Reminiscences Of A Day Trader

An Apology First

I hope, Jesse Lauriston Livermore will forgive me for adopting the title “Reminiscences of a Stock Operator” of his famous biography for my purposes.

And I have to admit, I have read this book only in excerpts.

No Get Rich Advice Here

Sorry to disappoint!

If you think, you can get rich quickly by trading you may already be doomed. As they say, trading can be a very humbling experience. Only under lucky circumstances you will make beaucoup money with one or a few trades. But then, you will have to resist overconfidence and greed.

More Fun Than Some Digital Games

Definitely more skills required and offers more thrills when you put your money on the line!

Beats Lottery Or Casinos Hands Down Anytime!

To be politically incorrect, state run lotteries are a racket to extract money beyond taxation from gullible people. The odds of a big win are totally stacked against you.

Casinos are probably not much better in terms of winning money!

Unlike lottery or casino, trading in financial instruments requires knowledge, skills, and a certain temperament.

More Active Trading For Everyone

I do not know exactly how many people actually trade frequently (like several times a week) and over a long period of time in any financial instruments. However, I suppose it is a minority.

I wish there were more traders. Trading should be taught in high school. Trading is a good tool to learn important lessons like discipline (e.g. follow rules), self-confidence, prudence, to retain composure when your money is at risk, resisting temptation and much more.

Well functioning financial markets are so important to the well being of humans everywhere. Thus, participating in the financial markets is a civic duty like voting.

Trading Platforms

Trading platforms have come a long way. They are much more powerful and affordable today. There is some tool equality between the big players on the financial markets and individuals.

I have always lived by the motto the best available tool is just good enough! (Must be my German background)

I have tried other trading platforms before I settled on Tradestation. But I do not claim to be an expert in any other platform.

I personally use the Tradestation desktop platform, but I cannot highly recommend it. It is a dated, convoluted, monolithic all-in-one platform. The scripting language and programming environment is being updated, but I believe it is still too limited and cumbersome. Tradestation platform is not modular, if you are trading only in Forex, you still have all the equity/futures/options trading functionality etc. Very annoying and bloated!

I would like to program a trading strategy, but unfortunately, Tradestation is not the best tool for that (see above).

Some Advice

1. Do not follow the latest fads or tweaks of existing indicators etc.!
2. Do not be fooled by fancy sounding trading strategies or indicators, e.g. Elliott Wave or Fibonacci or some Japanese named charting technique (forgot the name of it) etc.
3. Do not use stops! Yes, e.g. a flash crash can wipe you out, but such events do not occur frequently and there is usually a bounce back. In my experience, I would have lost too much money, because stops were triggered. However, if you trade a single company equity you may need a stop in case e.g. the company makes an unexpected announcement or a court of law comes down with a negative verdict affecting the stock price over a long time.
4. Tight stops are particularly useless. If you only feel comfortable trading with tight stops, perhaps trading is not for you.
5. Forex trading is comparatively cheap and 24 hours. Major currencies pairs are fairly stable over time. Very flexible in the size/quantity you want to trade.
6. Sit tight when the going appears to get rough! Always remember the generally mean reversing property of financial asset prices! Financial markets often attempt to take you for a ride like a bronco. Trading is not for the timid or faint hearted! Plus the big players have more money and they can sustain bigger losses than you can.

Technical Analysis & Indicators

Since I mostly trade Forex my recommendations apply foremost to this market.

To understand the long term performance of an asset I use 10 years of daily data to chart:

1. Bollinger bands with 1,2, and 3 standard deviations plus mid-points between these standard deviations
2. Simple moving averages (5, 10 years) plus multiple bands above and below the SMA at multiples of 5% or 10% around the SMA
3. Highs/lows plus 75%, 67%, 50%, 33%, and 25% levels between highs and lows

To understand the annual performance of an asset I use again daily data to chart:

1. Year to date highs/lows plus the above mentioned levels
2. 12 months moving highs/lows plus the above mentioned levels
3. A simple moving average (52 * 5 days) plus multiple bands above and below the SMA of 5% around the SMA

To understand the short-term performance of an asset I use again daily data to chart:

1. The five day highs/lows plus the above mentioned levels

For entry/exit I focus besides the above mentioned charts on:

1. 15 minute chart showing again highs/lows plus the above mentioned levels; plus open, close/high/low of current day; open/close/high/low of previous day
2. 1 minute chart showing showing simple moving average (24 hours) plus bands as described above, but using 1%.

Time Frames

Since I mostly trade Forex my recommendations apply foremost to this market.

Long term: Daily (not higher like weekly, monthly)

Short term: Hourly, 15 minutes, 1 minute