January 2004

Trading Tip:

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.

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 room's website.

This is done by looking at the EOD (end of day) 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 - for the same day 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.

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.

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. 

Two articles in the Stocks, Futures & Options magazine (www.sfomag.com) introduced a new charting concept.  The first article was 'Paradigm Shift Lights the Way to Momentum Bars' by Desmond MacRae, SFO Feb 2003.  The follow-up article was 'Momentum Bars: The Sequel ...' by Desmond MacRae, SFO Apr 2003.  These articles describe a charting concept developed by Danton Long called Momentum Bars.

Momentum Bars are basically constant range bars.  The bars look like standard chart bars with an open, high, low, close and volume.   The high-low range of each bar is constant.  A new bar does not start until a price tick is received that would exceed the fixed range of the current bar.   Momentum Bar charts have the following characteristics:

• Each bar is the same height because the range is constant.
• The close of a bar is always at the high or low of the bar.
• The open of a bar is always one tick below or above the close of the preceding bar.
• The time period covered by each bar varies.
• All gaps are filled with inserted 'phantom' bars.

The 'phantom' bars that are inserted to fill a gap create an interesting effect on standard studies.  It is true that orders cannot be filled on these 'phantom' bars.   But they may generate trade signals more rapidly.  You will have to experiment with Momentum Bars to get a feel for study behavior with this new charting concept.

This article shows 3 other chart types for comparison to the Momentum Bars chart.   All charts show the transition from the afternoon of Jan 27th, 2004, through the Globex session, and into the day session of Jan 28th.  The duration of the Globex session has been highlighted in yellow in all four charts for easier visual correlation.   The next chart is a standard 5-minute bar chart.

The 5-minute bar chart is basically a constant Time chart.  Each bar represents a fixed period of time.  New bars are created because of the passage of time, even though the market may be thinly traded, which is typically the case during the Globex session.  The next chart is a 144-Tick chart.

The 144-Tick chart is a constant Tick chart.   Each bar contains the same number of trade ticks, without regard to time or trade volume.  Constant Tick charts have become very popular recently.  As market activity increases, more bars are created, and vice versa.   A variation of the Constant Tick concept is to create chart bars based on a constant volume, which is illustrated next.

The constant volume bar example shows bars built on having a uniform 1000 trade volume per bar.  Each bar has the same trade volume, without regard to time or how many trade ticks were needed to accumulate the 1000 volume total.  Note that during day session hours, the 1000 volume bar chart is very similar to the 144-tick bar chart.   During the thin trading of the Globex session, the constant volume chart generated fewer bars than the constant tick chart example.

As part of the comparison, a Stochastic study was applied to each chart.  The Stochastic shown on each chart uses a 14 bar period, with a 5 period %K and a 3 period %D setting.   It is my observation that the Stochastic is smoothest on the Momentum Bars (constant range) chart.  Perhaps this is because Momentum Bars take out so much of the noise.

Analytical tools and studies can be applied to all of the chart types illustrated.  Because the bars on each of the charts are created differently, the studies and draw tools will generate different signals.  While each chart has the general characteristic of making a V turn at a price of 1137.00, there are significant differences in the chart patterns and formations on the four examples.  While some may what to argue that one of these chart types is superior, or that another is inherently flawed, I think it is best to just accept that each is different.   Investigate each chart type using the studies and draw tools that speak to you.  Trade the chart types that generate the trade signals that you understand and make you the greatest profit.

Note:  The chart examples shown in this article were created with Ensign Windows.  Momentum Bars and Constant Volume Bars are two new chart types present in the next major upgrade of Ensign Windows, scheduled for release to the public in March 2004.

The www.dacharts.com web site has maps showing the locations of their trading community patrons.  In that map folder you will see maps for the United States, Europe, North and South America, and Asia-Far East.  The maps are constantly being updated.  Everyone in the chat room knows everyone on the map now.  The map creators didn't realize maps would be so popular.

These traders meet in the B-Line chat room.   Click on the chat room link if you want more information about how to get the free chat room software and join this trading community.