Futures Markets. My charting program was TradeStation with an eSignal
fm receiver; that was the one that if you hung the antennae wires just
right, and you put enough foil on the tips, you might even get quotes.
I had sold a business before I started trading so I did have some
capital - isn't that how everyone gets into trading, you either sell a
business or you lose your job? My indicator was the macd as I had
decided that I was going to be a 'trend follower' instead of a
'top-bottom picker'. I also decided that I was going to be 'extra'
clever, if one indicator was good than two indicators must be better,
so I added a 20 period moving average. My first trade was a winner,
then after many months of extensive therapy, I was finally able to
forget the next twelve months - ahhh the memories
Learning To Day Trading - The Learning Progression
Beginning
to day trade, or learning to day trade, as an indicator trader is very
typical. This is also logical when you consider - HOW are you supposed
to initially learn how to trade? Trading indicators are available to
anyone who has a charting program, and simply using line crosses, or
histogram color changes, provide 'easy' signals to understand. If you
will also take the time to learn the arithmetic behind your indicators,
as well as learning what each indicator is specifically intended to do,
not only is this a logical way to begin, it is also a good 'step' in
your learning progression - understanding the WHAT you are doing,
instead of attempting to create 'canned' indicator only trading
systems, without any regard as to WHY you are trading this way.
This
does become one of the 'sticking' points in your learning progression,
as you come to find out that you are unable to profitably trade
indicators as signals only - now what? Now what - you 'can't' develop
your own indicators, so you start doing google searches for day trading
indicators and start buying your 'collection' - they don't 'work'
either. Now what - you buy a mechanical trading system - what does
hypothetical results may not be indicative of real trading or future
results mean? Now what - you start subscribing to signal services OR
you start joining the 'latest and greatest' chat room - am I really the
only person using the signals who isn't profitable?
Now what - you never learn how to trade.
I
began trading as an indicator trader, and I did try to learn everything
that I could about the various indicators, as well as trying to combine
indicators that were consistent with how I wanted to trade - I just
could never develop a mechanical day trading system from what was
available to me. I read a couple more books that didn't really help me,
so I then started looking for someone who could teach me. From what I
now know about gurus -vs- teachers, I am very lucky that I got involved
with a money manager-trader who taught me a tremendous amount, but I
still couldn't get profitable, in part because there was also
'pressure' to learn how to trade using real money. As well, any
discussions or thoughts about trading psychology and the issues
involved, especially to beginning traders, was non-existent.
Now
what - learning but losing - I stopped trading. Learning to trading
using real money, and 'scoffing' at trading psychology as simply
individual weakness, really was something that I now regard as
misinformation. I always mention this as I now feel that this cost me
as much as a year of time, and was very close to costing me my trading
future, as stopped trading was VERY close to quitting trading. How
can't trading psychology be real to a beginner, when you consider that
you are risking losing money at a very fast pace as a day trader, and
when you further consider that you are also doing this when you really
don't know what you are doing - this is NOT by definition being weak.
And if trading psychology is real, how are you going to learn to make
'good' trading habits with real money while you are fighting the
implications?
Now what - not trading and not ready [quite] to quit - still studying and searching.
Probably
the single most important 'thing' that got me to a next step in
learning how to trade, was the concept of a trading setup, and that a
setup and a signal were not the same. This was extremely meaningful to
me, as it also led to an understanding of how to better use trading
indicators for the information that they can provide, but not to use
them as trading signals - in essence I began learning about trading
method where discretion could be consistently applied -vs- trading
system that was mechanical and arithmetic rules.
Traders who are
indicator only traders, are also what I refer to right side only
traders, that is they are always looking at the right side of their
charts for an indicator signal. BUT what about the left side of the
chart, what about price and patterns, what about market conditions -
WHAT about the relevant 'things' that are 'moving' price, instead of
indicators only as an arithmetic derivative of price, and thus, one
that is dependant on the time frame that you have chosen to trade from?
These 'thoughts', along with the concept of trade setup, became
instrumental in the development of a trading method, and how I came to
turning my trading around.
When I think about the steps in my learning progression - I would list them as follows:
2/95 - 6/96
indicators only
teaching service that included signals
learning to trading with real money and trading psychology issues
stop trading
6/96 - 3/97
understanding of trading psychology issues
learning about trading setups concept
trading method -vs- trading system
trade setup - trade trigger are not the same
method development
understand the importance of the left side of the chart and what is happening 'across' the chart
related trading setups and how/when they triggered
indicators + pattern
indicators + pattern + price
indicators + pattern + price + market conditions
3/97 - 11/97
able to paper trade profitably
able to real money trade profitably
able to trade for a living
Indicator Only Day Trader - Setup Including Indicators Method Day Trader
I
have attempted to discuss the way I started day trading, and the way I
think many-most traders typically begin. Along with this, I have
pointed various issues and problems that I had - those regarding how to
learn to trade, and then progressing into a profitable trader. My
experiences have been both personal, as well as those of many traders
that I have worked with over the last 8-9 years through Tactical
Trading - that a very large number of these problems are due to day
trading only with indicators, the specific indicators used, along with
trying to turn these indicators into a mechanical trading system. This
is not to say that this can't be done - I simply couldn't do it.
However, I would strongly suggest that anyone who is in the early
stages of day trading, or struggling with their day trading, consider
these things that have been discussed.
This discussion, along with chart examples of various trading indicators and trade setups, is continued at http://www.tacticaltradingmethod.com/indicator-trading.html As well, additional discussions about trading psychology and trading method can be found at The Tactical Trader, http://www.tactrading.com
