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Originally Posted by jlpi
That is a very good example of what I said about not following EXACTLY a strategy. You will not follow your strategy because you "feel" something is wrong. I qualified it as feeling because it seems it is based on "non-quantifiable factors".
(for the example of the doctor, as you say the experimented one is considering more factors, so its not only feeling it's facts. His "book" is only bigger than the book of the young one, and it's strategy of checking the patient is different, so I think it doesn't really fit with the trading case you mentioned)
So, my only point is that in many books (I don't say that the books have to be followed) the master traders say that they follow scrupulously their strategy without any exception because if you don't apply all the time your strategy you will only apply it at bad times.
But you say (and i don't say it's wrong, now I am careful with you!) that an experienced trader doesn't always follow its strategy because of it's experience.
So, what should we do: follow or follow with exceptions?
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Those are very good questions.
I would describe the exceptions as part of the strategy.
So you actually trade my strategy.
I'll get to it later.
First, let's talk about "feeling" or "intuition". To me, "gut feeling" is nothing more than a
decision made in one's sub-conscious, taking into consideration many factors that one is not consciouly aware of. I know that whenever I have a "feeling" of something, that's because my brain has taken into account many factors that are around me, without me noticing them, and processed them into a decision. It applies to everyhing in life. Now, at the time you have that feeling, it's hard to figure out
what factors have caused that feeling, so all you have to do is decide if you follow your feeling or not.
If you look back to the time you had that feeling, you will ususally find at least some of the things that can explain why you had that feeling.
Let's go back to trading. Whenever I have a feeling that something is not ok, I try to find what's wrong. Why do I have that feeling? On what
facts did my brain base this
decision that something is wrong? And I usually find some of these facts.
Our brain is capable of processing lots and lots of information within split seconds without us even knowing it did.
These "feelings", the same as the doctor's, come after a lot of practicing. And as I said, these feelings are actually
decisions made by our brain
automatically based on
factors it received from the environment.
As to trading strategies:
What the books and "masters" don't tell you is when
NOT TO TRADE.
They will show you a double top and say "identify a double top, and trade once price breaches....".
They don't tell you that this double top, in order to have more probabilities to be profitable, needs to be around a key level. Maybe they did, but you don't know how to define key levels. So you take any double tops you see. Most of them are not valid. They don't tell you to check what time is it. For me, the time of the trade is very important. I look for opportunities during the first 1-2 hours of the UK or US sessions. That's it! I won't enter trades in other times. They won't tell you to look at how the double top looks like. Zoom in. Is price spikey? Is there a trendline rising just below the lowest point, making this trade dangerous. Are there any important news coming soon that might trigger the entry for nothing?
One of the things they don't focus on is the "large picture". Alsways look at the large picture. Always. This is one of the things that contribute to the "gut feelings". While looking for trade opportunities, your brain has already "sanpshot" the large picture. So if you see a trade coming, your brain will scream "NO!!!". At first you won't know why, but then you will zoom out the chart and see a major resistence level, a major trenline just where you were about to enter.
Another thing is an excessive use of indicators. They will show you MA crosses, RSI divergences etc.etc. You will lose focus on price action and trade according to these indicators.
That's fatal! If you trade only on indicators you will lose. You have to focus on price action.
A) What's price doing?
B) Where is it doing is? (previous S/R? fib level? trendline?)
C) What time is it? (you don't wanna take trades during asain session, for example. it's very quiet and lack of liquidity).
I like to trade double tops/bottoms. Here's what I ask myself before entering the trade:
1. Is the formation near a a key level?
2. What time is it? Is it the beginning of a trading session?
3. Is there something "in the way" that might interfere with the pirce reaching it's target? Can I lock in some profits before it gets there?
4. How's price action look like? Is it nice and smooth? (many buyers/sellers) or is it crappy?
5. Are there any news announcements coming out soon? What can they do?
...and more.
These questions are all "exceptions" but they are part of the strategy and are based on the 3 major questions you have to ask yourself when preparing for a trade.
Once you concentrate on these 3 questions, and read and learn about price action, you're on the right track.
Astro
Licensed Brokers
I don't now why but i find this difficult to swallow.
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