Big Mike's Trading Blog

Day trading futures, discussing money management and trade management techniques, and more

Can you follow your trading rules?

Why is it so hard to follow your rules?

For this short post I will use my life-long friend Gary as the guinea pig in the example

Most everyone has a very hard time following their rules in the beginning. After months or years of struggling and financial losses, your mind is in self-preservation mode and every action it takes is almost always in direct conflict with the necessary actions to trade successfully.

I won't get into the psychology of why, but I will cite a simple and true example. I hope Gary doesn't mind

Yesterday Gary and I were on the phone talking about some mistakes we see traders making over and over on the forum. And our conversation reminded me of a particular instance that happened a long time ago with Gary and I. I recalled it and we both had a good laugh.

What I remembered was that a long time ago when Gary was first developing a new strategy, and he and I were on Skype together as we often are, trading... Gary entered a position. It was working fine, in his favor. He then began to question himself. He and I have different charts, keep in mind.

I said something like "why are you questioning this?" because it looked fine to me, nothing had changed to make me think it was going to fail. And he kept saying "I don't like it." but when I asked him why, he couldn't answer, at least not with specifics. I reminded him, "hey this looks fine to me, follow your rules" but he kept saying no, he was going to just take it off. I think he had suffered from a couple stops in the day before this trade and was second guessing his strategy. Remember, he worked a long time on developing this strategy and had sim traded it for a long time, but didn't have much experience trading it cash yet. This was a cash trade.

So I knew his rules loosely, and even though I didn't have his chart in front of me, I kept reminding him "hey, your rules say to stay in until xyz, right?". Of course they do, but his response was "yes, but I just don't like it. Something isn't right".

So now I am starting to raise my voice a bit because it's like I need to "snap him out of it". I am getting to the point where I am like "Gary! Follow your damn rules! There is nothing wrong with this trade! You can't even tell me what you don't like about it!".

Still, Gary is acting like he is going to pull the trade any moment. Why? Because he is up, enough to cover his prior losses probably, and is mind is in overdrive to protect itself, screaming at him to EXIT!!!! But in trading it's all about probabilities, and all about discipline. It's very little to do with where you enter, it's everything to do with what happens next and where you exit.

Gary spent months working on this system and then traded it sim for weeks and was killing it. Yet when he went to cash with it he relapsed into old ways of not following his rules. I could sit there on skype, yelling "Gary! Why are you even CONSIDERING not following your rules?!?! Don't you remember where that gets you!!?! Don't you know that you MUST. FOLLOW. YOUR. RULES.!!!!!!" and yet he was still just barely listening, his mind was blocking me out, the fear was taking over.

Now, this story has a happy ending. During the 3 or 5 minutes I was having this "conversation" with him, it popped. He was now up two times as big as before, then three, then four times. I convinced him to follow his rules and because of it he ended up taking a huge winner.

What does this tell you? Gary and I have been friends for over 15 years. We've been through a lot of stuff together. Yet even with me YELLING at him to not take the trade off, and to follow his rules for the love of pete, he almost didn't.

So you can imagine how hard it is for someone who doesn't have that person in the background telling them they need to follow their rules 10 times over and over... that person would almost certainly NOT follow the rules. And of course then they beat themselves up, which leads to a whole new set of problems which ultimately causes them to have even more fear.

Anyway, I wanted to share this little story because I wanted to underscore the importance of psychology in trading. It's not indicators that make you win or lose. It's what you do in the above situation. This is the mountain you have to climb in your trading career before you can be successful. All the way up the mountain, you are struggling and gasping for breath, afraid you will fall, avalanche, everything. But once you get to the summit you have a real sense of accomplishment, a real sense of pride, you conquered your fear, and now each time you climb that mountain in the future it is easier and easier.


Some statistics on forum users

I was curious about some habits of forum users on Big Mike Trading, so I created a few charts.  The chart data is based on the Trader's Edge stories area, a section at the top of the forum that features some of the more popular concepts on the site.

It is important to remember than this is not very scientific.  Some stories are only one week old, while others are a month old, so the number of clicks is not going to be scaled proportionally.

The first chart is a list, from oldest (top) to newest (bottom) of subjects in Trader's Edge as of today, and how many clicks each story received.  It's important to note, the clicks are only counted here for views directly from Trader's Edge.  If someone views the story without going through Trader's Edge first, it does not show up here.

The second chart is an overview by category.  I decided to place each story into a category, either Automation, Indicator, Education, or Journal.  It isn't perfect but it gives an idea of where the majority of interest lies.

I might do this again later in a few months or a year, so we can have some more accurate info.


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Daily Trading Video for Feb 24 2010

In this video I go over my indicators and setups for Wed Feb 24th 2010

NinjaTrader Daily Chart Review Feb 24th 2010 from Big Mike Trading on Vimeo.

Please use the trading advice thread on the trading forum for discussions :)


MultiCharts 6

Well today after NT7 blew up on me again non-stop, I really got fed up and kicked into high gear.

I'm looking at Neoticker as well as MultiCharts. But this thread will be about my experiences with MultiCharts.

First, you can download MultiCharts here:
Trading and Charting Software for FOREX, Stock, Future and Option Markets

I'm running 6.0 beta 2 (the latest available as of this post).

MultiCharts is the same cost as NinjaTrader, at roughly $100/mo or $1500 for a lifetime license.

There are two major differences between MultiCharts 6 and NinjaTrader 7. First, MC does not have a DOM. No manual order entry. It does support automated strategies and executions, but for discretionary traders you'll have to rely on an external platform for order execution. Version 7 of MC should correct this. Second, MC 6 indicators are built on the EasyLanguage platform, whereas NinjaTrader uses C#.

For me, if I do end up switching to MC I will keep NinjaTrader open just for my DOM and minimize everything else, and rely on MC for charting. It's the charting in NT that is causing me so much grief lately. It also means I have to convert a handful of my favorite indicators from C# to EasyLanguage. I've started working on that.

The list of other differences between the two platforms is extremely long, but I have to make a few general observations.

- MC's interface seems very polished when compared to NT's

- MC is incredibly quicker, far far faster than NT. And remember, I have a powerhouse of a system (Core i7 overclocked to 4ghz, 12GB ram, RAID 0 drives w/hardware raid) so this speed improvement with MC is due to better design.

- MC handles multiple dataseries (multiple time frames) with ease. It's second nature. There is nothing to it. IT JUST WORKS. With NT7, it does everything but work.

- MC has its Quote Manager separated from the primary charting application. This means an easy to use "module", if you will, to manage everything to do with quotes/streaming data. It was a breeze to setup IQfeed continuous contracts and to tell MC6 to cache the data locally, as well as to define session templates (trading hours).

- My favorite indicators have to be re-written from scratch. C# is far more powerful than EasyLanguage, so the hobbyist in me, the one seeking an automated strategy that trades while I guzzle cocktails on the beach, well he'll be sticking with NT for that development.

- No DOM. Yikes! No more to say. You can't trade with MC alone if you are a discretionary trader. Huge, huge disadvantage. But rumor has it, MC7 will fix that oversight and is only a few months away. The question becomes: will we get a v1.0 DOM, or will we get a v7.0 DOM (how good will it be?). Sure, it isn't a huge inconvenience for existing NT users to just have a DOM-only open and trade MC charts, but for new deployments it would really suck, and besides, I want a better DOM than what NT offers and my hopes are that MC will deliver one.

- Community support. MultiCharts can piggy back on the TradeStation community, since the majority of all TradeStation indicators work in MultiCharts without modification. NinjaTrader has an huge community as well though, and while in shear numbers it isn't as large as the EasyLanguage community, the community makes up for size with quality.

I'm just getting started, so I'll post more soon.  Follow the discussion on the trading forum, here:


Wavelet Indicator for NinjaTrader 7

In another example of mathematical analysis way over my head,  a group of forum participants have an ongoing discussion about Wavelets in algorithmic trading.  One BMT Forum Member "sefstrat" has donated fully functional wavelet code for NinjaTrader 7.

This wavelet indicator uses a linear undecimated Haar transform implemented via lifting. This is a must have tool for trading algorithms...

sefstrat, which is absolute brilliant trader, provided the above screen shots and introduction analysis for his indicator.  He also has provided the forum with other brilliant indicators like his Particle Oscillator Indicator for NinjaTrader 7, and he also is an advanced Matlab / NT7 user.  He has the following to say about understanding wavelets:

"I would still encourage any who are interested in wavelets to read up on the theory behind them and how to construct other wavelet transforms via lifting. The more you understand wavelets the more useful they will be for you. A good place to start learning about more advanced techniques would be to research nonlinear transforms commonly used for 'edge detection'." -- sefstrat

Check out the trading forum for more.


NinjaTrader 7 and Matlab / R

If you are interested in using R or Matlab with NinjaTrader 7, then you should really join this discussion on the trading forum.

To get you started, check out the instructions on how to get R and NT7 to talk to each other.

In the thread, there is an example NinjaTrader 7 to R ADF Test indicator.  ADF is Augmented Dickey–Fuller test, testing for a unit root in a complicated set of time series modules.

The testing procedure for the ADF test is the same as for the Dickey–Fuller test but it is applied to the model

\Delta y_t = \alpha + \beta t + \gamma y_{t-1}
 + \delta_1 \Delta y_{t-1} + \cdots + \delta_p \Delta y_{t-p} + 

Now personally my head just exploded.  But for those with an understanding in mathematics, this type of integration can be an invaluable resource for your advanced trading systems.