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2013issue C0448

Adding markets without liquidity and emotion rules

Archive facts place market choice, a liquidity-filter, and a live-small-size-rehearsal on the same path as entry and exit. Editorial reading: adding a market is not a hunt for extra signals.

  • The choice to concentrate on one market or scan several is said to depend on the strategy and the time frame, and a method that works in one market is described as not necessarily working in another.
  • Daytrading is described as relying on specific technical guidelines that trigger entries and exits, and scanning several markets is described as possibly needing slightly different rules rather than one unchanged set.
  • A liquidity-filter treats wide bid-ask option markets, with lumber and copper given as examples, as markets to refrain from trading, and treats futures with daily volume below about 30,000 as markets to trade only sparingly.
  • A live-small-size-rehearsal in ultra-low-margin futures such as mini grains, e-micro metals, or e-micro currencies is presented as keeping paper-trading conditions, with a 1.25 dollar tick described as less stressful than a 12.50 dollar tick while still sampling live emotion.
Entries in this reading3 entries
Current trackPaper trading simulation34 readingsLiquidity filter139 readingsTrading psychology process376 readings

Strategy and time frame decide the scan

The choice between concentrating on one market and scanning several is said to depend on the strategy and the time frame in use. Daytrading is described as relying on specific technical guidelines that trigger entries and exits. A method that works in one market is described as not necessarily working in another. Daytrading several markets is described as possibly requiring slightly different trading rules rather than one unchanged set.

The holding-period is the horizon over which this path must stay testable, from signal through the life of the position. Editorial reading: those guidelines belong to one trading-psychology-process that turns rule inputs, market state, and execution constraints into an entry, an exit, or an abstention.

When the book is too wide or too thin

Option markets with wide bid-ask spreads, with lumber and copper given as examples, are treated as markets to refrain from trading. Futures markets with daily volume below about 30,000 are treated as markets to trade only sparingly.

A liquidity-filter keeps or drops a market from the procedure based on spread, volume, and whether an order can be filled at a tolerable implementation cost. Editorial reading: the same rules that can enter must also stand aside when the book is not executable.

Paper-trading and a live-small-size-rehearsal

A small live account in ultra-low-margin futures such as mini grains, e-micro metals, or e-micro currencies is presented as keeping the benefits of paper-trading while revealing how emotion enters decisions. A product that makes or loses 1.25 dollars per tick is described as less stressful than one worth 12.50 dollars per tick, while still sampling the emotional load of live decisions.

Paper-trading rehearses that same procedure with little or no capital at risk, to check whether entry, exit, and abstention still operate as one process. A live-small-size-rehearsal is a tiny live futures size used to keep those paper-trading conditions while introducing a measurable emotional load. Editorial reading: the procedure is incomplete until it has been run at a size that can still disturb judgment.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
12 of 24 in the Paper trading simulation track
201334-38 pp.Next on Paper trading simulationPrecommit the exits on leveraged tradesAn early unexplained winning stock trade can create false competence, and the same sequence then gave back most of those gains.
All readings on this track · 24 readings
  1. 1988Process goals, journals, and pre-trade stress checks
  2. 1989A written plan before impulse takes command
  3. 1991Step-through construction of a currency range tactic
  4. 1999Relocating expiration break-even with a bull debit spread
  5. 2003Rebuild testable trading rules after a drawdown
  6. 2005Forex stops, lot count, and reward as one budget
  7. 2010Predefined rules before discretion in a mechanical trading system
  8. 2010Evaluating euro-gold intraday lead-lag rules
  9. 2011How to turn an FDA-calendar sample into a testable bio-runup procedure
  10. 2012First-hour countertrend entries after broken levels
  11. 2012Time-box simulation before live decision pressure
  12. 2013Adding markets without liquidity and emotion rules
  13. 2013Precommit the exits on leveraged trades
  14. 2013Check the currency cross, the margin, then the demo fill
  15. 2014Test entry, exit and abstention as one procedure
  16. 2015Paper-trade the system you refuse to complicate
  17. 2015Four-step system vetting before live trading
  18. 2015Price and volume rules over pattern shortcuts
  19. 2017Closing a Friday news fade into one entry and exit procedure
  20. 2019Hype-resistant trading process: paper checks and ruin risk
  21. 2020Paper trading cannot validate a live decision process
  22. 2020Tenth-size futures as a small-account ruin filter
  23. 2020Evaluating systems with paper trading and walk-forward windows
  24. 2020Sizing protective puts with micro index options
By fieldDecision process416 readingsBy year2013169 readings
All 34 readings tagged Paper trading simulation
Also on Paper trading simulation5 readings
1986Fear signals an untested decision process1987Wyckoff campaign phases as one enter, exit, or stay-out procedure1987Stand down or rehearse on paper when a Wyckoff read fails1988Process goals, journals, and pre-trade stress checks1989A written plan before impulse takes command