I am new to trading and always think about creating some Formular, that I will check [B]bevor[/B] entering a trade.
Something that help me dealing with complex, unstructured and multi-attribute decisions. Something that acts more and more like my expert system by feeding it with data of my trades.
Keeping a Trade Journal is nice - In the moment I stick to that approach. But wouldn’t it be nice if one can extract that knowledge into a system that will help you make better decisions?
I found the Analytical Hierarchy Process AHP by Saaty (wikipedia: Analytic_Hierarchy_Process) and read something about Decision support systems at Wikipedia. But maybe just a open source survey application like limesurvey can do the job as well?
My Plan (just an example) so far is not so complex in the moment:
* Get Focused (Meditation/Jogging/etc)
* Should I sit on sidlines? (See Forex Blog: Pipsychology) >>>> if No, then go further
* Has this day of the week some important news >>>> if yes, then go to Strategie 1
* Is the market Trending >>>> if yes, then go to Strategie 2
* Is the market Ranging >>>> if yes go to Strategie 3
* I don't know >>>> go to step one
* Did you find some Divergence >>>which one >>>> go to Strategie 3
* ...
How do you deal with complex, unstructured and multi-attribute decisions?
I have created a decision support system based on what I had seen of these systems implemented at prop firms, and management funds. Although due to this being for a single individual as opposed to a desk with multiple traders running a specific strategy that must all be in concert, I had modified it. The system I created basically aggregates any objective or mathematically calculable object that the market gives into a single output window. It gives me these outputs in easy to read manner, and gauges and sums them into a scale of 1-100 based on recent history. This way as opposed to having to reference a ton of information its all at my finger tips. Its all based on what i call my evidence based discretionary toolbox. However, there is still me the human, analyzing order flow, looking at price action patterns, and observing market internals (although they are part of the measurement taken by the DSS). Pattern based things are difficult to program.
That’s just the technical / trade opportunity part of it. It also calculates position sizing, and strategy correlation against my current portfolios holdings. If this would create increased volatility, i can either adjust the position sizing, may have to rebalance, or just not take the trade. This helps me put this single execution into the big picture. Where does this trade fit ?
I know you mentioned your new at this. And looking at your desicion tree, i think your going much much deeper than you need to. I don’t know but I would venture a guess, that probably none of your strategies 1-3 are profitable. Maybe I am wrong and 1-2 of them are. Given that your also going to have to come up with objective and reliable ways to determine, what type of market you are in. As a beginner this is very very difficult to do, hell its always difficult to do. I would concentrate on focusing on 1 single strategy and becoming the master of it at first, maybe mastering 1 market phase ( ranging, trending etc). If you then want to branch out that’s fine. But I doubt at this point in your career your ready to execute an adaptable multi market phase approach with any consistency.
Imagine you are in a street fight against 5 guys, would you face 'em just like that or you’l wait until you can knock them out 1 by 1? There is no rule about it, the primary priority here is to survive 1st.
I really appreciate the time and effort you put into your post. I have read it and it makes a lot of sense.
Next to my top priority to survive, I like to establish a routine that can be analysed to tweak my behavior to become better.
To keep a trading journal is a starting point to establish that routine. But how do you analyse all of the journal entries that pile up over the years?
I think some sort of Questionaire that stores all your answers my be is to much work at the beginning - but easy to analyse the values later on.
I just created some Database that will act like a Trading Journal. The style is like a Questionnaire - Maybe this is right over the top.
Anyway, I like to become better in trading. So here is the Template so far:
[B]FOCUS[/B]
* What were your activities?
* Meditation
* Walking
* Reading
* I am bored
* I should work
* Time of Trading
* According to my Trading Plan
* Just a trading opportunity
* Opening ore closing of Market
* News from some Forex Economic Calendar
* During a break
* Option Expiries
* Which Scenario descibes your situation best?
*
* Feeling out of sync with the market
* Having a losing streak (3+)
* Don't know what the news are telling me
* I am emotional
* I am focused
* I just had a winning streak (3+)
[B]Big Picture[/B]
* Did you watch COT Report
* Yes
* No
* Where is the USDx
* Enter Number:
* Is USDx near some Level?
*
* Support
* Resistance
* Which Dollar Scenario we are in?
*
* Risk Aversion
* Weak fundamentals
* Optimism
[B]FX Analysis[/B]
* Which trading conditions do you observe?
* Trending
* Range-bound
* Consolidating
* Do you observe some interesting Chart Pattern
* Pattern:
* What kind of zone we are?
*
* Supply
* Demand
* Which Dollar Scenario we are in?
*
* Risk Aversion
* Weak fundamentals
* Optimism
[B]Trading Setup[/B]
* Which Pair?
* EURUSD
* ...
* Main Scenario?
* Long/Short
* Why do you enter?
*
* Why do you enter (technicaly)?
*
* Chart-Upload
*
* 4h
* 1h
* 15Min
* Trading Range?
*
* High:
* Low:
* Entry Taktik:
*
* Potential levels
* Break out
* Support
* Resistance
* Plan of Reentries
* Change of Strategie
* ...
[B]Performance Report[/B]
* Over all Trading Quality
* Range 1 - 10
* Winner/Loser
* ..
* Which Pair?
* EURUSD
* ...
* Did you follow your trading Plan?
* Yes/No
* Stop Analysis
* The reason why I got Stopped:
* Comments:
*
I’m not a big fan of hugely in-depth trading plans in general. There is such a thing as over-planning which can result in lost opportunities by nitpicking things down to the most minute detail. Part of what you described seems like a Flow Chart decision making process which would be pretty easy to layout if you wanted to design your strategy that way. I believe Google offers a free flowcharter in their Documents section.
I trade Price Action- so a majority of my trading decisions are made solely based on S/R levels and what’s going on in the next higher time frame. I believe in using strategies with as few moving parts and decisions points as possible that will still provide a positive outcome. Why? Humans tend to find answers because they want to, not necessarily because they are there. So a trader that spends a ton of time thinking about a multitude of decisions points is going to inevitably draw wrong conclusions. My trade decisions look like this.
Is a candlestick formation forming on a significant point of S/R? Desired answer: Yes.
Is the formation strong and clearly defined? Desired answer: Yes.
Is the trade with the market bias and trend? Desired answer: Yes.
Is there any upcoming economic events concerning either currency that may cause an erratic movement? Desired answer: No.
Am I trading into any potential point of heavy S/R? Desired answer: No.
So for me, that’s about it. If any of those answers come out as “Unsure” or the opposite of what I defined; then I just stay out.
That’s not to say that all trading decisions can be so simple; it all depends on the strategy and person. No wrong answer so long as it works.
The intention to set up a decision making process is to construct a failure proof environment.
I mean that learning to trade is somehow like trying to loose weight. You just have to follow your Diet/Trading plan to succeed. But this “just follow your plan”- thing can be quite challenging.
My self observation shows me that I tend to rush into a trade and missing the signals, S/R Levels, etc. With some “Questionnaire-Ritual” - I may build a habit of better control my self.
Well I just start to think that such a decision making tool is not the right road to establish a good trading habit. In myfxbook account (nichess) you can see that I first started with establishing a trading habit by just trading the daily highs and lows. Maybe I should look closer to that.
