Good morning Tom,
I’m glad you went throught the sutff on the thread. Please don’t get me wrong: it was not my intention to MAKE you read the thread (and to subject you to what was, ostensibly, my ‘inane drivel’ at times) but there is also a lot of valuable insight into the ‘psychology’ of trading and, of course, you’ve now also read about Parabolic SAR’s ‘shortcomings’ and about the ‘extras’ that we all ‘threw at it’ in an effort to ‘tweak’ its performance. Some worked, some did not.
(And you’re not boring anyone I can assure you).
Now to addresss your questions:
Regarding the weekly and monthly timeframes and their relation to the daily timeframes:
I do remember that at one stage I was checking to see whether or not there was any merit in seeing what was happening on the weekly and monthly timeframes and only taking trades on the daily timeframe if the direction of Parabolic SAR was the same i.e. if the direction of Parabolic SAR was the same on the weekly and monthly timeframe then the idea was to only take trades on the daily timeframe in the same direction and not stopping and reversing when stopped out but waiting for the next trade in the same direcction. While I am absolutely 100% that this ‘strategy’ would work there was only one time last year (if I remember correctly) that Parabolic SAR on the daily and weekly timeframe was going in the same direction so, of course, this limited your trading for the simple reason that you would probably end up waiting for an absolute age to get an entry. Now this, of course, is where the ‘psychology of trading’ comes in and it depends on what you’re looking to ‘get’ out of trading or how you ‘want’ or ‘need’ to trade. There is absolutely no question that if you waited for the first Parabolic SAR dot to appear on the monthly timeframe, then waited for a new Parabolic SAR dot to appear on the weekly timeframe indicating that Parabolic SAR was now going to be moving in the same direction on the weekly timeframe as on the monthly timeframe, and then only took trades on the daily timeframe in the same ‘Parabolic SAR direction’, you would be very successful. The question is: do you have the patience and discipline to wait for this set up to occur? If you do then I really do believe that you would make a whole lot of money and your inevitable drawdowns would be negligable. I can assure you that I don’t have the patience for this and I have not come across anyone else who does to be honest. Again: it goes to your ‘trading intentions’ i.e. if you’re looking at trading as an long term investment i.e. I call it ‘tradevesting’ then I’m sure this is the way to go i.e. ‘low or no’ maintenance system i.e. five minutes per day to check you positions and move your stops etc. and, over time, a great return on investment. Most people that have decided to get into this business, however, need to ‘trade’ regularly even although they probably won’t admit it to themselves i.e. they (I) would not be able to open a position and let it run for days, maybe weeks, and possibly even months, without ‘tampering’ with the position or trying to realise profits sooner (and it becomes even more impossible to do if you’re doing this for a living and need to pay bills at month end) and the problem with getting out early is that you may now have to wait another very long while for a good set up to occur again so, of course, not having ‘what it takes’ to trade like this, you start opening positions sooner than you should, you don’t wait for the set up, and, eventually, you ‘see your ar*e’!!! That’s why it’s very important to be sure before you start what you are trying to accomplish i.e. are you seeing this as a long term investment where the return on your investment by far exceeds anything you would get from fixed deposit at a bank or do you ‘want’ or ‘need’ to trade every day. Me: I ‘want’ to or ‘need’ to trade every day and by me trying to trade with something that did not suit my ‘trading personality’ just spelled disaster.
It is also very important to know the history of Parabolic SAR. It was developed by my ‘mentor’ (hero???) Mr J. Welles Wilder Jnr. in the 1970’s. Mr Wilder (at the time) was a commodities (and metals) trader ONLY (Soybeans, Lumber, Pork Bellies, Gold, Silver, etc.). Now I have had a look at Parabolic SAR in relation to these instruments and I can tell you that it is PERFECTLY suited to trading them i.e. the drawdowns are minimal, the amount of times Parabolic SAR is ‘wrong’ are minimal, and Parabolic SAR seems to ‘fit them like a glove’. These instruments ‘behave’ in a TOTALLY different way to forex pairs i.e. they are NOT volatile (I’m afraid I disagree with what you broker told you i.e. volatility is ‘the enemy’ not ‘the friend’ of Parabolic SAR) and they spend a lot more time ‘trending’ than forex pairs and this is what Parabolic SAR was designed to do i.e. make money out of the trend. For Parabolic SAR to ‘excel’ your instrument needs directional movement and volatility is NOT a factor i.e. good strong directional movement without volatility is where this indicator will perform best.
As far as what I have been doing since August last year is concerned:
Well I pretty much ‘saw my ar*e’ financially but kept on trading with very little money trying all sorts of systems and indicators none of which really worked for me at least not to the point where I was making enough money to pay my bills etc. At one stage even my broadband access was suspended due to non payment but I kept on using my mobile phone to trade (the cost of which exceeded what I was making by the way) and test systems and strategies etc. etc. etc. Now the irony of everything is this: one of the very first books that I purchased was ‘New Concepts In Technical Trading Systems’ by J. Welles Wilder Jnr. and, when I first got the book, I ‘looked through it’, tried one or two of the systems in the book, but soon gave up because of there complexity and the time I needed to spend ‘working’ these systems every night. It’s ironical because even back then: every time I used whatever system from the book I was ‘keen on’ at the time I made profits but it just became too much of a ‘hassle’ to maintain the systems on a daily basis so, I started looking for something ‘simple’ and a lot less ‘taxing’: enter Parabolic SAR (another irony of course is that the theory of Parabolic SAR and its CORRECT usage is covered in the first chapter in the book)!!! Anyway, toward the end of last year, I ‘knuckled down’ with the book, programmed or ‘coded’ all the systems in the book into one of my trading platforms, and have not looked back since. I now, almost exclusively, trade one of the systems in the book and it’s working for me ‘big time’. My trades are now ‘consistent’ and that, my friend, is the ‘key’ to this i.e. there is no point in having the odd ‘windfall’ i.e. a HUGE profit every couple of months or so and then nothing (or losses) for the rest of the time i.e. rather CONSISTENTLY make smaller profits. I managed, at the beginning of this year, to loan some more money to ‘plough’ into my trading using the systems in the book and for the first time since I started trading I can ‘see the light at the end of the tunnel’ and there is a very real possibility that I will be able to pay my creditors at some point in the future and not lose (any more) assets. And THAT is where I’m at at the moment and that is where I intend to stay!!!
Did I also mention: ‘Never Give Up’!!!
I had another question about your trading thus far: have you/do you trade one instrument with two different systems at the same time? The reason I am asking is because it seems like the TBP and volality systems possibly could be used with each other at the same time, because the TBP is more of a “day to day” smaller target system where with the volatility system you get far fewer trades and they are held much longer, or so it seems. Even though you will get opposite direction trades a lot it seems to me that the nature of the TBP system will let you get the smaller “bites” on the daily movement of the pair while the volatility system follows the longer term trend. What do you think? It might be worth looking at. Anyway, I need to get to bed, I had a long day at school…
And don’t get me started on that trader… hahaha. I wonder what the real story was, because “a junior trader lost us millions of dollars” smells a little bad to me…