This week… losing cash, gaining knowledge…

I guess if I was a pessimistic person I’d have given up learning to trade by now… However, this week had several high points, even though I traded out a >6% loss on my account. Here they are in no particular order: –

  1. I learnt a whole bunch of stuff (see below for details)
  2. I know what I didn’t do right
  3. My blog (here) got >300 views in a day (Sweet! Thanks everyone!)
  4. I didn’t repeat previous mistakes (mostly)… and invented some completely new ones! LOL

So overall I’m still feeling positive about the whole experience. I really love trading and completely appreciate the support and interest of everyone reading my stuff so a big and humble thank you for all those showing interest. It’s extremely motivational and that helps greatly!

Let’s look at Thursday when, essentially, I got way too active and just took a truck load of dumb trades. Then I’ll go through the stuff I did today and subsequent improvements… PRE-READ warning… This is a long post… Get a cuppa and some biscuits… and lets begin!

Trading mistake number 1.

Placing orders to open on the FTSE before opening…

Yes, I realise I’ve done this before – but this time it’s different! No, honest guv! Except it’s not, and is still a rather random move. Who know’s really what direction the market will move in and why? Essentially my crystal ball is the same as everyone else’s.

So, entered long at 5896 at about 6:50 am without due care and attention to the fact that the price was slap in the middle of exactly nowhere and it thrashed wildly between profit and loss till 4pm when I got stopped out (stop too near previous support) then proceeded to rally 50 points when the US session kicked into high gear.

So retrospectively pretty ridiculous however I’ve now traced the root ’cause of the problem so read on for some thrilling conclusions…

Trading mistake number 2.

Making dumbass bets against the trend without due care and attention… 

Here it’s truly possible to say that a picture paints a thousand words… Went short somewhere in the early morning of the 26th… A thousand dumb, dumb words painted right here… 😉

Trading mistake number 3. and 4.

Completely wrong entry based on (a) trying too hard (b) no real entry confirmation

This is quite an interesting one because I was kind of ‘half’ right on the first count… in fact the best entry point was actually passed when I went long on this trade. Looking back there was a bounce off 14,150 about 10.30 a.m. confirmed by a nice big up bar from support. I guess by this time I was feeling a little bit desperate about the whole situation and as I’ve mentioned before ‘lizard brain’ gets all frantic when it feels under pressure… Essentially I’m just winging it at this point…

In the second part I was slightly more sensible but failed to really consider what was going on. Where as  the previous drop (10:30 a.m.) was followed by a pretty immediate and sharp reversal the price bounced across a 50 point range for around 45 minutes before I decided (bizarrely) to go short in a market that was overall trending up! Wow! Yes, I too am amazed. Anyway, I just wasn’t patient enough to wait for a proper entry signal…

Trading mistake number 5.

Didn’t stay in the trade…

This one’s especially galling because I went short on USDCHF and it was going in my direction… However, by this time I closed the trade for a tiny profit essentially because I was pissed off with the whole proceeding. Now, if I’d have let that one run I’d have made all my losses back at least while I was asleep which is almost ironic. Take myself out of the equation and I’m a great trader. LOL…

So, some people might say that’s pretty darn shocking. Purely on a ‘results’ basis they’d be right. Right! However, failure is only really failure if you give up or don’t learn anything from the experience. Here are some of the things I learnt and the actions I’ve taken.

Learning number 1

SIMPLIFY…

If you’ve looked at previous charts on my blog you might have seen a bunch of indicators and other stuff. This is now all gone. Frankly it’s confusing and doesn’t really assist me in making decisions. In fact all this extra information means my poor brain gets confused and I actually don’t trade. Informational paralysis sets in and I think too much about thinking rather than simply looking with my eyes.

I also removed the day bar settings i.e. instead of alternating grey/white stripes for each day on shorter time-frames so the whole screen is grey, whatever time frame I’m on. Why? Well, because I found my self trying to ‘analyse’ the price movement in relation to day sized chunks. Does the market know it’s 12:31 on a Tuesday or 19:42 on a Friday evening? No. Is thinking about this getting in my way? Yes! So it’s magically gone.

Learning number 2

RELAX…

This could also be entitled ‘Hold onto your money and wait’ 🙂 Hopefully you can see from the examples above that in most cases I was too eager to trade. What do I mean by that? Well… what I’ve observed and also seen in various books is that when prices reach zone’s of previous potential support/resistance they will react in a specific way. Ultimately they will go long or short and there may be some false breakouts on the way but when a level is broken up or down it’s usually followed by a fair bit of movement and a confirmation signal (candle)

So, since these moves occur around specific levels the strategy has to be to simply relax and wait for the price to confirm a move.

The worst thing you can do is think “Well, I missed that confirmation by 90 minutes but I’m still going to enter the trade long/short.” STEP AWAY FROM THE KEYBOARD! You are now inviting the market to take money from you. A whole 90 minutes ago the consensus was ‘X’ and now it could be ‘Y’ going in the opposite direction! Who knows? Berlusconi could have been found in the ‘Blue Oyster Bar’ (see Police Academy for the reference) and is threatening to leave the EURO unless the whole thing is suppressed… A lot can happen in the intervening time but what should have happened if you had noticed the trade is you could have moved your stop up to reduce risk/potential losses 😉

The market doesn’t care about you. You must care about you and your money enough to not risk it unduly and take punts. Take properly managed risks instead. There will be another trade along soon. What I actually did today was program IG Index’s advanced charts to pop-up an alert when the price got to a previous area of support or hit a previous area of resistance. THEN you can decide, from what actually happens to the price whether there’s the opportunity to go long or short.

Wait and let the market do the heavy lifting. Here’s trade I placed today that illustrates the right way to do things…

With this new found wisdom I was able to pay attention and notice the following…

  1. The price is on an uptrend (that’s a victory right there)
  2. It’s gotten to 14,250 a couple times and dropped back
  3. It’s dropped sharply back and then reversed to carry on in the original direction

Actually what I did was put a price alert in first thing in the morning and wait. Secure in the knowledge I’ll get a pop-up when something interesting might happen and I can get on with other stuff in the meantime… I have no idea whether it’s going to carry on up or drop but what I do know is that it did drop previously but when it falls then reverses this is a great LONG opportunity. Or alternatively it’ll stay above 14,250 and keep piling onto new highs for the day.

I’m aware of this being tradable and I’m looking for a good entry point which is confirmed by the price doing something. Now, one thing I didn’t quite get right here is that I brought my stop up to entry too quickly and was stopped out on a temporary retracement shortly afterwards. However I did two things right. I followed my newly aquired strategy (SIMPLIFY) and waited for the trade to come to me (1) which is way more RELAXING and I didn’t lose money (2)

I do also have a theory I’m working on based on the following two graphs which will illustrate the point. It may as well go here so I can go for the longest blog post record attempt 😉

Graph A

Graph B

Both graphs represent 10 trades but graph B shows the effect on overall profitability of the stops being moved up to break even aggressively. In this (admittedly) textbook example the results overall of graph A is a +120 point gain. Graph B illustrates a +240 point gain. I know which one I’d rather have. Now, of course there might be occasions where a potential 60/80 or 120 point winner could have been never happened because it had been stopped out in the first few periods… this does need looking at further and tracking over a lot more trades.

Think about it this way though. If you’re trading it’s about managing risk. Placing a trade with a stop (always) and then waiting for the price to rise to a point where it might at least be sensible to consider moving that stop to break even is where all the risk is in the trade. This is the bit you’re going to lose in a trade if you’re going to lose anything.

Now, this is only in here because it’s on my mind at the moment. It’s absolutely not something I recommend people go and implement in their trading at all! I guess for this to work you’d have to combine selecting (and taking) a good entry with the trade going pretty much in your favour immediately. It might prevent lots of little losses on more marginal trades or it might well mess up the overall profitability of your approach altogether.

Overall I had a great week trading. No, I didn’t make money but I made some positive changes to my technical approach and the mental/emotional management of what I was doing improved hugely. I can look at a chart and decide how to react when the price reaches levels of previous importance. I’ve cleared up what I’m looking at so that trends/direction should be much more obvious in future and I can react accordingly.

Technical approach

Only trade from levels and with the trend (unless it’s obvious the world has ended) I will post about this some other time…

Mental/emotional approach

Relax and let the trades come to you. If you missed it then you missed it. Don’t try to force the market. You are not a Jedi

So now it’s simply a matter of practice, and buying more biscuits… Ach no! My tea has gone cold!

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3 thoughts on “This week… losing cash, gaining knowledge…

  1. Nico

    Thanks for sharing your insightful learnings Robert. It is great to have such an open and honest account of your experiences.

    As I side note (since it is on my mind) I was just doing some research today and seeing all these sites / people offering trading systems which are undoubtedly too good to be true – and if people have such amazing systems and using them why do they bother to sell them instead of just using them. I find it quite scary how many of these tricksters there are out there. Equally how some of these people manage to get publicity into publications which are seemingly legitimate.

    I will be interested to read what self-education you have done, but I think surely the best way is the way you are doing it – starting slowly and small, learning for yourself what works and most importantly documenting your learnings. This is something that I have not been doing so well.

    Anyway, good luck mate. I shall continue to follow your journey with interest.

    If I do write my biggest learnings of the top of my head that seem obvious but are easily missed (which off course are well documented, but as I read at the start you have to learn for yourself!)

    1) Understand how trend lines work
    2) Understand support and resistance
    3) Trade less, and wait for the more sure bets to come along
    4) Set stops limits, and act on them
    5) Know the market news, taking care not to overreact to seemingly positives / negative numbers since often there are underlying figures / implications which have the opposite effect that would be anticipated

    Reply
    1. robertsweetman Post author

      Thanks for best wishes and positive comments Nico & Millbrook

      On your point about trading systems I reckon there are of course people who genuinely want others to succeed. It’s also important for traders (even wildly successful ones) to be able to have multiple streams of income and hey, if they’ve managed to turn their particular approach into something that works then all the more power to them. Where using other people’s ‘systems’ falls down (at least for me) is that you have to really internalize (embrace an idea) completely and utterly before you can consistently act on it. Through their own trial and error the guy offering the system (whatever the intention) will also have subconsciously internalized possibly hundreds of subconscious cues that he/she may not even realise… Difficult to teach stuff you don’t know about. For a lot more detail on this point check out Van K Tharp’s excellent book ‘Trade your way to Financial Freedom’

      The main reason for me to record this stuff is that if I don’t then I tend to forget it, so it seemed a logical next step to share. At some point in the near(ish) future I’m likely to publish my trading ‘Business Plan’ which will include stuff to learn (next) and more bits and pieces about goals etc. but of course the real thing to do is to actually trade 😉 and use your own results to course correct. Definitely an incentive to document what is not working in order to improve. Also more on this shortly

      Thanks again for your interest

      Reply

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